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Zulily celebrates their November IPO
Zulily celebrates their November IPO

Zulily is coming off an epic week. The Seattle online retailer blew past Wall Street estimates, doubling sales in 2013 to $695 million.

Shares of Zulily surged 68 percent this week as a result, giving the five-year-old company a hefty market value of more than $6 billion. It didn’t hurt that CNBC’s Jim Cramer swooned over the stock, noting that Zulily “can beat Amazon” and calling it a “revolutionary company.”

Cramer certainly has been known for hyperbole. But one thing is certain when it comes to Zulily. It is growing at an insane pace, more than tripling its staff in the past two years.

The company, which recently moved its headquarters to the former RealNetworks space along Elliott Avenue and announced plans for a massive fulfillment center in Nevada, saw its employee count jump from 329 at the end of 2011 to 1,110 at the end of 2013. That’s a net addition of 781 people in 24 months, and puts it just behind Tableau, which grew its employee base by 62 percent last year and now employs 1,212. (It is worth noting that Tableau was founded six years before Zulily).

zulily-growth777But there’s a potential cost when this type of hyper-growth occurs, and that cost was described in detail in Zulily’s annual report released Friday afternoon.

For one, the company is competing aggressively for talent, particularly in Seattle where it is up against rival Amazon.com, Nordstrom and others. Zulily notes in the filing that it “may not be able to hire new employees quickly enough to meet our needs.”

Secondly, the workforce has swelled so quickly that mid-level management has not kept pace with the rest of the organization, something Zulily says it “will need to devote significant resources to address.”

“If we are unable to manage the growth of our organization effectively, our business, financial condition and operating results may be materially and adversely affected,” the company wrote.

In 2014, the employee growth rate is expected to continue, with the company noting in the filing that it will “add a significant number of employees.”

The company should have the resources to do so, and the surging stock certainly will help attract attention of potential worker bees. It finished 2013 with cash and cash equivalents of $290 million.

For those corporate document nerds out there, here’s how Zulily described the situation in the risk factors section of its 10-K.

To effectively manage our growth, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee and contractor base.

We have rapidly increased employee and contractor headcount since our inception to support the growth in our business, and we intend for this growth to continue for the foreseeable future.

The number of our employees increased from 329 as of January 1, 2012 to 1,110 as of December 29, 2013, and we expect to add a significant number of employees during the remainder of 2014.

To support continued growth, we must effectively integrate, develop and motivate a large number of new employees, while maintaining our corporate culture. In particular, we intend to continue to make substantial investments to expand our merchandising and technology personnel. We face significant competition for personnel, particularly in the Seattle area where our headquarters is located.

To attract top talent, we have had to offer, and believe we will need to continue to offer, competitive compensation packages before we can validate the productivity of those employees. The risks associated with a rapidly growing workforce will be particularly acute internationally. Additionally, we may not be able to hire new employees quickly enough to meet our needs.

If we fail to effectively manage our hiring needs or successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, which may have a material adverse effect on our business, financial condition and operating results.

Additionally, the growth and expansion of our business and our product offerings place significant demands on our management. In particular, our mid-level management has not kept pace with the growth in our overall headcount, which we will need to devote significant resources to address.

We produce new versions of our sites and emails to our customers on a daily basis, which generally requires new products, photos and text every day. The growth of our business may require significant additional resources to meet these daily requirements, which may not scale in a cost-effective manner or may negatively affect the quality of our sites and customer experience.

We are also required to manage multiple relationships with various vendors, customers and other third parties. Further growth of our operations, our vendor base, our fulfillment centers, information technology systems or our internal controls and procedures may not be adequate to support our operations.

If we are unable to manage the growth of our organization effectively, our business, financial condition and operating results may be materially and adversely affected.

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