As filed with the Securities and Exchange Commission on November 12, 2021.

Registration No. 333-            

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Rue Gilt Groupe, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware		5961		37-1555630
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)
		20 Channel Center Street Boston, Massachusetts 02210 (617) 695-7300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

 

 

 

Mark McWeeny

Mark Weinberg

Rue Gilt Groupe, Inc.

20 Channel Center Street

Boston, Massachusetts 02210

(617) 695-7300

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Richard B. Aldridge James W. McKenzie, Jr. Celia A. Soehner Brian V. Soares Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, Pennsylvania 19103 (215) 963-5000		Marguerite J. Hill Rue Gilt Groupe, Inc. 20 Channel Center Street Boston, Massachusetts 02210 (617) 695-7300		Dave Peinsipp Kristin VanderPas Nicole Brookshire Grady Chang Cooley LLP 3 Embarcadero Center, 20th Floor San Francisco, California 94111 (415) 693-2000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☐
				Emerging growth company		☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities Being Registered		Proposed Maximum Aggregate Offering Price(1)(2)		Amount of Registration Fee
Common stock, $0.001 par value		$100,000,000		$9,270.00

(1)

Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED                 , 2021

 

PRELIMINARY PROSPECTUS

 

 

                 Shares

 

Rue Gilt Groupe, Inc.

 

Common Stock

 

$                 per share

 

 

 

This is the initial public offering of our common stock. We are selling                  shares of our common stock. Prior to this offering there has been no public market for our shares. We currently expect the initial public offering price to be between $                 and $                 per share of common stock. We have applied to have our common stock listed on Nasdaq under the symbol “RGG.”

 

We have granted the underwriters an option to purchase up to                  additional shares of common stock.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, and as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and may elect to comply with reduced public company reporting requirements in future filings.

 

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 14.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

		Per Share				Total
Public Offering Price		$				$
Underwriting Discounts and Commissions(1)		$				$
Proceeds to Rue Gilt Groupe, Inc. (before expenses)		$				$

 

(1)

See “Underwriting” for a description of the compensation payable to the underwriters.

 

The underwriters expect to deliver the shares of common stock to purchasers on or about                     , 2021 through the book-entry facilities of The Depository Trust Company.

 

 

 

Citigroup		BofA Securities

 

Wells Fargo Securities		Cowen		Piper Sandler		William Blair

 

 

 

                    , 2021.

 

RULE GILT GROUPE

 

MISSION To be the most engaging online, off-price style destinations, connecting world-class brands to the next-generation shopper. O U R S H A R E D VISION To spark delight through daily discovery we make shopping an occasion to celebrate.

 

I love the convenience of RueLaLa curating "the best items of the brands I want" JENNIFER What word expresses more perfect than "perfect? Gilt is my go-to site. I even have a Gilt icon on my desktop to open directly as soon as I boot up." ROSALIA A wonderful cross-section of "goods along with uniformly high standards of quality and value keeps me coming back. It's my little secret source that I share with like-minded friends." BRYCE A girl can fill her closet with all sorts "of beautiful things at these prices - and then get to work on everybody else in the household." KELLY Unparalleled excellence! ...exploring "this website and finding styles I could never find in regular stores - I have never before had such a thrilling & satisfying shopping experience! Not only do I have endless choices, I can find astonishing bargains" PATRICIA RueLaLa is my go-to online shop. I find something "new every day. No hassle returns and the new deals... always have me excited to see what's next!" LAURIE

 

We don't produce a SALE We produce a SHOW

OFF-PRICE eCOMMERCE MARKET LEADER COMPLEMENTARY DESTINATIONS Rue lala® Gilt Shop premium Outlets® Simon® LEADING OFF-PRICE eCOMMERCE COMPANY FOR PREMIUM AND LUXURY >$5bn Cumulative GMV Since Inception $702mm LTM Q321 Net Revenue >1mm Active Buyers as of Q321 >70% Mobile Sales as of Q321 HIGHLY VALUABLE, ENGAGED AND LOYAL GROWING MEMBER COMMUNITY 83% Avg. Net Revenue Retention Rate(1) 4:1 LTV:CAC(2) 28% LTM Q321 Net Revenue YoY Growth 23% LTM Q321 YoY Active Buyer Growth Source: Company information. Note: LTM Q321 Net Revenue includes Shop Premium Outlets. (1) Average net revenue retention rate of prior customer cohorts since 2014. (2) Based on customer cohorts from 2016 through 2020.

TABLE OF CONTENTS

 

		Page
Prospectus Summary			1
Summary Consolidated Financial and Other Data			11
Risk Factors			14
Cautionary Note Regarding Forward-Looking Statements			55
Market, Industry Data and User Metrics			57
Use of Proceeds			58
Dividend Policy			59
Capitalization			60
Dilution			62
Management’s Discussion and Analysis of Financial Condition and Results of Operations			65
Business			95
Management			109
Executive Compensation			116
Certain Relationships and Related Person Transactions			132
Principal Stockholders			136
Description of Capital Stock			138
Shares Eligible for Future Sale			144
Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of Our Common Stock			147
Underwriting			151
Legal Matters			158
Experts			158
Where You Can Find More Information			158
Index to Consolidated Financial Statements			F-1

 

 

 

Through and including                     , 2021 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you. Neither we nor any of the underwriters take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares our common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations, and prospects may have changed since that date.

 

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.

 

i

Trademarks, Service Marks and Trade Names

 

We use various trademarks, trade names and design marks in our business, including RueLaLa, Gilt and Shop Premium Outlets. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this prospectus are without the ^® and ^™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

 

This prospectus also contains trademarks and trade names of other businesses that are the property of their respective holders. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

Industry and Market Data

 

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

 

ii

Key Terms and Performance Indicators Used in This Prospectus

 

Throughout this prospectus, we use a number of key terms and provide a number of key performance indicators used by management. These key performance indicators are discussed in more detail in the sections titled “Summary Consolidated Financial and Other Data—Key Operating Metrics, GAAP Financial Measures and Non-GAAP Financial Measures” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics, GAAP Financial Measures and Non-GAAP Financial Measures.” We define these terms as follows:

 

•

“Active Buyer” means the number of unique members who have purchased at least one item on our platform in the trailing 12 months preceding the measurement date, without accounting for returns.

 

•

“Adjusted EBITDA” means net loss adjusted to exclude interest expense, income tax expense, depreciation and amortization, stock-based compensation expense, impairment of intangible assets, IPO- related costs, loss on disposal of property and equipment, acquisition and integration related costs, and severance and other costs.

 

•

“Average Order Value” means the gross merchandise value divided by the total orders during the same period.

 

•

“CAC” or “customer acquisition cost” comprises all of our acquisition marketing expenses that we attribute to acquiring new customers in a given period.

 

•

“CAGR” means compound annual growth rate.

 

•

“customer cohort” means all of our customers who placed their first order during a given fiscal year, without accounting for returns. For example, the 2019 customer cohort means our customers who made their initial purchase during our fiscal year ended December 28, 2019.

 

•

“full-price retail” means U.S. MSRP or manufacturers’ suggested retail prices.

 

•

“GMV” means gross merchandise value, which represents the total amount paid for merchandise in a given period net of cancellations, prior to returns and excluding shipping and sales taxes.

 

•

“LTV” or “customer lifetime value” means the cumulative contribution profit attributable to a particular customer cohort. We define “contribution profit” as gross profit, less selling and distribution expenses and the portion of marketing expenses attributable to the retention of prior customer cohorts.

 

•

“LTV:CAC” of our customer cohorts means the ratio of customer lifetime value (“LTV”) to customer acquisition cost (“CAC”) that we use to measure the efficacy of our marketing spend in Rue+Gilt to acquire customers within customer cohorts.

 

•

“member” means a person identified by a unique email address that has signed up under our free membership model. RueLaLa and Gilt require their members to log in to access, discover, view and purchase goods.

 

•

“net revenue per customer cohort” means net revenue attributable to a customer cohort divided by the number of Active Buyers from that cohort in the measurement period.

 

•

“Net Revenue LTM per Active Buyer” means the total net revenue for Rue+Gilt in the trailing 12 months preceding the measurement date divided by the total number of Active Buyers for Rue+Gilt in the same trailing 12 months.

 

•

“net revenue retention rate” means net revenue attributable to all prior year customer cohorts in a given fiscal year divided by the total net revenue attributable to the same customer cohorts from the prior fiscal year.

 

•

“Rue+Gilt” means the segment of our business consisting of RueLaLa and Gilt. The Company has determined it operates in two distinct operating and reportable segments, Rue+Gilt and Shop Premium Outlets.

 

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RISK FACTORS

 

Investing in our common stock involves a high degree of risk. Before deciding whether to purchase shares of our common stock, you should consider carefully the risks and uncertainties described below, our consolidated financial statements and related notes, and all of the other information in this prospectus. If any of the following risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations and prospects. As a result, the price of our common stock could decline and you could lose part or all of your investment.

 

Risks Related to Our Business and Industry

 

We operate in a highly competitive eCommerce industry and our failure to compete effectively could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

The eCommerce industry, and the off-price premium and luxury goods sector in particular, is highly competitive. We compete with department stores, specialty retailers, independent retail stores, online and physical off-price retailers and other eCommerce companies that market products similar to those that we offer. Our ability to compete depends on many factors within and beyond our control, including:

 

•

attracting new customers in a cost-effective manner and engaging with existing customers;

 

•

further developing our data analytics and data science models;

 

•

maintaining favorable recognition of RueLaLa, Gilt and Shop Premium Outlets, as well as effectively marketing our services to customers;

 

•

expanding and maintaining brands and products that appeal to customers and fit within our off-price strategy;

 

•

maintaining and growing our market share; and

 

•

anticipating and quickly responding to changing trends and customer shopping preferences.

 

Many of our current competitors have, and potential competitors may have, larger fulfillment infrastructures, greater technical capabilities, faster shipping times, lower-cost shipping, larger databases, larger customer bases and greater financial, marketing, institutional and other resources than us, all of which may allow such competitors to derive greater revenue than us or to be profitable. Our competitors also may engage in more extensive research and development and marketing efforts, enter or expand their presence in the personalized retail market, and adopt more aggressive pricing policies, which may allow them to operate more efficiently or more profitably. We also expect competition to increase as other established and emerging companies enter the markets in which we compete, as customer requirements evolve and as new products and technologies are introduced.

 

Competition, along with other factors such as consolidation within the retail and eCommerce industry and changes in consumer spending patterns, could also result in significant pricing pressure. These factors may cause us to reduce prices to our customers, which could cause our gross margins to decline if we are unable to appropriately manage inventory levels and/or otherwise offset price reductions with comparable reductions in our operating costs. Such increased competition or industry consolidation, or our inability to execute on the factors described above, could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Our business significantly depends upon the strength of the recognition of the RueLaLa and Gilt brands, and if we are unable to maintain and enhance these brands, our ability to expand our customer base may be impaired and our business, financial condition, results of operations and prospects may be harmed.

 

We believe that the brand identities, particularly RueLaLa and Gilt, and recognition that we have developed contribute significantly to the success of our business, and we spend a considerable amount of resources on

 

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promoting our brand and reputation. We also believe that maintaining and enhancing the reputation and recognition of the RueLaLa and Gilt brands is critical to our ability to expand our customer base and exploit existing and future business opportunities. Maintaining and enhancing our brand identities may require us to make substantial investments and will depend in large part on the success of our marketing and branding efforts and our ability to provide a consistent and high-quality customer experience. We spend a considerable amount of resources promoting our brand and reputation using methods such as targeted online marketing and off-line marketing activities, including TV advertising. Our brand promotion activities may not be successful or cost effective, and any increased revenue resulting from such activities may not offset the expenses we incur. Our RueLaLa and Gilt brands may suffer if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity about us, including our products, technology, customer service, personnel, marketing efforts or brand partners. Even isolated incidents involving the Company, brand partners, agents or third-party service providers, or the products we market and sell, could erode the trust and confidence of our customers and damage the strength of our brand, especially if such incidents result in adverse publicity, governmental investigations, product recalls or litigation. We also anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brand identities may become even more difficult and expensive.

 

We have had operating losses each year since our inception, and we may not achieve or maintain profitability in the future.

 

We have incurred operating losses each year since our inception, including a net loss of $(15.9) million and $(16.3) million in 2019 and 2020, respectively, and $(8.8) million for the trailing 12 months ended October 2, 2021, and we may not achieve or maintain profitability in the future. Furthermore, we expect our cost of revenue and operating expenses to continue to increase in the future as we increase our sales and marketing efforts, hire additional personnel, expand our operating infrastructure and expand into new geographies. As a public company, we will incur additional legal, accounting and other expenses that we did not incur as a private company. These efforts and additional expenses may be costlier than we expect and we cannot guarantee that we will be able to increase our revenue to offset our operating expenses. Our revenue growth may slow, or our revenue may decline for a number of other possible reasons, including reduced demand from customers, increased competition, a decrease in the growth or reduction in size of our overall market, or if we fail for any reason to capitalize on our growth opportunities. Our failure to achieve or maintain profitability in the future could materially adversely affect our business, financial condition and results of operations.

 

Our costs are continuing to grow, and some of our investments may reduce our operating margin or impede our path to profitability. If we fail to manage our growth and these investments effectively and efficiently, our business, financial condition, results of operations and prospects could be harmed.

 

Our total costs have increased each year since inception. We anticipate that our expenses will continue to increase in the future as we broaden our customer base, develop and implement new strategies and product offerings, increase our marketing, continue to expand our technical platforms and hire additional associates and contractors to support our expanding operations and operate as a public company.

 

As we have grown, we have increased our associate headcount, and we expect headcount growth to continue for the foreseeable future. For example, since 2018, we have increased our full-time associate headcount by over 50%, from approximately 608 associates as of May 2018 to 915 associates as of October 2, 2021. To support our continued growth, we must effectively integrate, develop and motivate a large number of new associates while maintaining our corporate culture. We face significant competition for personnel. To attract top talent, we have had to offer, and expect that we will need to continue to offer, competitive compensation and benefits packages before we can validate the productivity of new associates. We have had to and may continue to need to increase our associate compensation levels to remain competitive in attracting and retaining talented associates. The risks associated with a rapidly growing workforce will be particularly acute as more competitors enter eCommerce and seek similar technology talent. Additionally, we may not be able to hire new associates quickly enough to meet our needs.

 

15

Further growth of our operations, vendor base, fulfillment center, information technology systems or internal controls and procedures may require significant investments and may not be adequate to support our operations. If these efforts are unsuccessful, our ability to grow revenue will be harmed, which could materially adversely affect our business, financial condition, results of operations and prospects.

 

Our historic growth rates may not be sustainable or indicative of our future growth.

 

We have experienced significant recent growth, with our net revenue increasing by nearly 30% from $445.5 million in 2018 to $571.9 million in 2020. Our historical rate of growth may not be sustainable or indicative of our future rate of growth, and in future periods, our net revenue could grow more slowly than we expect or decline. Furthermore, we may not be successful in executing our growth strategy, and even if we achieve our strategic plan, we may not be able to achieve or maintain profitability. We believe that continued growth in net revenue, as well as our ability to improve or maintain margins and to achieve or maintain profitability, will depend upon, among other factors, our ability to:

 

•

acquire new customers and retain existing customers on a cost-effective basis;

 

•

increase the frequency with which new and existing customers purchase products on our sites through merchandising, data analytics and data science models and technology;

 

•

identify new and emerging trends in customer preferences;

 

•

offer additional premium and luxury brands;

 

•

add new brand partners and deepen our relationships with our existing brand partners;

 

•

invest in our infrastructure platform; and

 

•

target additional categories of product.

 

Further, our net revenue increased by approximately 28.3% for the trailing 12 months ended October 2, 2021 as compared to the trailing 12 months ended September 26, 2020, which we believe was due, in part, to consumer spending patterns and preferences that were influenced by the impacts of the COVID-19 pandemic and government actions in response thereto, including the temporary closures or other operational restrictions experienced by brick-and-mortar or “offline” retailers during part of 2020. In light of the unprecedented nature of the COVID-19 pandemic, we cannot predict what the ultimate impact of the pandemic and government actions taken in response thereto will be on consumer behavior and the durability of the growth we have seen for the trailing 12 months ended October 2, 2021. We may be unable to replicate similar future revenue growth due to, among other things, the continued reopening of the offline economy, lessened governmental and other restrictions on movement and travel, and consumers’ increased willingness to shop offline. For a further description and definition of the COVID-19 pandemic on our business and results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19 Pandemic.”

 

Even if our net revenue continues to increase, we expect that our growth rate may slow for a number of other reasons, including if there is a slowdown in the growth of demand for our products, a decrease in the growth or reduction in the size of our overall market or if we cannot capitalize on growth opportunities. Failure to continue to grow our net revenue or improve or maintain margins would adversely affect our business, financial condition, results of operations and prospects.

 

If personal or other sensitive information is disclosed in an unauthorized manner, or if we or our third-party vendors are subject to real or perceived cyberattacks, data breaches, or other security incidents or compromises, or disruption of information technology systems or software, our customers may curtail use of our platform, we may be exposed to liability, our reputation may suffer, and our operations may be materially harmed and disrupted.

 

We, and third parties acting on our behalf, receive, collect, access, generate, store, disclose, share, make accessible, protect, secure, transmit, transfer, dispose of, use, store and otherwise process (collectively, “Process”

 

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or “Processing”) personal, confidential and proprietary information, including financial information, names and email addresses, credit card information, information required for identity verification purposes, and other data, from or regarding our customers, prospective customers, employees and contractors, job applicants, brand partners, vendors and other third parties. Our business relies on information technology networks and systems to market and sell our products, Process electronic and financial information as well as personal information, manage a variety of business processes and activities and comply with regulatory, legal and tax requirements. We also depend on a variety of information systems to effectively Process customer orders and other data and rely on our information technology infrastructure for digital marketing activities and for electronic communications among our personnel, customers, prospective customers, manufacturers and brand partners around the world. We may rely on information technology networks and systems and data processing systems and applications managed by third-party vendors to Process information and provide these services as well.

 

The information technology networks and systems owned, operated, controlled or used by us or our vendors to Process information, including personal and other sensitive information, and to perform other business operations, may be vulnerable to damage, disruptions or shutdowns, software or hardware vulnerabilities, data breaches, security incidents, supply-side attacks, failures during the process of upgrading or replacing software, databases or components, power outages, natural disasters, hardware failures, attacks by computer hackers, telecommunication failures, user errors, user malfeasance, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, denial-of-service attacks and other real or perceived cyberattacks or catastrophic events. Any of these incidents could lead to interruptions or shutdowns of our platform, disruptions in our ability to process customer orders or to track, record or analyze the sale of our products, loss or corruption of data or unauthorized access to or disclosure of personal information or other sensitive information. Cyberattacks could also result in the theft of, or unauthorized access to or use or disclosure of, our intellectual property. We utilize security tools and controls and also rely on our third-party vendors to use sufficient security measures, including encryption and authentication technology, in an effort to protect personal and other sensitive information. However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability, or the failure or inability of our vendors, to adequately protect personal or other sensitive or confidential information and there can be no assurance that we or our vendors will not suffer a data compromise, that hackers or other unauthorized parties will not gain access to personal information or other data (including payment card data or confidential business information), or that any such data compromise or unauthorized access will be discovered in a timely fashion.

 

Security incidents such as ransomware attacks, including those involving organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe, as well as increasingly difficult to detect. We, and our third-party vendors, have been subject to cyber, phishing and social engineering attacks and other security incidents in the past and may continue to be subject to such attacks in the future. If we gain greater visibility, we may face an even higher risk of being targeted by cyberattacks. Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks becoming more sophisticated and more difficult to detect. Techniques used to obtain unauthorized access to or to sabotage systems change frequently and generally are not known until launched against us or our third-party vendors. We and our third-party vendors may not have the resources or technical sophistication to anticipate or prevent all such cyberattacks or our security measures, or those of our third-party vendors, could fail or may be insufficient, resulting in security breaches, ransomware attacks, significant interruptions, delays, or outages in our operations, and/or the unauthorized disclosure, modification, misuse, unavailability, destruction or loss of personal or other sensitive information. Security breaches can also occur as a result of non-technical issues, including intentional or inadvertent actions by our employees, our third-party vendors or their personnel or other parties. If we or our third-party vendors experience, or are believed to have experienced, a security breach or other security incident or compromise (or if there is a perception that we or a third-party vendor has experienced such an event), it may result in: government enforcement actions that could include investigations, fines, penalties, audits and inspections; class actions or other private litigation that could include penalties and injunctions, including in the form of a large settlement; increased regulatory scrutiny; additional reporting

 

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requirements and/or oversight; loss of income; significant extra expenses to restore data or systems or to otherwise remediate or mitigate the issue (including costs for credit monitoring, notification and other related costs); diversions of management’s time and attention; temporary or permanent bans on all or some Processing of personal information; or orders to destroy, not use or to limit the Processing of personal information. Further, individuals or other relevant stakeholders could sue us for our actual or perceived failure to comply with our security obligations, including, without limitation, in class action litigation, which could result in significant damages, attorneys’ fees and other defense costs, and settlement costs. Security incidents could also result in contractual breaches, indemnity obligations, negative publicity, damage to our reputation, and financial loss. Security incidents and vulnerabilities may cause some of our customers and users to stop using our services and our failure, or perceived failure, to meet expectations or legal obligations with regard to the security, integrity, availability and confidentiality of our systems and the Processing of data could damage our reputation and affect our ability to retain customers, attract new customers and grow our business. Applicable data protection laws, privacy policies and data protection obligations (including contractual obligations) may require us to notify relevant stakeholders of a security incident, including affected individuals, customers, regulators and credit reporting agencies, and may also require us to provide other remedies, such as credit monitoring. Such notifications and other remedies are costly, and the notifications or the failure to comply with such requirements, could lead to material adverse impacts, including without limitation, negative publicity, a loss of customer confidence in our services or security measures or breach of contract claims. Additionally, it may be difficult or time-consuming to alleviate the financial, operational and reputational impact of a security incident. For example, to mitigate the impact of a ransomware attack, it may be preferable to make extortion payments, but we may be unwilling or unable to do so (including, for example, if applicable laws prohibit such payments). Furthermore, actual or perceived security breaches or attacks on our systems or those of our third-party vendors may cause us to incur increasing operational costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. We have significantly increased the number of employees and contractors working remotely due to the COVID-19 pandemic, and as our vendors and other business partners have implemented or move to remote work as well, we and our vendors and partners may be more vulnerable to cyberattacks and other security incidents.

 

Moreover, our employees, contractors, vendors, and other third parties with whom we do business may attempt to circumvent security measures in order to misappropriate personal information, confidential information, or other data, or may inadvertently release or compromise such data or the integrity or confidentiality of information technology networks and systems owned, operated, controlled or used by us or our vendors. This risk has grown in light of the greater adoption of remote work as a response to the COVID-19 pandemic. No series of measures can fully safeguard against a sufficiently determined and skilled insider threat.

 

There can be no assurance that the limitations of liability or other risk-mitigation provisions in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages if we fail to comply with applicable data protection laws, privacy policies or data protection obligations (including contractual obligations) related to information security or security incidents. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from, or to adequately mitigate, liabilities or damages with respect to claims, costs, expenses, litigation, fines, penalties, business loss, data loss, regulatory actions or material adverse impacts arising out of our privacy and security practices, Processing of data or security incidents we may experience, or that such coverage will continue to be available on commercially reasonable terms or at all. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, is not covered or is excluded from coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements) could have an adverse and material effect on our business. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.

 

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Failure to execute our opportunistic buying strategy and successfully manage our inventory could adversely affect our business, financial condition, results of operations and prospects.

 

Failure to execute key elements of our off-price business strategy, including opportunistic buying and operating with lean inventory levels, subjects us to risk. If we do not obtain the right products at the right times, in the right quantities, at the right prices, and in the right mix, our revenue, margins and other financial results could be adversely affected. Furthermore, if our products are not generally purchased at prices sufficiently below prices paid by conventional retailers, we may not be able to maintain an adequate overall pricing differential to full-price retailers, including department, specialty and major online retailers. In addition, to respond to customer demand and effectively manage pricing and markdowns, we must appropriately deliver products, maintain an appropriate mix and level of inventory and be flexible in our allocation of floor space at our fulfillment center among product categories.

 

Our business requires us to manage a large volume of inventory effectively. If our revenue forecasts do not match customer demand, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, or we may have insufficient inventory to meet customer demand, either of which could adversely affect our financial performance. Further, demand may be affected by factors such as shifts in seasonality, rapid changes in product cycles and pricing, product defects, promotions, changes in customer spending patterns, changes in customer tastes with respect to the products we offer and other factors. Shifts in inventory levels may result in fluctuations in the levels of markdowns, product mix, as well as gross margins. Moreover, our customers may not purchase products in the quantities that we expect. We generally do not have the right to return unsold products to our brand partners. If we fail to manage our inventory effectively or negotiate favorable credit terms with third-party vendors, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory values and significant inventory write-downs or write-offs. In addition, if we are required to lower retail prices in order to reduce inventory level or to pay higher prices to our brand partners, our profit margins might be negatively affected. Any of the above may materially and adversely affect our business, financial condition, results of operations and prospects.

 

Our business depends on our ability to maintain a strong assortment of luxury and premium brands. Our failure to maintain strong relationships with our brand partners could limit our ability to provide differentiated luxury and premium products and harm our business, financial condition, results of operations and prospects.

 

Together, RueLaLa and Gilt offer over 5,000 premium and luxury brands to customers through our destinations. While we source the majority of our products directly from brands or their licensees, we also source a significant amount of products through indirect channels. Our ability to offer premium and luxury brands and maintain and enhance our relationships with our existing brand partners is critical to expanding our base of customers. Our failure to maintain strong relationships with our brand partners could limit our ability to provide differentiated premium and luxury products and harm our business and prospects.

 

Nearly all of the premium and luxury brands that we offer on our sites are sold by competing retailers, and such retailers and certain brand partners have their own proprietary retail stores and/or sites that compete with us. Accordingly, there can be no assurance that any of our brand partners will continue to sell to us, or to meet our quality, style and volume requirements. Our failure to offer our brand partners the ability to present their products in a manner that preserves brand integrity could have an adverse impact on our relationships with such brand partners. Limited availability or loss of brands, or changes to our relationships with existing brand partners, could result in changes to our future revenue composition, inventory levels and margins, with a possible negative effect on our future revenue growth rate. For example, we work with a buying agent that sourced products comprising approximately 9% of GMV in 2020. If our relationship with this buying agent was terminated, we would face disruption with respect to our ability to source the products that are currently provided through this buying agent, and we also could face price increases, which could ultimately adversely impact our business, financial condition, results of operations and prospects. Losing brand partners or being restricted by them may cause us to lose

 

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customers and hinder our ability to acquire new customers, which may in turn adversely impact our business and results of operations. Any terminations, reductions or limitations by our direct or indirect merchandise vendors who supply our luxury and premium products may limit the quality and diversity of our products, which could adversely affect our business, financial condition, results of operations and prospects.

 

Our failure to evolve and maintain a relevant, enjoyable and reliable experience for our customers and to meet our customers’ changing shopping preferences could adversely affect our customer relationships.

 

We seek to provide a relevant, enjoyable and reliable experience for our customers and to meet our customers’ evolving shopping preferences. To do so, we must continuously offer differentiated products and brands and anticipate evolving fashion trends. We must also provide our customers with superior service throughout their shopping experience and keep up-to-date with current technology trends, including the proliferation of mobile usage, evolving creative user interfaces and other eCommerce marketing trends related to customer acquisition and engagement, among others, which may increase our costs or fail to yield higher net revenue or more customers. We must also keep up with evolving shopping preferences, including convenient and low-cost or free shipping options. Although we continually analyze trends in the way our customers shop, in an effort to maximize incremental revenue, we may not gather accurate and relevant data or effectively utilize that data to accurately predict our customers’ shopping preferences, which may impact our strategic planning and decision making. If we are not successful at developing and providing a convenient, consistent and enjoyable shopping experience for our customers or providing our customers the products they want, when and where they want them, our business, financial condition, results of operation and prospects could be adversely affected.

 

If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to increase net revenue or achieve profitability.

 

Our success depends on our ability to acquire customers in a cost-effective manner. To expand our customer base, we must attract customers who may have historically shopped for premium and luxury products through other means, such as through shopping at traditional brick-and-mortar retailers or purchasing directly from luxury and premium brands. We have made significant investments related to customer acquisition and expect to continue to spend significant amounts to acquire additional customers. For example, we engage in social media marketing campaigns, which primarily consist of paid advertisements through Facebook. Such campaigns are expensive and may not result in the cost-effective acquisition of customers. The net profit from new customers we acquire ultimately may not exceed the cost of acquiring those customers. If we fail to meet customer expectations, or if customers do not perceive the products we offer to be of high value and quality, we may not be able to acquire new customers. If we are unable to acquire customers in a cost-effective manner or acquire new customers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive beneficial network effects with our vendors, our net revenue may decrease, and our business, financial condition and operating results may be materially adversely affected.

 

We obtain a significant amount of traffic to our sites via social networking websites or other channels used by prospective customers. As eCommerce and social networking continue to rapidly evolve, we must continue to establish relationships with these channels and may be unable to develop, scale or maintain these relationships on acceptable terms, if at all. We also use paid and non-paid advertising. We acquire and retain customers through personalized email marketing, retargeting, paid search/product listing ads, affiliate marketing, paid social, and mobile “push” communications through our mobile apps. Digital channels and search engine companies change their algorithms periodically, and our rankings in organic searches and visibility in social media feeds could be adversely affected by those changes. Such channels and companies may also change their terms or guidelines or determine that we are not in compliance with their guidelines and penalize us, including in their algorithms. Further, our media or advertising partners could decide to make changes to their ad platforms, which could make our strategies less effective. Even with an increase in marketing spend to offset any loss in traffic as a result of such changes, the recovery period in organic traffic may span multiple quarters or years. If digital platforms change or penalize us with their algorithms, terms of service, display or featuring of search results, or if

 

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competition increases for advertisements, we may be unable to cost-effectively attract customers. Our relationships with digital platforms are not covered by long-term contractual agreements and do not require any specific performance commitments. In addition, many of the platforms and agencies with whom we have advertising arrangements provide advertising services to other companies, including retailers with whom we compete. As competition for online advertising has increased, the cost for some of these services has also increased. Certain high performing channels may in the future become less popular, we may become less successful in our efforts to market using certain channels, or we may be unable to adapt to changes in channel popularity, all of which would impact our ability to market and sell to customers. With respect to our email marketing efforts, if we are unable to successfully deliver emails to our customers or if customers do not engage with our emails, whether out of choice, because those emails are marked as low priority or spam or for other reasons, our business could be adversely affected. If we are unable to cost-effectively drive traffic to our sites, our ability to acquire new customers and our financial condition would suffer.

 

If we are unable to anticipate and respond to changing customer preferences and shifts in fashion and industry trends in a timely manner, our business, financial condition, results of operations and prospects could be harmed.

 

The off-price premium and luxury sector is driven in part by fashion and beauty trends, which may shift quickly. As our success depends on our ability to meet customer demand and expectations, we work to identify consumer trends and preferences on an ongoing basis and offer inventory and shopping experiences that meet such trends and preferences. However, we may not do so effectively and/or on a timely basis across our diverse product categories.

 

Our success largely depends on our ability to consistently gauge tastes and trends and provide a balanced assortment of products that satisfies customer demands in a timely manner. Our failure to anticipate, identify or react in a timely manner to changes in customer preferences, trends or economic conditions could lead to, among other things, missed opportunities, excess inventory or inventory shortages, markdowns and write-offs, all of which could negatively impact our ability to achieve or maintain profitability and have a material adverse effect on our business, financial condition, results of operations and prospects. Failure to respond to changing customer preferences and fashion trends, particularly unanticipated changes such as those that resulted from the COVID-19 pandemic, could also negatively impact our brand image with our customers and result in diminished brand loyalty. Furthermore, there can be no assurance that customers will continue to purchase products from us in the future.

 

The customer experience that we provide is highly dependent on third parties and external factors over which we have little or no control.

 

Our ability to provide a high-quality customer experience is highly dependent on external factors over which we may have little or no control. These factors include the reliability and performance of our brand partners, logistics providers, third-party carriers and other service providers, our ability to maintain a strong assortment of luxury and premium brands and the reputation and desirability of the products provided by our brand partners. If these third parties do not meet our expectations or those of our customers, or if they increase their prices, our business may suffer irreparable damage, or our costs may increase. In addition, maintaining and enhancing relationships with brand partners and service providers may require us to make substantial investments, which may not be successful. There can be no assurance that we will be able to maintain our relationships with brand partners or service providers on terms that are favorable to us, or at all.

 

If we are unable to maintain these relationships, or find suitable replacements or alternatives for such brand partners or service providers, or if our arrangements with such brand partners or service providers are modified so that the economic terms become less favorable to us, then our business could be materially adversely affected.

 

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Customer growth and activity on mobile devices depends upon effective use of mobile operating systems, networks and standards that we do not control.

 

Purchases using mobile devices by consumers generally, and by our customers specifically, have increased significantly, and we expect this trend to continue. 70% of our GMV is generated through mobile transactions. We depend on our customers downloading our specific mobile applications, or apps, for their particular device or accessing our sites from an Internet browser on their mobile device. As new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in developing applications for these alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications. In addition, our future growth and our results of operations could suffer if we experience difficulties in the future in integrating our mobile apps into mobile devices, if problems arise with our relationships with providers of mobile operating systems or app stores, such as from Apple or Google, or if we face increased costs to distribute or have customers use our mobile apps.

 

The screen size, functionality, and memory associated with mobile phones, smartphones, laptops and tablets may make the use of our sites and purchasing our products more difficult. The versions of our sites that appear on these devices and our mobile app may not be compelling to our customers, and we cannot be certain that our mobile applications or our mobile-optimized sites will be successful in the future. As existing mobile devices and platforms evolve and new mobile devices and platforms are released, we may be unable to predict the problems associated with adjusting and developing applications for changed and alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications. If we are unable to attract customers to our sites through these devices or are slow to develop a version of our sites or mobile apps that are more compatible with alternative devices or a mobile application, we may fail to capture a significant share of consumers. In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our sites, our customer growth could be harmed and our business, financial condition and operating results may be materially adversely affected.

 

We are dependent on the interoperability of our sites with popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the functionality of our sites or apps, limit or discontinue our access to a particular platform, or give preferential treatment to competitive products or services, could adversely affect the usage of our sites on mobile devices. We are also subject to the policies and terms of service of the providers of such operating systems and mobile application download stores such as the Apple App Store and the Google Play Store, which govern the promotion, distribution, content, and operation of our mobile applications. Each provider has broad discretion to change and interpret its terms of service and other policies with respect to us and other developers, and those changes may be unfavorable to us. Additionally, mobile application download stores have imposed, and are likely to continue imposing, certain privacy- and security-related restrictions and controls on the providers and applications within their marketplaces. For example, Apple released a software update in 2021 that, by default, blocks advertisers from tracking certain mobile device activity unless affirmative consent is obtained.

 

Furthermore, in the past, some of these platforms have been unavailable for periods of time and they may become unavailable in the future. Unavailability, changes, bugs, or technical system issues could degrade the user experience for our customers. There may also be changes to mobile hardware or software technology that make it more difficult for our customers to access and use our platform on their mobile devices, which could adversely affect our customer growth and engagement. If any of these events recurs on a prolonged, or even short-term, basis, or other similar issues arise that impact customers’ ability to access or use our apps or, our business, financial condition, results of operations, prospects or reputation may be harmed.

 

In the event that it is more difficult for our customers to access and use our sites on their mobile devices, or if our customers choose not to access or to use our sites on their mobile devices or to use mobile products that do not offer access to our sites, our customer growth could be harmed and our business, financial condition, results of operations and prospects may be materially and adversely affected.

 

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We rely on the providers of mobile operating systems and mobile application download stores to offer and promote our apps. If we are unable to maintain a good relationship with such providers, our business will suffer.

 

We are subject to the policies and terms of service of third-party platforms and mobile application download stores such as the Apple App Store and the Google Play Store, which govern the promotion, distribution, content, and operation of our mobile application. Each platform provider has broad discretion to change and interpret its terms of service and other policies with respect to us and other developers, and those changes may be unfavorable to us. A platform provider may also add fees associated with access to and use of its platform, alter if and how we are able to advertise on the platform, prevent our application from being offered on their platform, change how the personal information of users are made available to application developers or operators on the platform, or limit the use of personal information for advertising or other purposes. If we violate, or a platform provider believes we have violated, a platform provider’s terms of service (or if there is any change or deterioration in our relationship with these platform providers), that platform provider could limit or discontinue our access to the platform. If a platform provider establishes more favorable relationships with one or more of our competitors, or such platform provider determines that we are a competitor, our access to a platform may be limited or discontinued entirely. Any limit or discontinuation of our access to any platform could adversely affect our business, financial condition, results of operations and prospects. Furthermore, in the past, some of these platforms have been unavailable for periods of time and they may become unavailable in the future. Unavailability, changes, bugs, or technical system issues could degrade the user experience for our users. There may also be changes to mobile hardware or software technology that make it more difficult for our users to access and use our platform on their mobile devices, which could adversely affect our user growth and user engagement. If any of these events recurs on a prolonged, or even short-term, basis, or other similar issues arise that impact users’ ability to access or use our apps or, our business, financial condition, results of operations, prospects or reputation may be harmed.

 

Our business has been and may continue to be materially and adversely affected by the impact of the ongoing COVID-19 pandemic.

 

The impacts from the ongoing COVID-19 pandemic, including stay at home orders and advisories, travel restrictions, restrictions on public gatherings and limitations on business operations, have had and may continue to have an adverse impact on our business operations, financial position and liquidity. For example, our gross margins decreased during 2020 as compared to 2019 due to the shift in products category mix and increased discounts that we implemented beginning in the second quarter of 2020. Our ability to allocate, deliver and maintain an appropriate mix and level of inventory and meet customer demands also was impacted during 2020 by strategic decisions we made to cancel certain orders from brand partners and temporary shipping delays, which affected decisions on markdowns. Additionally, an overall increase in shipping demands, as consumers gravitated toward eCommerce while brick-and-mortar stores remained closed or due to social distancing measures, resulted in higher shipping costs due to capacity constraint and competitive wage pressure among third-party logistics service providers during 2020. The COVID-19 pandemic has impacted and may continue to impact the financial viability or business operations of some of our vendors and transportation or logistics providers, and may in the future interrupt and further increase costs for, our supply chain and could require additional changes to our operations.

 

The extent of the impact of the COVID-19 pandemic on our business will depend on future developments, which remain highly uncertain and difficult to predict, including the duration, severity and sustained geographic spread of the pandemic, additional waves of increased infections, the virulence and spread of different strains of the virus, and the extent to which associated prevention, containment, remediation and treatment efforts, including global vaccination programs and vaccine acceptance, are successful.

 

The OSHA vaccine mandate for employers with more than 100 employees could have a material adverse impact on our business, financial conditions, results of operations and prospects.

 

On September 9, 2021, President Biden announced plans for the federal Occupational Safety and Health Administration (“OSHA”) to issue an Emergency Temporary Standard (“ETS”) mandating that all employers

 

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with more than 100 employees ensure their workers are either fully vaccinated against COVID-19 or produce, on a weekly basis, a negative COVID-19 test (the “vaccine mandate”). On November 4, 2021, OSHA issued the ETS, which will require covered employers to comply with the vaccine mandate beginning on January 4, 2022 or face substantial penalties for non-compliance. In addition to vaccine mandate, it is possible that additional, more protective vaccine mandates may be announced by state or local jurisdictions that could have a material adverse impact on our workforce and operations.

 

Although we cannot predict with certainty the impact that the vaccine mandate and any other related measures will have on our workforce and operations, these requirements and any future requirements may result in attrition and impede our ability to recruit and retain our workforce. These measures also may further disrupt the national supply chain, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Measures intended to prevent the spread of COVID-19 may negatively impact our operations.

 

In response to the COVID-19 pandemic and the government mandates implemented to control its spread, we implemented new practices and protocols, including remote working, enhanced cleaning protocols, social distancing and additional health and safety protocols that resulted in additional payroll and continued or increased expenses while potentially impacting sales opportunities. Some of these pandemic-related expenses and/or operational limits have continued into 2021 and we expect they may continue to some extent in the future. In addition, the pandemic may have changed our employees’ willingness or ability to staff our fulfillment center and offices or otherwise continue employment as a result of health concerns, economic pressures, lifestyle changes or otherwise. As a result, we expect to adopt a hybrid work from home policy. However, this may change based on variables outside our control relating to the continued spread or new variants of COVID-19. Furthermore, any policies that we adopt may not adequately address evolving employment trends or could fail to match pre-COVID-19 employee productivity and satisfaction, and our business and operating results could be adversely affected.

 

If our employees are unable to work effectively as a result of the COVID-19 pandemic, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted. Further, remote work arrangements may increase the risk of cybersecurity incidents, data breaches or cyberattacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of proprietary data, personal information, interruptions or delays in the operation of our business, damage to our reputation and any government-imposed penalty. See the Risk Factor titled “If personal or other sensitive information is disclosed in an unauthorized manner, or if we or our third-party vendors are subject to real or perceived cyberattacks, data breaches, or other security incidents or compromises, or disruption of information technology systems or software, our customers may curtail use of our platform, we may be exposed to liability, our reputation may suffer, and our operations may be materially harmed and disrupted” for additional information in this regard. Our ability to return to normalized operations and the timing of such a return cannot be predicted at this time.

 

We use social media, emails and text messages for marketing purposes, and if we or third parties do not comply with applicable laws and regulations, or act in a manner that contradicts our core values or in ways that are negatively perceived by our customers, our reputation may be adversely impacted and we may become subject to fines or other penalties.

 

We use third-party social media platforms, as well as emails and text messages, as marketing tools, including through paid social marketing, personalized email marketing, text message marketing and mobile “push” communications through our mobile apps. For example, RueLaLa and Gilt each maintain an active presence on social media, including on Instagram, Snapchat, Facebook, Twitter and YouTube. Negative commentary regarding us, our products or other third parties who are affiliated with us, or who are perceived to be affiliated with us, may also be posted on social media platforms, which could adversely impact our reputation or business. Social media users also could engage in behavior or use their platforms to communicate directly with

 

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our customers in a manner that reflects poorly on our brand and may be attributed to us or otherwise adversely affect us. Any inappropriate use of social media, emails, and text messages could also cause reputational damage. It is not always possible to prevent such behavior, and the precautions we take to detect this activity may not be effective in all cases. The harm may be immediate, without affording us an opportunity for redress or correction. Our target consumers often value readily available information and often act on such information without further investigation and without regard to its accuracy.

 

Additionally, our use of text messaging subjects us to the Telephone Consumer Protection Act (“TCPA”) and similar laws, rules and regulations. The TCPA imposes significant restrictions on the ability to make certain telephone calls or send certain text messages to mobile telephone numbers without the prior consent of the person being contacted. Claims that we, or third parties acting on our behalf or at our direction, have violated the TCPA or related laws, rules or regulations could result in litigation (including class action lawsuits), which could be costly to defend and, if successful, could expose us to substantial statutory damages, as well other liabilities and adverse consequences, including reputational loss.

 

As eCommerce and social media platforms continue to rapidly evolve and new platforms and methods of customer outreach develop, we must continue to maintain and expand our presence on these platforms and establish presences on new or emerging popular social media platforms, as well as develop innovative methods to market our products and communicate with our customers. If we are unable to do so, our ability to acquire new customers and our financial condition may suffer. Furthermore, as laws and regulations that govern the use of these channels rapidly evolve, the failure by us, our employees or third parties acting on our behalf or at our direction to abide by applicable laws and regulations in the use of these channels could adversely affect our reputation or subject us to investigations, fines, other penalties or lawsuits. Any increases in the use of social media for product promotion and marketing may increase our compliance costs as we seek to avoid violating applicable regulations. In addition, our employees or third parties acting on our behalf or at our direction may knowingly or inadvertently use social media, including through advertisements, in ways that make problematic marketing claims or lead to the loss or infringement of intellectual property, as well as the public disclosure of proprietary, confidential, or personal information of our business, employees, users, merchants, or others.

 

Damage to our corporate reputation could adversely affect our revenue and could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Our relationships with our customers and our reputation are based, in part, on subjective perceptions. Any incidents involving us, the brands or products that we offer, our executives and other employees, our Board of Directors, our policies and practices, our third-party providers, our brand partners, others within our supply chain and our industry that erode consumer trust or confidence could adversely affect our reputation and impact our business, particularly if the incidents result in significant adverse publicity, protest, litigation, or governmental inquiry. Customer complaints or negative publicity about our sites, product offerings, delivery times, customer data handling and security practices or customer support, or other incidents that are publicized through traditional or digital media platforms, including social media, websites, blogs and other forums that facilitate rapid, broad communications to an audience of consumers and other interested persons could rapidly and severely diminish customers’ use of our sites and apps, as well as customer and brand partner confidence in us, and may adversely affect our reputation, even if the information is inaccurate, incomplete or unverified. Similarly, challenges or reactions to action (or inaction), or perceived action (or inaction), by the Company to crises, including the COVID-19 pandemic, or on issues like corporate responsibility, responsible sourcing, environmental sustainability, inclusion and diversity (including racial justice and equity), human rights, politics and lobbying, privacy, merchandising, product safety, compensation and benefits, labor compliance, workforce reductions or other employment actions, or other sensitive topics, and any perceived lack of transparency about such matters, could harm our reputation, particularly as expectations of corporate action and of companies’ corporate responsibility obligations have changed and may continue to change.

 

This kind of reputational damage could occur locally or globally and could impact the Company or our individual brand identities. Damage to the reputation of the Company and brands that we offer could result in

 

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declines in customer loyalty and sales, affect our vendor relationships and/or business development opportunities, limit our ability to attract and retain quality employees, divert the attention and resources of management, including to respond to inquiries or additional regulatory scrutiny, and otherwise adversely affect our business.

 

If we fail to successfully implement our various marketing strategies or if our competitors’ programs are more effective than ours, our revenue or results of operations may be adversely affected.

 

If our marketing strategies are not as successful or cost effective as anticipated, our revenue and results of operations could be adversely affected. Some of our competitors may expend more resources on marketing than we do, or use different approaches, which may provide them with a competitive advantage. External factors beyond our control, including general economic conditions and decreased discretionary consumer spending, may also impact the success of our marketing initiatives or how much we decide to spend on marketing in a given period. For example, in response to the COVID-19 pandemic, we reduced our marketing expenditures in 2020, which led to fewer new customers being acquired in 2020.

 

Our marketing initiatives may become increasingly expensive and generating a meaningful return on those initiatives may be difficult, such as the increased costs we have seen in certain digital marketing channels. We may also adjust our marketing activity from period to period as we launch new initiatives or offerings. Even if we successfully increase revenue as a result of our paid marketing efforts, it may not offset the additional marketing expenses we incur.

 

If we fail to retain existing customers or maintain Average Order Value levels, we may be unable to maintain our net revenue and gross margins, which would have a material adverse effect on our business, financial condition, results of operations and prospects.

 

A significant portion of our net revenue is generated from sales to existing customers, particularly those who are highly engaged and make frequent and/or large purchases of the products that we offer. If existing customers no longer find our offerings appealing, or if we are unable to timely update our offerings to meet current trends and customer demands, our existing customers may make fewer or smaller purchases in the future. A decrease in the number of our customers who make repeat purchases or decrease their spending on the products we offer could negatively impact our operating results. Further, if we are unable to increase sales to our existing customers over time, our business may suffer. If we fail to generate repeat purchases or maintain high levels of customer engagement and Average Order Value, our business, financial condition, results of operations and prospects could be materially adversely affected.

 

Our business is affected by seasonality, which could result in fluctuations in our results of operations.

 

Our industry is seasonal in nature. Historically, we have recognized a significant portion of our net revenue and operating profit or loss in the fourth quarter of each fiscal year as a result of increased sales during the holiday season, followed by decreased activity in the first quarter of the following fiscal year. We expect this seasonality trend to continue. If we experience lower than expected revenue during any fourth quarter, it may have a disproportionately large impact on our financial condition and results of operations for that year. Any factors that harm our fourth quarter operating results, including disruptions in our brand partners’ supply chains or unfavorable economic conditions, could have a disproportionate effect on our results of operations for our entire fiscal year.

 

Our business model will require us to continue to improve and develop new data analytics and data science models and innovations in the use of customer data.

 

Our business model relies heavily on data capabilities that we use to analyze customers’ browsing behavior and purchase history, which we use to enhance customers’ shopping experience, improve our merchandising efforts and manage inventory. If we do not continue to improve and develop new data analytics and data science

 

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models and innovations in our use of customer data, or to attract and retain skilled personnel to analyze our data, our business will be adversely affected. Moreover, negative public perceptions with respect to use of customer data or personal information or efforts by providers of mobile operating systems to limit our ability to use or to effectively analyze customer data, along with new or enhanced laws and regulations, could impede our ability to continue or enhance our use of customer data, which may have an adverse effect on our business and results of operations.

 

We internally track certain metrics, which we do not independently verify, and this data, as well as data that we receive from third parties, are subject to inherent challenges in measurement. Real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

 

We track certain key operating metrics using internal data analytics and data science models tools, which have certain limitations. We do not independently verify our internally-tracked metrics with third-party measurements. In addition, we rely on data received from third parties, including third-party platforms, to track certain performance indicators. Data from both such sources may include information relating to fraudulent accounts and interactions with our sites (including as a result of the use of bots, or other automated or manual mechanisms to generate false impressions that are delivered through our sites). We have only a limited ability to verify data from our sites or third parties, and perpetrators of fraudulent impressions may change their tactics and may become more sophisticated, which would make it still more difficult to detect such activity.

 

While we believe our metrics are reasonable estimates, the methodologies used to measure these metrics may be susceptible to technical or other errors, including with our algorithms. Our internal tools and processes have a number of limitations and may not detect instances of fraud, abuse or error, and our methodologies for tracking these metrics may change over time, which could result in unexpected changes, including to historical metrics. Our methodologies for tracking metrics may also change over time, which could result in changes to the metrics we report. If we undercount or overcount performance due to the internal data analytics and data science models tools we use or issues with the data received from third parties, or if our internal data analytics and data science models contain algorithmic or other technical errors, the data we report may not be accurate or comparable with prior periods. In addition, limitations, changes or errors with respect to how we measure data may affect our understanding of certain details of our business, which could affect our longer-term strategies.

 

If our performance metrics are not accurate representations of the reach or monetization of our network, if we discover material inaccuracies in our metrics or the data on which such metrics are based, or if we can no longer calculate any of our key performance metrics with a sufficient degree of accuracy and cannot find an adequate replacement for the metric, our business, financial condition and operating results could be adversely affected.

 

Product returns or refunds could harm our business.

 

We allow our customers to return products under certain circumstances, and we offer refunds, subject to our return and refunds policy. In addition, some of our agreements with our brand partners provide that we are responsible for the costs of certain returns. If product returns or refunds are significant or higher than anticipated, our business, financial condition and results of operations could be adversely affected. Further, we and our brand partners may modify policies relating to returns or refunds from time to time, which may result in customer dissatisfaction and harm to our reputation, or an increase in the number of product returns or the amount of refunds we make. From time to time, products are damaged in transit, either to us, to customers, or to parties receiving returns, which can increase return rates and adversely impact our results of operations.

 

The brands that we offer, as well as retailers who may carry such brands and the products we offer, set their own retail prices and promotional discounts, which could adversely affect our value proposition to buyers.

 

Brands, and certain of our brand partners, set pricing for their own items through their own channels, and retailers set pricing for the items they carry. Any of these parties may offer promotional discounts on products that are similar or identical to products we offer for sale through our platform. Promotional pricing by these parties may

 

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adversely affect the relative value of the items we offer for sale. These pricing changes and promotional discounts could, as a result, adversely affect our business, financial condition, results of operations and prospects.

 

We rely on consumer discretionary spending, which may be adversely affected by economic downturns and other macroeconomic conditions or trends.

 

Customers consider our offerings to be premium and luxury products and may purchase fewer or lower-priced products if their discretionary income decreases. As a result, our business and operating results are subject to global economic conditions and their impact on consumer discretionary spending and consumer confidence. Consumer purchases of discretionary items, including the products that we offer, generally decline during periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Some of the factors that may negatively influence consumer spending include high levels of unemployment, higher consumer debt levels, reductions in net worth, declines in asset values and related market uncertainty, home foreclosures and reductions in home values, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, public health crises such as the ongoing COVID-19 pandemic, fluctuating commodity prices and general uncertainty regarding the overall future political and economic environment. Economic conditions in certain regions may also be affected by natural disasters, such as earthquakes, hurricanes, tropical storms and wildfires. During periods of economic uncertainty, we may need to reduce prices in response to competitive pressures or otherwise, in order to maintain sales. Such actions may adversely affect our margins and net revenue.

 

In addition, negative national or global economic conditions may adversely affect our brand partners’ financial performance, liquidity and access to capital, which may affect their production levels and/or product quality and could cause them to raise prices, lower production levels or cease their operations. In challenging and uncertain economic environments, we cannot predict when macroeconomic uncertainty may arise, whether or when such circumstances may improve or worsen or what impact such circumstances could have on our business.

 

We may expand our business through acquisitions of other businesses or technologies, which may divert management’s attention and/or prove to be unsuccessful.

 

We may acquire businesses or technologies in the future that we believe could complement or expand our business and platforms. Pursuit of future potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. Acquisitions also may require us to spend a substantial portion of our available cash, incur debt or other liabilities, amortize expenses related to intangible assets or incur write-offs of goodwill or other assets. In addition, integrating an acquired business or technology is risky. Completed and future acquisitions may result in unforeseen operational difficulties and expenditures associated with:

 

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incorporating new businesses and technologies into our infrastructure, and associated unanticipated costs;

 

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consolidating operational and administrative functions;

 

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the acquired business retaining our access or retaining use rights to the assets acquired;

 

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adverse effects on existing business relationships with brand partners and other third parties;

 

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risks associated with entering new markets in which we may have limited or no experience;

 

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coordinating outreach to our customer base;

 

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maintaining morale and culture and retaining and integrating key employees;

 

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maintaining or developing controls, procedures and policies (including effective internal control over financial reporting and disclosure controls and procedures); and

 

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identifying and assuming liabilities related to the activities of the acquired business before the acquisition, including for violations of laws and regulations, intellectual property issues, commercial disputes, taxes and other matters.

 

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Moreover, we may not benefit from our acquisitions or achieve the synergies that we expect, or in the time frame we expect. We may also fail to acquire companies or technologies whose market power or technology could be important to the future success of our business. Finally, acquisitions could be viewed negatively by analysts, investors or our customers.

 

We may require additional capital to support business growth, and this capital might not be available on terms favorable to us, when we require it or at all or may be available only by diluting existing stockholders.

 

We intend to continue making investments to support our business growth and may require additional funds to support this growth and respond to business challenges, including potential acquisitions, the need to develop our services, expand our inventory, enhance our operating infrastructure, expand the markets in which we operate and potentially acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it or at all, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business and prospects could fail or be adversely affected.

 

Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, or at all.

 

Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including as a result of any of the risks and uncertainties described in this prospectus.

 

The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable customers covered by our market opportunity estimates will purchase our products at all or generate any particular level of net revenue for us. Even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

 

Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved could expose us to monetary damages or limit our ability to operate our business.

 

We have in the past and may in the future become involved in private actions, collective actions, investigations and various other legal proceedings by customers, employees, brand partners, competitors, government agencies or others. The results of any such litigation, investigations and other legal proceedings are inherently unpredictable and expensive. Any claims against us, whether meritorious or not, could be time-consuming, result in costly litigation, damage our reputation, unfavorably color our brand identities, require significant amounts of management time and divert significant resources. If any of these legal proceedings were to be determined adversely to us, or we were to enter into a settlement arrangement, we could be exposed to monetary damages or obligations, fines, penalties, injunctive relief or other nonmonetary obligations, or limits on our ability to operate our business, which could have an adverse effect on our business, financial condition, results of operations and prospects.

 

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Shop Premium Outlets has a limited operating history in an uncertain market and unproven long-term viability.

 

The prospects for our Shop Premium Outlets business, including revenue and income potential, are uncertain. We have only operated Shop Premium Outlets since 2019 and, accordingly, have a limited operating history upon which to evaluate Shop Premium Outlets’ future prospects, as well as how we will respond to competitive, financial or technological challenges. In addition, we have limited insight into trends that may emerge and affect the Shop Premium Outlets business, and limited experience responding to such trends. As our Shop Premium Outlets offering differs from our Rue+Gilt business model, we may make errors in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. Further, the customer experience for our Shop Premium Outlets business is highly dependent on attracting and maintaining relationships with desirable retailers and merchants who sell products through our marketplace. If we are unable to maintain or grow such relationships, or if consumers have negative experiences with such merchants, our business would be harmed. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, financial condition, results of operations and prospects to suffer or fail.

 

Our Shop Premium Outlets business relies on services provided by Simon and agreements that we have entered into with Simon, including a trademark license agreement. If the terms upon which these services are provided change, our access to these services is discontinued or the trademark license agreement is terminated, we may not be able to capitalize on our investment in our Shop Premium Outlets business.

 

Our Shop Premium Outlets business relies on services provided by Simon and agreements that we have entered into with Simon. Such services relate to, among other things, ongoing promotional and customer outreach services, including dedicated Shop Premium Outlets emails, promotional placement of Shop Premium Outlets on Simon’s website, media placements at certain of its properties, social media promotions and public relations services, pursuant to agreements that we have in place with Simon.

 

We also have entered a trademark license agreement with Simon, pursuant to which we license from Simon certain of Simon’s trademarks, including the “SPO” and “SHOP PREMIUM OUTLETS” word marks, as well as a trademark that uses Simon’s logo in conjunction with “SHOP PREMIUM OUTLETS,” which we refer to as the “Simon SPO Combination Trademark.” See “—Certain Relationships And Related Person Transactions.” Simon has the right to terminate our ability to use the Simon SPO Combination Trademark in certain circumstances, including if Simon’s ownership in shares of our common stock falls below a specified threshold, defined as 25% of the shares of our common stock that Simon owned following Simon’s strategic equity investment and our acquisition of Shop Premium Outlets (the “Simon Continuing Ownership Threshold”). Additionally, Simon has the ability to terminate the trademark license agreement if certain merchandise sales thresholds are not met by a certain date, among other reasons. We also are subject to non-compete provisions that prohibit us from operating any eCommerce outlet marketplace that sells and ships outlet goods to customers, other than Shop Premium Outlets, as long as Simon maintains the Simon Continuing Ownership Threshold.

 

Moreover, as of             , 2021, Simon held         % of our common stock, and upon the completion of this offering, Simon is expected to hold approximately         % of our common stock, and will therefore be able to continue to exert significant influence over us. There can be no assurance that we will be able to maintain our relationship with Simon on terms that are favorable to us, or at all. If we fail to maintain our relationship with Simon, or if our arrangements with Simon are modified so that the terms become less favorable to us, then our Shop Premium Outlets business could be materially adversely affected.

 

If we fail to attract and retain key personnel, or effectively manage succession, our business, financial condition, results of operations and prospects could be adversely affected.

 

Our success, including our ability to anticipate and effectively respond to changing style trends, depends in part on our ability to attract and retain key personnel on our executive team, particularly our chief executive officer, and in our merchandising, data science, engineering, marketing and other organizations. Competition for

 

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key personnel is strong, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in the future, or that the compensation costs of doing so will not adversely affect our operating results. We do not have long-term employment agreements with any of our personnel. If we are unable to retain, attract and motivate talented employees with the appropriate skills at cost-effective compensation levels, or if changes to our business adversely affect morale or retention, we may not achieve our objectives our business, financial condition, results of operations and prospects could be adversely affected. In addition, the loss of one or more of our key personnel or the inability to promptly identify a suitable successor to a key role could have an adverse effect on our business. In particular, each of our Chief Executive Officer, President / Chief Merchandising Officer and Chief Financial Officer / Chief Operating Officer has unique and valuable experiences leading the Company. If any of them were to depart or otherwise reduce their focus on the Company, our business may be disrupted. We do not currently maintain key-person life insurance policies on any member of our senior management team or other key employees.

 

In addition, our customer service function is primarily handled in-house. If we are unable to adequately staff our customer service function to meet demand, or if the cost of such staffing is higher than historical or projected costs due to mandated wage increases, regulatory changes, international expansion or other factors, our operating results could be harmed.

 

Risks Related to Our Operations

 

Our business, including our supply chain and the costs that we incur, is subject to risks associated with sourcing, manufacturing, warehousing, distribution and logistics, which could negatively impact our business.

 

We do not manufacture any of the products that we offer on our sites, which are sourced through our brand partners. As a result, we may be subject to price fluctuations or demand disruptions, which could negatively impact our operating results. Our operating results would be negatively impacted by increases in the costs of the products that we receive from our brand partners or significant increases in shipping costs, and we have no guarantees that costs will not rise. In addition, as we expand into new categories and product types, we may not have comparatively strong purchasing power as we historically have seen in our current categories, which could lead to higher prices. We may not be able to pass increased prices on to customers, which could adversely affect our operating results.

 

In addition, products and materials we receive from brand partners may not be of sufficient quality or free from damage, or such products may be damaged during shipping, while stored in our fulfillment center or when returned by customers. We may incur additional expenses and our reputation could be harmed if customers and potential customers believe that our products do not meet their expectations, are not properly labeled or are damaged.

 

Further, if any of our brand partners becomes insolvent, ceases or significantly reduces its operations or experiences financial distress, as a result of the COVID-19 pandemic or otherwise, or if any environmental, economic or other outside factors impact their operations, and we are unable to replace the loss of any such brand partner, we may experience a competitive disadvantage, our business may be disrupted or our business, financial condition, results of operations or prospects could be adversely affected.

 

Our ability to timely deliver products to customers is dependent on a single fulfillment center. If we suffer a loss of, or disruption in, our only fulfillment center, our business and operations could be adversely affected.

 

Our ability to timely deliver products to customers located throughout the U.S. is dependent on a single fulfillment center. We lease an approximately 400,000-square-foot fulfillment center in Shepherdsville, Kentucky and rely on this center to receive, store and distribute products to our customer base. If we do not have sufficient fulfillment capacity, are unable to adequately and effectively staff our fulfillment center, experience disruptions to order fulfillment or deliveries by our brand partners are not timely, our customers may experience delivery delays, which could harm our reputation and our relationship with our customers. Furthermore, any significant interruption in the operation of the fulfillment center due to natural disasters or severe weather, events such as fire, accidents, power outages, system failures, public health issues such as the current COVID-19 pandemic (or other future pandemics) or other unforeseen causes could damage a significant portion of our inventory.

 

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If we do not successfully optimize, operate and manage the expansion of capacity of our fulfillment center, our business, financial condition, results of operations and prospects could be harmed.

 

We have designed and built our own fulfillment center infrastructure, including customizing third-party inventory and package handling software systems, which is tailored to meet the specific needs of our business. Our failure to optimize and operate our fulfillment center successfully and efficiently could result in excess or insufficient fulfillment capacity, increases in costs or impairment charges or other harm to our business. If we do not have sufficient fulfillment capacity or experience problems fulfilling orders in a timely manner, our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers. Moreover, if we are unable to adequately staff our fulfillment center to meet demand, or if the cost of such staffing is higher than historical or projected costs due to mandated wage increases, regulatory changes, international expansion or other factors, our operating results could be harmed. Operating a fulfillment center comes with risks such as workplace safety issues and employment claims for the failure or alleged failure to comply with labor laws or laws respecting union organizing activities. Any such issues may result in delays in shipping times or packing quality, and our reputation and operating results may be harmed.

 

If we grow faster than we anticipate, we may exceed our fulfillment center capacity sooner than we anticipate, we may experience problems fulfilling orders in a timely manner or our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers, and we would need to increase our capital expenditures more than anticipated. Many of the expenses and investments with respect to our fulfillment center are fixed, and any expansion of such fulfillment center will require additional investment of capital. We expect to incur higher capital expenditures in the future for our fulfillment center operations. If we continue to add fulfillment center capability, add new businesses or categories with different fulfillment requirements or change the mix in products that we sell, our fulfillment network will become increasingly complex and operating it will become more challenging. Failure to successfully address such challenges in a cost-effective and timely manner could impair our ability to timely deliver our customers’ purchases and could harm our reputation and ultimately, our business, financial condition, results of operations and prospects.

 

Shipping is a critical part of our business and any changes in, or disruptions to, our shipping arrangements could adversely affect our business, financial condition, result of operations and prospects.

 

We primarily rely on one major vendor for our shipping. If we are unable to negotiate acceptable pricing and other terms with this vendor or if this vendor experiences performance problems or other difficulties, our operating results and customer experience could be negatively impacted. In addition, our ability to receive inbound inventory efficiently and ship products to customers may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or terrorism, trade embargoes, public health crises (including the current COVID-19 pandemic and future pandemics) and similar factors. For example, strikes at major international shipping ports have in the past impacted our supply of inventory from our brand partners. Furthermore, the escalating trade dispute between the U.S. and China could lead to increased tariffs on our goods and restrict the flow of the goods between the U.S. and China. We are also subject to risks of damage or loss during delivery by our shipping vendors. If our products are not delivered in a timely fashion or are damaged or lost during the delivery process, our customers could become dissatisfied and cease shopping on our sites, which would adversely affect our business, financial condition, results of operations and prospects.

 

Our results may be adversely affected by increased utility, transportation or logistics costs; reduced availability or increased cost of oil or other fuels; or increased costs of other commodities.

 

Energy and fuel costs can fluctuate dramatically and, at times, have resulted in significant cost increases, particularly for the price of oil and gasoline. An increase in the price of oil increases our transportation costs for distribution, utility costs and costs to purchase our products from brand partners. Increased regulation related to environmental costs, including cap and trade, carbon taxes or other emissions management systems could also adversely affect our costs of doing business, including utility, transportation and logistics costs, as could other shortages or disruptions impacting transportation, such as those relating to trucking and freight hauling. For example, in recent years, increased freight cost related to labor, equipment and capacity shortages, as well as

 

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other factors, had an impact on our margins, and in 2020, the COVID-19 pandemic impacted operations of many third parties along our supply chain, impacting our inventory flow and financial performance. Similarly, other commodity prices can fluctuate dramatically. Such increases can impact the cost of products, which could adversely affect our performance through potentially reduced consumer demand or reduced margins.

 

Adverse or unseasonable weather may adversely affect our revenue and operating results.

 

Adverse or unseasonable weather, such as storms, severe cold or heat or unseasonable temperatures (even if not extreme) may affect customers’ buying patterns and willingness to shop at all or in certain categories we offer, particularly in apparel and seasonal products, possibly impacting our revenue and customer satisfaction with our offerings and increasing our markdowns. As a result, our business could be adversely affected.

 

Any failure by us or our brand partners to comply with product safety, labor or other laws, or to provide safe conditions for our or their workers may damage our reputation and harm our business.

 

The products we sell to our customers are subject to regulation by the Federal Consumer Product Safety Commission, the Federal Trade Commission and similar state and international regulatory authorities. As a result, such products have been, and could be in the future, subject to recalls and other remedial actions. Product safety, labeling and licensing concerns, including consumer disclosure and warning regarding chemical exposure, may require us to voluntarily remove selected products from our inventory. Such recalls or voluntary removal of products can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs and legal expenses, which could have a material adverse effect on our operating results.

 

We purchase our products from numerous domestic and international brand partners. Concerns or issues with the quality, safety and sourcing of products, particularly with products subject to increased levels of regulation or inquiry, or the authenticity of products, regardless of whether unverified or not our fault, and failure of our brand partners to comply with applicable laws and regulations and contractual requirements could lead to litigation against us, resulting in increased legal expenses and costs. In addition, the failure of any such vendors to provide safe and humane factory conditions and oversight at their facilities could damage our reputation with customers or result in legal claims against us.

 

If our brand partners fail to use ethical business practices and fail to comply with changing laws and regulations, our brand identities could be harmed due to negative publicity.

 

Our core values, which include providing the most engaging online off-price style destinations while operating with integrity, are an important component of our brand image, which makes our reputation sensitive to allegations of unethical or improper business practices, whether real or perceived. We do not control our brand partners or their businesses, and they may not comply with our guidelines or the law. Any lack of compliance could lead to reduced sales or recalls or damage to our reputation or cause us to seek alternative brand partners, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations. In addition, we rely on our brand partners’ compliance reporting in order to comply with regulations applicable to our products. This is further complicated by the fact that expectations of ethical business practices continually evolve and may be substantially more demanding than applicable legal requirements. Ethical business practices are also driven in part by legal developments and by diverse groups active in publicizing and organizing public responses to perceived ethical shortcomings. Accordingly, we cannot predict how such regulations or expectations might develop in the future and cannot be certain that our guidelines or current practices would satisfy all parties who are active in monitoring the products we offer or other business practices worldwide.

 

Increases in labor costs, including wages, could adversely affect our business, financial condition, results of operations and prospects.

 

Labor is a significant portion of our cost structure and is subject to many external factors, including unemployment levels, prevailing wage rates, minimum wage laws, potential collective bargaining arrangements,

 

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health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation. From time to time, legislative proposals are made to increase the federal minimum wage in the U.S., as well as the minimum wage in a number of other states and municipalities, and to reform entitlement programs, such as health insurance and paid leave programs. As minimum wage rates increase or related laws and regulations change, we may need to increase not only the wage rates of our minimum wage employees, but also the wages paid to our other hourly or salaried employees. Any increase in the cost of our labor could have an adverse effect on our business, financial condition, results of operations and prospects. Further, if we fail to pay such higher wages, we could suffer increased employee turnover. Increases in labor costs, competitive pressures and other factors could force us to increase prices, which could adversely impact our business, financial condition and results of operations. In particular, the job markets in Boston and New York, where our principal offices and where the majority of our corporate associates are located, are very competitive.

 

System interruptions that impair customer access to our sites or our ability to process orders and other performance failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.

 

The satisfactory performance, reliability and availability of our sites, transaction-processing systems and technology infrastructure are critical to our reputation and our ability to acquire and retain customers, as well as maintain adequate customer service levels.

 

We use both complex custom-built proprietary software and third-party services in our technology infrastructure. We seek to continually update and improve our proprietary technology, but we may not always be successful in executing these upgrades and improvements, and the operation of our systems may be subject to failure. In particular, we have in the past and may in the future experience slowdowns or interruptions in some or all of our sites when we are updating them, and new technologies or infrastructures may not be fully integrated with existing systems on a timely basis, or at all. Our third-party service providers could decide to close their facilities without adequate notice. Any financial difficulties, such as bankruptcy or reorganization, faced by our third-party service providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party service providers are unable to keep up with our needs for capacity, this could have an adverse effect on our business. In the event that our agreement with third-party service providers, is terminated, or we add additional cloud infrastructure service providers, we may experience significant costs or downtime in connection with the transfer to, or the addition of, new cloud infrastructure service providers. Additionally, if we expand our use of third-party services, including cloud-based services, our technology infrastructure may be subject to increased risk of slowdown or interruption as a result of integration with such services and/or failures by such third parties, which are out of our control and for which we may not receive advance notice.

 

Unavailability of our sites or reduced order fulfillment performance would reduce the volume of goods sold and could also materially adversely affect the user experience provided to our customers, as well as our customers’ perception of our brand. We may also experience periodic system interruptions from time to time. In addition, continued growth in our transaction volume, as well as surges in online traffic and orders associated with promotional activities or seasonal trends in our business, place additional demands on our technology platform and could cause or exacerbate slowdowns or interruptions. If there is a substantial increase in the volume of traffic on our sites or the number of orders placed by customers, we may be required to further expand, scale and upgrade our technology, transaction processing systems and network infrastructure, or endeavor to adopt additional measures and processes to accommodate increased traffic and volume. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our sites or expand, scale and upgrade our technology, systems and infrastructure to accommodate such increases on a timely basis. In order to remain competitive, we must endeavor to continue to enhance and improve the responsiveness, functionality and features of our sites and infrastructure, which is particularly challenging given the rapid rate at which new technologies, customer preferences and expectations and industry standards and practices are evolving in the eCommerce industry. Accordingly, we redesign and enhance various functions on

 

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our sites and infrastructure on a regular basis, and we may experience instability and performance issues as a result of these changes.

 

Any slowdown or failure of our sites and the underlying technology infrastructure could harm our business, reputation and our ability to acquire, retain and serve our customers, which could materially adversely affect our results of operations and our business interruption insurance may not be sufficient to compensate us for the losses that could occur.

 

We rely on AWS to host our Rue+Gilt platform, and any disruption of service from AWS or material change to our arrangement with AWS could adversely affect our business.

 

We currently host our Rue+Gilt platform and support some of our operations using Amazon Web Services (“AWS”), a provider of cloud infrastructure services. We do not control the operations of AWS’s facilities. AWS’s facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events or could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of any of these events, a decision to close the facilities or cease or limit providing services to us without adequate notice or other unanticipated problems could result in interruptions to our platform, which may be lengthy. Our platform’s continuing and uninterrupted performance is critical to our success and customers may become dissatisfied by service interruption. Sustained or repeated system failures could reduce the attractiveness of our platform to customers, cause our customers to decrease their use of or stop using our platform and otherwise adversely affect our business. Moreover, negative publicity from disruptions could damage our reputation.

 

AWS does not have an obligation to renew its agreements with us on commercially reasonable terms, or at all. If we cannot renew our agreement or are unable to renew on commercially reasonable terms, we may experience significant costs or downtime in connection with the transfer to, or the addition of, new cloud infrastructure or other data center. If these providers charge high costs for, or increase the cost of, their services, we will experience higher costs to operate our business and our operating results may be adversely impacted. Upon expiration or termination of our agreement with AWS, we may not be able to replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete. Switching our operations from AWS to another cloud or other data center provider would also be technically difficult, expensive and time consuming.

 

Any of the above circumstances or events may harm our reputation, cause customers to stop using our platform, impair our ability to increase revenue from existing customers, impair our ability to grow our customer base, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, results of operations and financial condition.

 

If the use of “cookie” tracking technologies is further restricted, regulated, or blocked, or if changes in technology cause cookies to become less reliable or acceptable as a means of tracking consumer behavior, the amount or accuracy of Internet user information we collect would decrease, which could harm our business, financial condition, results of operations and prospects.

 

Cookies are small data files that are sent by websites and stored locally on an Internet user’s computer or mobile device. We, and third parties who work on our behalf, collect data via cookies that is used to track the behavior of visitors to our sites, to provide a more personal and interactive experience, and to increase the effectiveness of our marketing, and we may expand our use of cookies in the future. Many countries have adopted, or are in the process of adopting, regulations governing the use of cookies and similar technologies, and individuals may be required to “opt-in” to the placement of cookies used for purposes of marketing. For example, we may be subject to existing and evolving European Union and United Kingdom laws and regulations regarding cookies and e-marketing. In the

 

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European Union and the United Kingdom, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive are likely to be replaced by an EU Regulation, known as the ePrivacy Regulation, which will significantly increase fines for non-compliance. In the European Union and United Kingdom, informed consent may be required for the placement of a cookie on a user’s device and for direct electronic marketing. While the text of the ePrivacy Regulation is still under development, a recent European Court of Justice decision and regulators’ recent guidance are driving increased attention to cookies and tracking technologies under existing law. Additionally, the California Consumer Privacy Act (“CCPA”), which took effect in January 2020, places restrictions on the “sale” of personal information. The California Privacy Rights Act (“CPRA”), which was passed in November 2020 and will take effect in January 2023 (with a lookback for certain requirements to January 2022), amends and expands the CCPA and places additional restrictions on the “sharing” of personal information for purposes of cross-context behavioral advertising. If regulators implement or continue or start to take stricter approaches to the regulation of cookies and other technologies, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. Widespread adoption of regulations that significantly restrict our ability to use performance marketing technologies could adversely affect our ability to market effectively, and thus adversely affect our business, results of operations and financial condition.

 

Internet users can disable, delete and block cookies at any time directly through browser settings or through other software, browser extensions, or hardware platforms that physically block cookies from being created and stored. Cookies may be deleted or blocked by Internet users who do not want information to be collected about them. The most commonly used Internet browsers – Chrome, Firefox, Internet Explorer and Safari – allow Internet users to modify their browser settings to prevent cookies from being accepted by their browsers. In January 2020, Google publicly stated it intends for Chrome to block third-party cookies at some point in the following 24 months. In April 2021, Google began releasing software updates to its Chrome browser with features to phase-out third-party cookies. Mobile devices allow users to opt out of the use of mobile device IDs for targeted advertising. Additionally, the Safari browser currently blocks some third-party cookies by default and has recently added controls that algorithmically block or limit some cookies. Other browsers have added similar controls. If more Internet users adopt these or other settings or delete their cookies more frequently than they currently do, or restrictions are imposed by advertisers and publishers, there are changes in technology or new developments in laws, regulations or industry standards around cookies, our business could be harmed.

 

For in-app advertising, data regarding interactions between users and devices are tracked mostly through stable, pseudonymous mobile device identifiers that are built into the device operating system with privacy controls that allow users to express a preference with respect to data collection for advertising, including to disable the identifier. These identifiers and privacy controls are defined by the developers of the mobile platforms and could be changed by the mobile platforms in a way that may negatively impact our business.

Furthermore, mobile application download stores, such as those of Apple Inc. or Google Inc., have imposed, and are likely to continue imposing, certain privacy- and security-related restrictions and controls on the collection and use of data, including for advertising purposes, by providers and applications within their marketplaces. For example, Apple released a software update in 2021 that, by default, blocks advertisers from tracking certain mobile device activity unless affirmative consent is obtained.

 

As the collection and use of data for digital advertising has received ongoing media attention over the past several years, some government regulators, such as the FTC, and privacy advocates have raised significant concerns around observed data. For example, there have been an array of tracking-related efforts, suggestions and (e.g., Do Not Track and Global Privacy Control signals). However, the potential regulatory and self-regulatory landscape is inherently uncertain, and there is not yet a consensus definition of tracking, nor agreement on what would be covered by “do-not-track” or similar functionality. There is activity by the major Internet browsers to default set on “do-not-track” or similar functionality, including by Apple Safari and Firefox. It is not clear if other Internet browsers will follow. Substantial increases in the rate and number of people opting

 

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out of various data collection processes and/or regulations of tracking methods could have a negative impact on our business.

 

We must successfully maintain, scale and upgrade our information technology systems, and our failure to do so could have a material adverse effect on our business, financial condition and results of operations.

 

We have identified the need to significantly expand, scale and improve our information technology systems and personnel to support recent and expected future growth. As such, we are in process of implementing, and will continue to invest in and implement, significant modifications and upgrades to our information technology systems and procedures, including replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality, hiring employees with information technology expertise and building new policies, procedures, training programs and monitoring tools. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, acquisition and retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, the introduction of errors or vulnerabilities and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current systems. These implementations, modifications and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. Additionally, difficulties with implementing new technology systems, delays in our timeline for planned improvements, significant system failures, or our inability to successfully modify our information systems to respond to changes in our business needs may cause disruptions in our business operations and have a material adverse effect on our business, financial condition and results of operations.

 

Our reliance on software-as-a-service technologies from third parties may adversely affect our business and results of operations.

 

We rely on software-as-a-service technologies from third parties in order to operate critical functions of our business, including Salesforce, Snowflake and Shopify. If these services become unavailable due to extended outages or interruptions or if we are unable to continue using them on commercially reasonable terms or prices, or for any other reason, our ability to send marketing emails, run data analytics reports, or take orders on Shop Premium Outlets may be impaired until equivalent services, if available, are identified, obtained and implemented, and our expenses could increase, all of which could have an adverse effect on our business, financial condition, results of operations and prospects.

 

Some of our software and systems contain open-source software, which may pose particular risks to our proprietary applications.

 

We use open-source software in the applications we have developed to operate our business and will use open-source software in the future. Such open-source software is generally licensed by its authors or other third parties under open-source licenses. We monitor our use of open-source software in an effort to avoid uses in a manner that would require us to disclose or grant licenses under our proprietary source code; however, there can be no assurance that such efforts will be successful. Open source license terms are often ambiguous and such use could inadvertently occur. There is little legal precedent governing the interpretation of many of the terms of these licenses, and the potential impact of these terms on our business may result in unanticipated obligations regarding our software and technologies. Companies that incorporate open-source software into their products have, in the past, faced claims seeking enforcement of open source license provisions and claims asserting ownership of open-source software incorporated into their product. If an author or other third party that distributes such open-source software were to allege that we had not complied with the conditions of an open-source license, we could incur significant legal costs defending ourselves against such allegations. In the event such claims were successful, we could be subject to significant damages, required to purchase a costly license, publicly release the affected portions of our source code, or cease offering the implicated solutions. In addition, if we combine our proprietary software with open-source

 

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software in certain ways, under some open-source licenses, we could be required to release the source code of our proprietary software, which could substantially help our competitors or make it easier for hackers and other third parties to determine how to breach our sites and systems that rely on open-source software. Furthermore, open-source licensors generally do not provide warranties or controls on the origin of software. Some open-source projects have known vulnerabilities and architectural instabilities and are provided on an “as-is” basis which, if not properly addressed, could negatively affect the performance of our platform. From time to time, there have been claims challenging the ownership rights in open-source software against companies that incorporate it into their products and the licensors of such open-source software provide no warranties or indemnities with respect to such claims. These risks could be difficult to eliminate or manage, and, if not addressed, could harm our business, financial condition, results of operations and prospects.

 

We are subject to payment-related risks.

 

We accept payments using a variety of methods, including credit card, gift cards, debit card, PayPal and other third-party payment vendors, which subjects us to certain regulations and the risk of fraud. We pay interchange and other fees in connection with credit card payments, which may increase over time and adversely affect our operating results. While we use a third-party to process payments, we are subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with applicable rules and regulations, or if we (or a third-party processing payment card transactions on our behalf) suffer a security breach affecting payment card information, we may be subject to significant fines, penalties and assessments or higher transaction fees arising out of the major card brands’ rules and regulations, contractual indemnifications and/or liability contained in merchant agreements and similar contracts and we may lose our ability to accept online payments or other payment card transactions. If any of these events were to occur, our business, financial condition and operating results could be adversely and materially affected.

 

Furthermore, as our business changes, we may be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. As we offer new payment options to customers, including by way of integrating emerging mobile and other payment methods, we may be subject to additional regulations, compliance requirements, risks and fraud. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions with respect to, our ability to accept credit card payments from consumers or facilitate other types of online payments.

 

Our software is highly complex and may contain undetected errors.

 

The software and code underlying our sites and our operations is highly complex and may contain undetected errors or vulnerabilities, some of which may only be discovered after the code has been released. We rely heavily on a software engineering practice known as “continuous deployment,” meaning that we regularly release software code multiple times per day. Additionally, due to the interconnected nature of the software underlying our platform, updates to certain parts of our code could have an unintended impact on other sections of our code, which may result in errors or vulnerabilities to our platform. This practice may result in the more frequent introduction of errors or vulnerabilities into the software underlying our platform. Any errors or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of customers, loss of revenue or liability for damages, any of which could adversely affect our growth prospects and our business.

 

We may incur significant losses from fraud.

 

We have in the past incurred and may in the future incur losses from various types of fraud, including stolen credit card numbers, claims that items were not delivered, claims that a customer did not authorize a purchase,

 

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fraudulent claims made by parties imitating or otherwise pretending to be merchants or vendors with whom we have existing relationships, and customers who have closed bank accounts or have insufficient funds in open bank accounts to satisfy payments. Although we have measures in place to detect and reduce the occurrence of fraudulent activity on our sites, those measures may not always be effective. In addition to the direct costs of such losses, if the fraud is related to credit card transactions and becomes excessive, it could potentially result in us paying higher fees or losing the right to accept credit cards for payment. In addition, under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature. Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could substantially impact our operating results.

 

If we cannot successfully protect our intellectual property, our business would suffer.

 

Our intellectual property is an essential asset of our business and our success is dependent, in part, upon protecting our intellectual property. We rely on trademark, copyright, trade secrets, confidentiality agreements and other practices to protect our brand identities, designs, proprietary information, technologies and processes. Our principal trademark assets include the registered trademarks “RueLaLa,” “Gilt,” and multiple owned brand names and our logos. Our trademarks are valuable assets that support our brand identities and consumers’ perception of our services and products. If the nature of our business expands, we may not be able to protect or use our trademarks in additional product or service categories or additional jurisdictions. We have also registered the “ruegiltgroupe.com,” “ruelala.com” and “gilt.com” domain names and various other related domain names, which are subject to Internet regulatory bodies and trademark and other related laws of each applicable jurisdiction. The efforts we have taken to protect our intellectual property may not be sufficient or effective. We generally do not elect to register our copyrights, relying instead on the laws protecting unregistered intellectual property, which may not be sufficient. We rely on both registered and unregistered trademarks, which may not always be comprehensive in scope. In addition, our copyrights and trademarks, whether or not registered, and patents may be held invalid or unenforceable if challenged, and may be of limited territorial reach. Moreover, effective trademark, copyright, patent and trade secret protection may not be available or commercially feasible in every country in which we conduct business. Further, intellectual property law, including statutory and case law, particularly in the U.S., is constantly developing, and any changes in the law could make it harder for us to enforce our rights.

 

Our limited registered copyright and patent protection may restrict our ability to protect our technologies and processes from competition. We primarily rely on trade secret laws to protect our technologies and processes, including the algorithms we use throughout our business. Others may independently develop the same or similar designs, products, technologies and processes, or may improperly acquire and use information about our technologies and processes, which may allow them to provide products or services similar to ours, which could harm our competitive position. We may be required to spend significant resources to monitor and protect our intellectual property rights, and the efforts we take to protect our proprietary rights may not be sufficient.

 

Further, if we are unable to protect our trademarks or domain names in the United States or in other jurisdictions in which we may ultimately operate, our brand recognition and reputation would suffer, we would incur significant expense establishing new brand identities and our operating results would be adversely impacted.

 

We may be required to spend significant resources to monitor and protect our intellectual property rights, and the efforts we take to protect our proprietary rights may not be sufficient. We attempt to protect our intellectual property, technology and confidential information by requiring our associates, consultants and developers who develop intellectual property on our behalf to enter into confidentiality and invention assignment or similar agreements or non-disclosure agreements, as applicable. However, such agreements may be deemed to be unenforceable or may be ineffective in granting ownership of certain technology or intellectual property to us. If we are unable to obtain, maintain, enforce, or defend any of our intellectual property rights, our business may be adversely affected.

 

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The inability to acquire, use or maintain our marks and domain names for our sites could substantially harm our business, financial condition, results of operations and prospects.

 

We currently are the registrant of marks for our brand identities in numerous jurisdictions and are the registrant of the Internet domain name for ruegiltgroupe.com, ruelala.com and gilt.com and our other sites, as well as various related domain names. However, we have not registered our marks or domain names in all major international jurisdictions. Domain names generally are regulated by Internet regulatory bodies and may not be generally protectable as trademarks in and of themselves. As our business grows we may incur material costs in connection with the registration, maintenance and protection of our marks. If we do not have or cannot obtain on reasonable terms the ability to use our marks in a particular country, or to use or register our domain names, we could be forced either to incur significant additional expenses to market our products within that country, including the development of a new brand identity and the creation of new promotional materials and packaging, or to elect not to sell products in that country. Either result could materially adversely affect our business, financial condition and operating results.

 

The regulations governing domain names and laws protecting marks and similar proprietary rights could change in ways that block or interfere with our ability to use relevant domains or our current brand. Also, we might not be able to prevent third parties from registering, using or retaining domain names that interfere with our customer communications or infringe or otherwise decrease the value of our marks, domain names and other proprietary rights. Regulatory bodies also may establish additional generic or country-code top-level domains or may allow modifications of the requirements for registering, holding or using domain names. As a result, we might not be able to register, use or maintain the domain names that use RueLaLa or Gilt in all of the countries and territories in which we currently or intend to conduct business.

 

We may be accused of infringing intellectual property or other proprietary rights of third parties.

 

We have received in the past, and are also at risk of receiving in the future, claims by others that we have infringed their copyrights, trademarks or patents, improperly used or disclosed their trade secrets, or otherwise infringed or violated their proprietary rights, such as the right of publicity or that they have ownership rights to our intellectual property. We periodically receive communications that claim we have infringed, misappropriated or misused others’ intellectual property rights. To the extent we gain greater public recognition, we may face a higher risk of being the subject of intellectual property claims.

 

Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved. The costs, monetarily and otherwise, of supporting any litigation or disputes related to these claims, even for claims that we believe to be without merit, can be considerable, and we cannot assure you that we will achieve a favorable outcome of any such claim. If any such claim is valid, we may be compelled to cease our use of such intellectual property or other proprietary rights and pay damages, which could adversely affect our business. Even if such claims were not valid, defending them could be expensive and distracting, adversely affecting our operating results.

 

Our credit facility contains restrictive covenants that may limit our operating flexibility.

 

Our credit facility contains restrictive covenants that limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, incur additional indebtedness and liens and enter into new businesses. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of the lender or terminate the credit facility, which may limit our operating flexibility. In addition, our credit facility is secured by all of our assets, including our inventory and intellectual property, and requires us to satisfy certain financial covenants. There is no guarantee that we will be able to generate sufficient cash flow or revenue to meet these financial covenants or pay the principal and interest on any debt under our facility. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will be available to repay or refinance any such debt. Any inability to make scheduled payments or meet the financial covenants on our credit facility would adversely affect our business.

 

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Any expansion of our operations internationally would require management attention and resources, involves additional risks and may be unsuccessful.

 

We have limited experience with operating internationally and selling our products outside of the U.S. If we choose to expand internationally, we would need to adapt to different local cultures, standards and policies. The business model we employ and the products we currently offer may not have the same appeal to consumers outside of the U.S. Furthermore, to succeed with customers in international locations, it likely will be necessary to locate fulfillment centers in foreign markets and hire local employees in those international centers, and we may have to invest in these facilities before proving we can successfully run foreign operations. If we decide to invest substantial time and resources to establish and expand our operations internationally and are unable to do so successfully and in a timely manner, our operating results would suffer.

 

Risks Related to Other Legal, Regulatory and Tax Matters

 

Developments in labor and employment law and any unionizing efforts by employees could have a material adverse effect on our results of operations.

 

We face the risk that Congress, federal agencies or one or more states could approve legislation or regulations significantly affecting our businesses and our relationship with our employees, such as the previously proposed federal legislation referred to as the Employee Free Choice Act, which would have substantially liberalized the procedures for union organization. As we grow in size, it may become more difficult for us to enforce our employment policies and favorably influence or maintain company culture, which may result in a greater number of employment-related lawsuits or complaints being filed against us in courts or with state agencies. This risk may be further amplified by developments in labor and employment law.

 

None of our employees are currently covered by a collective bargaining agreement, but any attempt by our employees to organize a labor union could result in increased legal and other associated costs. Additionally, given the National Labor Relations Board’s “speedy election” rule, our ability to timely and effectively address any unionizing efforts would be difficult. If we enter into a collective bargaining agreement with our domestic employees, the terms could materially adversely affect our costs, efficiency and ability to generate acceptable returns on the affected operations.

 

Additionally, the Department of Labor issued a final rule in 2016 raising the minimum salary basis exemption from overtime payments for executive, administrative and professional employees. The rule increases the minimum salary from the current amount of $23,660 to $47,476 and up to 10% of non-discretionary bonus, commission and other incentive payments can be counted towards the minimum salary requirement. The rule was scheduled to go into effect on December 1, 2016. The rule was temporarily enjoined from going into effect in November 2016, and later invalidated in August 2017, after several states and business groups filed separate lawsuits against the Department of Labor challenging the rule. However, any future rule similar to this rule that impacts the way we classify certain positions, increases our payment of overtime wages or increases the salaries we are required to pay to currently exempt employees to maintain their exempt status may have a material adverse effect on our business, financial condition and results of operations.

 

We are subject to stringent and changing privacy laws, regulations and standards as well as policies, contracts and other obligations related to data privacy and security. Failure to comply, or perceived failure to comply, with federal, state and foreign laws and regulations, privacy policies and our contractual obligations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in customer acquisition or retention or otherwise harm our business.

 

The information that we, and third parties acting on our behalf. Process may include proprietary and confidential business information, trade secrets, intellectual property, customer payment information, personal

 

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information and other sensitive third-party information. A variety of federal, state, local and foreign laws and regulations, orders, rules, codes, regulatory guidance and certain industry standards regarding privacy, data protection, consumer protection, information security and the Processing of personal information and other data (“Data Protection Laws”) apply to our business. Such Data Protection Laws include, for example and without limitation, the Payment Card Industry Data Security Standard laws relating to consumer protection, including California’s Consumer Legal Remedies Act and unfair competition and false advertising laws, the TCPA, Canada’s Anti-Spam Law (“CASL”), the GDPR, the CCPA and other recently enacted consumer data protection laws. We are also subject to the terms of our internal and external privacy and security policies, codes, representations, certifications, publications and frameworks (“Privacy Policies”) and obligations (including contractual obligations) to third parties related to privacy, data protection, consumer protection, information security and the Processing of personal information (together, “Data Protection Obligations”).

 

Data Protection Laws are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other laws or rules, with our practices, or with Data Protection Obligations. As a result, our practices likely have not always historically complied or may not currently or in the future comply with all Data Protection Laws and Data Protection Obligations. Compliance with Data Protection Laws and Data Protection Obligations may require costly changes and investments, including changes to our data Processing and certain other related business practices (including limits on our ability to store and Process certain data), material modifications to our products or operations and limits on our ability to develop new services and features that make use of personal information that our customers and other third parties share. Such costs and changes could have an adverse effect on our business. We expect that there will continue to be new Data Protection Laws and Data Protection Obligations, and we cannot yet determine the impact such future Data Protection Laws and Data Protection Obligations may have on our business.

 

Foreign Data Protection Laws may be, and often are, more restrictive than those in the U.S. The European Union, for example, traditionally has imposed stricter obligations under its Data Protection Laws than the U.S. In May 2018, the European Union’s new regulation governing data practices and privacy called the GDPR became effective and substantially replaced the data protection laws of the individual European Union member states. The GDPR regulates the Processing of data that can directly or indirectly identify a living individual (“personal data”) and requires companies to meet stringent requirements regarding the handling of personal data of individuals in the EU. In the United Kingdom (“UK”), notwithstanding the UK’s withdrawal from the EU, a Data Protection Law that substantially implements the GDPR applies (the so-called “UK GDPR”). Both the EU and UK GDPR provide for substantial penalties for non-compliance, and may result in monetary penalties of up to 20.0 million Euros or 4% of a company’s worldwide turnover, whichever is higher. The GDPR and other similar regulations require companies to give specific types of notice and in some cases seek consent from consumers and other individuals before collecting or using their data for certain purposes, including some marketing activities.

 

In addition, many jurisdictions have enacted data localization laws or other laws or regulations restricting cross-border data transfers. For example, the GDPR generally restricts the transfer of personal data to countries outside of the EEA, such as the U.S., which are not considered by the European Commission to provide an adequate level of data protection. A recent decision by the Court of Justice of the European Union (the “Schrems II” ruling) invalidated the EU-U.S. Privacy Shield Framework, one of the primary mechanisms U.S. companies used to import personal data from Europe, and raised questions about whether the European Commission’s Standard Contractual Clauses (“SCCs”), an alternative to the Privacy Shield, can lawfully be used for cross-border data transfers. On June 4, 2021, the European Commission adopted new SCCs under the GDPR for personal data transfers outside the EEA. Under this legal mechanism, we may have obligations to conduct data transfer impact assessments for such cross-border data transfers and to implement additional security measures to protect and secure transferred data. If we elect to rely on the new SCCs, we may be required to expend significant resources to update our contractual arrangements and to comply with such obligations. If we are unable to implement a valid compliance mechanism for cross-border data transfers, we may face increased

 

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exposure to regulatory actions, substantial fines and injunctions against processing or transferring personal data from Europe and we could be rendered unable to transfer personal data between and among countries and regions in which we operate, which could affect the manner in which we provide our services and the geographical location or segregation of our relevant systems and operations. Inability to import or otherwise transfer personal data from Europe may significantly and negatively impact our business operations, including our relationships with vendors, contractors and other companies subject to European data protection laws or may require us to increase our data Processing capabilities within Europe at significant expense.

 

Outside of the European Union and UK, many countries and territories have Data Protection Laws, and new countries and territories are adopting such legislation or other obligations with increasing frequency. Many of these laws may require consent from consumers for the use of data for various purposes, including marketing, which may reduce our ability to market the products we offer. There is no harmonized approach to Data Protection Laws globally. Consequently, we would increase our risk of non-compliance with applicable foreign Data Protection Laws by expanding internationally. We may need to change and limit the way we use personal information in operating our business and may have difficulty maintaining a single operating model that is compliant with all applicable Data Protection Laws and Data Protection Obligations.

 

In the U.S., states have enacted various Data Protection Laws, including data breach notification laws, personal data privacy laws, health information privacy laws and consumer protection laws. The federal government has also enacted multiple Data Protection Laws, including health information privacy and consumer protection laws, and several additional privacy and consumer protection laws have been introduced in recent years. For example, California recently enacted the CCPA, which established a new privacy framework for covered businesses such as ours and imposed a number of requirements and restrictions, including requirements regarding the disclosures that must be made to California consumers and regarding the implementation of new and enhanced data privacy rights for California residents (including the ability to opt out of certain sales of personal information). The CCPA provides for civil penalties for violations and creates a private right of action for certain data breaches that is expected to increase data breach litigation. It remains unclear how various provisions of the CCPA will be interpreted and enforced. In November 2020, the CPRA was passed and will take effect in January 2023 (with a lookback for certain requirements to January 2022). The CPRA will significantly modify the CCPA. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. See the Risk Factor captioned “If the use of ‘cookie’ tracking technologies is further restricted, regulated, or blocked, or if changes in technology cause cookies to become less reliable or acceptable as a means of tracking consumer behavior, the amount or accuracy of Internet user information we collect would decrease, which could harm our business, financial condition, results of operations and prospects” for more information regarding the CCPA and CPRA. We may be subject to additional privacy regulations in the future, including the Virginia Consumer Data Protection Act (the “VCDPA”) and the Colorado Privacy Act (the “CPA”), both of which recently passed. Like the CCPA and CPRA, the VCDPA and CPA, which regulate the Processing of “personal data” regarding Virginia and Colorado residents, respectively, grants residents of their respective states certain rights with respect to their personal data; however, the laws still differ from each other in many ways, and it is unclear how these laws will be interpreted and enforced. State laws are changing rapidly and new legislation proposed or enacted in a number of other states imposes, or has the potential to impose, additional obligations on companies that Process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally. The U.S. federal government is also significantly focused on privacy matters. For example, there is discussion in Congress of a new federal data protection and privacy law to which we may become subject if it is enacted. Additionally, governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission have adopted, or are considering adopting, laws and regulations concerning personal information and data security.

 

The myriad foreign and U.S. Data Protection Laws are not consistent, and compliance is difficult and may be costly. For example, in the event of a widespread data breach, different U.S. states have a variety of data breach notification requirements, some of which conflict, or are inconsistent, with one another. In addition to government regulation, privacy advocates and industry groups have and may in the future propose new self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to

 

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comply with such standards. We expect that there will continue to be new proposed and enacted Data Protection Laws concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. Because the interpretation and application of many Data Protection Laws and Data Protection Obligations are still uncertain, and may be contradictory and in flux, it is possible that the scope and requirements of these laws may be interpreted and applied in a manner that is inconsistent with our practices or with other Data Protection Laws or Data Protection Obligations to which we are subject and our efforts to comply may be unsuccessful.

 

We make public statements about our use and disclosure of personal information through our Privacy Policies, including information provided on our websites. Although we endeavor to ensure that our public statements are complete, accurate and fully implemented, we may at times fail to do so or be alleged to have failed to do so. We may be subject to potential regulatory or other legal action if such policies or statements are found to be deceptive, unfair, misleading or misrepresentative of our actual practices. In addition, from time to time, concerns may be expressed about whether our products or services compromise the privacy of our users and others. Any concerns about our data privacy and security practices (even if unfounded), or any failure, real or perceived, by us or vendors or other third parties acting on our behalf to comply with our Privacy Policies or with any applicable Data Protection Laws or other Data Protection Obligations, could cause our users to reduce their use of our products and services.

 

While we aim to comply with Data Protection Laws and Data Protection Obligations in all material respects, there is no assurance that we will not be subject to claims that we have violated such laws and obligations, that we will be able to successfully defend against such claims or that we will not be subject to significant fines and penalties in the event of non-compliance. Additionally, to the extent multiple state-level laws are introduced with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could be difficult and costly to achieve, or impossible to achieve, and we could be subject to fines and penalties in the event of non-compliance. Any failure, or perceived failure, by us or any third parties with whom we do business to comply with Data Protection Laws or Data Protection Obligations, a finding that our Privacy Policies are wholly or partially inaccurate, incomplete, deceptive, unfair or misrepresentative of our actual practices, or any data compromise that results in the unauthorized release or transfer of business or personal information could adversely affect our reputation, brand and business, and may result in claims, litigation (including class action lawsuits), investigations, audits, inquiries, whistleblower complaints, proceedings or actions against us by governmental entities, individuals, consumer rights groups or others and may cause or result in significant fines, costs (including defense costs), damages, penalties (civil and criminal), reputational harm, adverse media coverage, diversion of resources, loss of customers and vendors, an inability to process credit card payments, claims of breach of contract and indemnity by third parties, or other liabilities or may require us to change our operations and/or cease or modify our use of certain data sets.

 

Government and industry regulation of the Internet and eCommerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business, financial condition, and results of operations.

 

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and eCommerce. Existing and future regulations and laws could impede the growth of the Internet, eCommerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy, data protection, data security, anti-spam, content protection, electronic contracts and communications, enforceability of online terms, consumer protection, website accessibility, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy and data protection apply to the Internet as many of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or eCommerce. It is possible that general business regulations and laws, or those specifically governing the Internet or eCommerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Furthermore, the regulatory landscape impacting Internet and eCommerce is constantly evolving. Furthermore, the regulatory landscape impacting Internet and eCommerce businesses is constantly evolving. We cannot be sure that our practices have complied, comply or will

 

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comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could adversely affect our reputation, our RueLaLa and Gilt brands, and business, and may result in investigations, claims, proceedings or actions against us by governmental entities or others or require us to change our operations. The results of any such investigations, proceedings or actions are inherently unpredictable and expensive. Any claim against us, whether meritorious or not, could be time-consuming, may hurt our reputation, brand identities and business, force us to incur significant expenses in defense of such proceedings, require significant amounts of management time, divert significant resources, increase our costs of doing business, result in a loss of customers and vendors and may result in monetary damages or obligations, penalties, fines, injunctive relief or other nonmonetary obligations, or limits on our ability to operate our business, which could have an adverse effect on our business, financial condition and operating results. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws, regulations or other legal obligations. In addition, it is possible that governments of one or more countries or territories may seek to censor content available on our sites or may even attempt to completely block access to our sites. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries or territories, our ability to retain or increase our customer base may be adversely affected, and we may not be able to maintain or grow our net revenue and expand our business as anticipated.

 

Our reliance on overseas supply partners, including those located in jurisdictions presenting an increased risk of bribery and corruption, exposes us to legal, reputational and supply chain risk through the potential for violations of federal and international anti-corruption law.

 

We utilize a third-party service provider to facilitate sales of our goods to international customers and derive a portion of our products from supply partners who may have operations in foreign countries and territories, including countries and territories perceived to carry an increased risk of corrupt business practices. The U.S. Foreign Corrupt Practices Act (the “FCPA”) prohibits U.S. corporations and their representatives from offering, promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad. Notwithstanding our efforts to conduct our operations in material compliance with the FCPA, our international vendors could be determined to be our “representatives” under the FCPA, which could expose us to potential liability for the actions of these vendors under the FCPA. If we or our vendors were determined to have violated the FCPA, the U.K. Bribery Act of 2010, or any of the anti-corruption and anti-bribery laws in the countries and territories where we and our vendors do business, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting certain business and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, the costs we may incur in defending against any anti-corruption investigations stemming from our or our vendors’ actions could be significant. Moreover, any actual or alleged corruption in our supply chain could carry significant reputational harms, including negative publicity, loss of good will and decline in share price.

 

Legislative or regulatory initiatives related to climate change could have a material adverse effect on our business.

 

Greenhouse gases may have an adverse effect on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. Such events could have a negative effect on our business. Concern over climate change may result in new or additional legislative and regulatory requirements to reduce or mitigate the effects of climate change on the environment, which could result in future tax, transportation and utility increases, which could have a material adverse effect our business. There is also increased focus, including by investors, customers and other stakeholders, on these and other sustainability matters, including the use of plastic, energy, waste, and worker safety. Our reputation could be damaged if we do not, or are perceived to not, act responsibly with respect to sustainability matters, which could also have a material adverse effect on our business, results of operations, financial position and cash flows.

 

In addition, we are active in an industry that is not considered to be environmentally sustainable and we depend on shipping logistics, which lead to a high output of carbon dioxide. As a result, our customers might

 

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refuse to acquire products from us and turn to more sustainable competitors or refrain from acquiring luxury or premium products at all. If we take steps to voluntarily mitigate our impact on climate change, we may experience increases in energy and transportation costs, capital expenditures or insurance premiums and deductibles. Inconsistency of legislation and regulations among jurisdictions may also affect the costs of compliance with such laws and regulations. Any assessment of the potential impact of future climate change legislation, regulations or industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change in the U.S. and in other countries in which we currently operate or may in the future operate.

 

Uncertainty in future changes to legislation, regulatory reform or policies could have a material adverse effect on our business.

 

Tax laws, tariff, regulations and policies in various jurisdictions may be subject to significant change due to economic, political and other conditions. Such changes, including additional taxes and tariffs, may result in additional costs to our business and could require us to increase prices to our customers or, if unable to do so, result in a material adverse effect on our financial performance.

 

We may experience fluctuations in our tax obligations and effective tax rate, which could adversely affect our operating results.

 

We are subject to taxes in the U.S. and Canada. We record tax expense based on current tax liabilities and our estimates of future tax liabilities, which may include reserves for estimates of probable settlements of tax audits. At any one-time, multiple tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are re-evaluated. Further, our effective tax rate in a given financial statement period may be materially impacted by changes in tax laws, changes in the mix and level of earnings by taxing jurisdictions, or changes to existing accounting rules or regulations. There are numerous factors that could affect our tax rate. These may include, among other factors, intercompany transactions, losses incurred in jurisdictions for which we are not able to realize the related tax benefits, and entry into new businesses and geographies. Fluctuations in our tax obligations and effective tax rate could adversely affect our business, financial condition, results of operations and prospects.

 

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our products and adversely affect our business and operating results.

 

On June 21, 2018, the U.S. Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state retailers even if those retailers lack any physical presence within the states imposing sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states, both before and after the Supreme Court’s ruling, have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state retailers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment of these laws, and it is possible that states may seek to tax out-of-state retailers, including for prior tax years. Although we believe that we currently collect sales taxes in all states that have adopted laws imposing sales tax collection obligations on out-of-state retailers since Wayfair was decided, a successful assertion by one or more states requiring us to collect sales taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some sales taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments of sales tax collection obligations on out-of-state retailers in jurisdictions where we do not currently collect sales taxes, whether for prior years or prospectively, could also create additional administrative burdens for us, potentially putting us at a competitive disadvantage if they do not impose similar obligations on our

 

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competitors and decrease our future sales, which could have a material adverse impact on our business and operating results.

 

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

 

As of January 2, 2021, we had U.S. federal net operating loss (“NOL”) carryforwards of approximately $115.4 million and state NOL carryforwards of approximately $82.6 million, and we may not achieve profitability in the future. U.S. federal and certain state NOLs generated in taxable years beginning after December 31, 2017 are not subject to expiration. U.S. federal NOLs generally may not be carried back to prior taxable years except that, under the Coronavirus Aid, Relief and Economic Security (CARES) Act, U.S. federal NOLs generated in 2018, 2019 and 2020 may be carried back to each of the five taxable years preceding the taxable year in which the loss arises. Additionally, for taxable years beginning after December 31, 2020, the deductibility of U.S. federal NOLs is limited to 80% of our taxable income in such taxable year. NOLs generated in tax years before 2018 may still be used to offset future taxable income without regard to the 80% limitation, although they have the potential to expire without being utilized if we do not achieve profitability in the future. However, under the rules of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a rolling three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change taxable income or taxes may be limited. The applicable rules generally operate by focusing on changes in ownership among stockholders considered by the rules as owning, directly or indirectly, 5% or more of the stock of a corporation, as well as changes in ownership arising from new issuances of stock by the corporation. If finalized, Treasury Regulations currently proposed under Section 382 of the Code may further limit our ability to utilize our pre-change NOLs or other pre-change tax attributes if we undergo a future ownership change. We could experience one or more ownership changes in the future, including in connection with this Business Combination and as a result of future changes in our stock ownership, some of which may be outside our control. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset post-change taxable income may be subject to limitations. For these reasons, we may not be able to utilize a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.

 

Risks Relating to Our Common Stock and this Offering

 

The market price of our common stock may be volatile or may decline regardless of our operating performance, which could cause the value of your investment to decline.

 

The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. We cannot assure you that the market price following this offering will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time before this offering. The market price of our common stock may fluctuate or decline significantly in response to numerous factors, including variations in our quarterly operating results, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships or capital commitments, adverse publicity about our industry or reputational harm, and in response the market price of shares of common stock could decrease significantly. You may be unable to resell your shares of common stock at or above the initial public offering price.

 

Stock markets and the price of our shares may experience extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities,

 

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securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

An active trading market for our common stock may never develop or be sustained.

 

We have applied to list our common stock on Nasdaq, under the symbol “RGG.” However, we cannot assure you that an active trading market for our common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our common stock will develop or be maintained, the liquidity of any trading market, your ability to sell your shares of our common stock when desired, or the prices that you may obtain for your shares. To the extent any of our executive officers, directors or employees purchase shares in this offering, fewer shares may be actively traded in the public market because these stockholders will be restricted from selling the shares by a lock-up restriction, which would reduce the liquidity of the market for our common stock. See the section titled “Underwriting” for additional information.

 

Future sales of shares by existing stockholders could cause our stock price to decline.

 

If our existing stockholders, including employees and service providers who obtain equity, sell or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on shares outstanding as of                 , 2021, upon the completion of this offering, we will have outstanding a total of                  shares of common stock. Each of our directors, executive officers, and securityholders, have agreed with the underwriters that (i) with respect to us, for a period of 180 days following the date of this prospectus and (ii) with respect to our directors, executive officers and securityholders, for a period that is the earlier of (a) 180 days following the date of this prospectus and (b) the third trading day following the Early Expiration Threshold Date, provided that the conditions described below are met, we and they will not, subject to certain exceptions, without the prior written consent of Citigroup Global Markets Inc. and BofA Securities, Inc., offer, sell, contract to sell, pledge, hedge or otherwise dispose of any of shares of our common stock or any securities convertible into or exchangeable for shares of our common stock. However, Citigroup Global Markets Inc. and BofA Securities, Inc. may, in their discretion, waive the contractual lock-up before the lock-up agreements expire. After the lock-up agreements expire,                  shares outstanding as of                 , 2021 (assuming the completion of the offering) will be eligible for sale in the public market, of which                  shares are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 of the Securities Act, and various vesting agreements. Sales of a substantial number of such shares upon expiration of the lock-up agreements, the perception that such sales may occur or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate. See the section titled “Underwriting” for additional information.

 

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways that may not yield a return.

 

We currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including sales and marketing expenses, operating expenses, capital expenditures, and for working capital. We may also use a portion of the net proceeds from this offering for the acquisition of, or investment in, brands or businesses that complement our business, although we have no present commitments or agreements to enter into any such acquisition or investment. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for purposes that do not increase the value of our business or increase the risks to you, which could cause the price of our common stock to decline. Until net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

 

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If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business or our market, or if they adversely change their recommendations regarding our common stock, the trading price or trading volume of our common stock could decline.

 

The trading market for our common stock will be influenced in part by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If one or more of the analysts initiate research with an unfavorable rating or downgrade our common stock, provide a more favorable recommendation about our competitors or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our common stock to decline.

 

We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

 

We are an emerging growth company, and for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including:

 

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not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;

 

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reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and

 

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exemptions from the requirements of holding non-binding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We could be an emerging growth company for up to five years following the completion of this offering. Our status as an emerging growth company will end as soon as any of the following takes place:

 

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the last day of the fiscal year in which we have more than $1.07 billion in annual revenue;

 

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the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates;

 

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the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or

 

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the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.

 

We cannot predict if investors will find our common stock less attractive if we choose to rely on any of the exemptions afforded to emerging growth companies. If some investors find our common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our common stock and the market price of our common stock may be more volatile.

 

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of this extended transition period, and as a result, our financial statements may not be comparable with similarly situated public companies.

 

Future securities issuances could result in significant dilution to our stockholders and impair the market price of our common stock.

 

Future issuances of shares of our common stock, or the perception that these sales may occur, could depress the market price of our common stock and result in dilution to existing holders of our common stock. Also, to the

 

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extent outstanding options and warrants to purchase our shares of our common stock are exercised or options or other equity-based awards are issued or become vested, there will be further dilution. The amount of dilution could be substantial depending upon the size of the issuances or exercises. Furthermore, we may issue additional equity securities that could have rights senior to those of our common stock. As a result, purchasers of our common stock in this offering bear the risk that future issuances of debt or equity securities may reduce the value of our common stock and further dilute their ownership interest.

 

We do not currently intend to pay dividends for the foreseeable future.

 

We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not currently expect to declare or pay any dividends for the foreseeable future. Moreover, the terms of our existing credit agreement restrict our ability to pay dividends, and any additional debt we may incur in the future may include similar restrictions. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock. As a result, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. As a result, investors seeking cash dividends should not purchase our common stock. See the section titled, “Dividend Policy.”

 

The requirements of being a public company may strain our resources, result in more litigation and divert management’s attention.

 

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of Nasdaq and other applicable securities rules and regulations. Complying with these rules and regulations has increased and will increase our legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are required to disclose changes made in our internal control and procedures on a quarterly basis. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

 

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected. These new rules and regulations may make it more expensive for us to obtain director and officer liability insurance, and in the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

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By disclosing information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If those claims are successful, our business could be seriously harmed. Even if the claims do not result in litigation or are resolved in our favor, the time and resources needed to resolve them could divert our management’s resources and seriously harm our business.

 

Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect immediately prior to the completion of this offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

 

Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect immediately prior to the completion of this offering contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change of control of the Company or changes in our management that our stockholders may deem advantageous. These provisions include the following:

 

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permit the directors to serve on our Board of Directors for different term lengths depending upon particular classifications, establish the number of directors and fill any vacancies and newly created directorships;

 

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require super-majority voting to amend some provisions in our certificate of incorporation and bylaws;

 

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authorize the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan;

 

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eliminate the ability of our stockholders to call special meetings of stockholders;

 

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prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

 

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provide that the Board of Directors is expressly authorized to make, alter or repeal our bylaws;

 

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restrict the forum for certain litigation against us to Delaware; and

 

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establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

 

Any provision of our amended and restated certificate of incorporation or amended and restated bylaws, that will be in effect immediately prior to the completion of this offering or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. For information regarding these and other provisions, see the section titled “Description of Capital Stock—Anti-Takeover Provisions.”

 

Our amended and restated bylaws that will be in effect immediately prior to the completion of this offering will provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

 

Our amended and restated bylaws that will be in effect immediately prior to the completion of this offering will provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for:

 

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any derivative action or proceeding brought on our behalf;

 

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any action asserting a breach of fiduciary duty;

 

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any action asserting a claim against us arising under the Delaware General Corporation Law, our certificate of incorporation or our bylaws; and

 

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any action asserting a claim against us that is governed by the internal-affairs doctrine.

 

These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our current amended and restated certificate of incorporation provides, and our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective immediately prior to the completion of this offering, will provide, that the federal district courts of the U.S. will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, including all causes of action asserted against any defendant named in such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our current amended and restated certificate of incorporation, and our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective immediately prior to the completion of this offering. This may require significant additional costs associated with resolving such action in other jurisdictions and the provisions may not be enforced by a court in those other jurisdictions. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation or bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the exclusive-forum provision in our bylaws that will be in effect immediately prior to the completion of this offering to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business. These exclusive-forum provisions do not apply to claims under the Securities Act or the Exchange Act.

 

General Risk Factors

 

We will incur significant expenses as a result of being a public company, which could materially adversely affect our business, financial condition, results of operations and prospects.

 

As a public company, we will incur significant legal, accounting, and other expenses that we have not incurred as a private company. We will be subject to the reporting requirements of the Exchange Act, the applicable requirements of the Sarbanes-Oxley Act, the Dodd-Frank Act, the rules and regulations of the SEC, and the listing standards of Nasdaq. We expect such expenses to further increase after we are no longer an “emerging growth company.” Stockholder activism and the level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional significant compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. The increased costs will increase our net loss or decrease our net income, and may require us to reduce costs in other areas of our business or increase prices, which could result in a reduction in net revenue. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, on our Board committees, or as executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be

 

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subject to delisting of our common stock, fines, sanctions, and other regulatory action and, potentially, civil litigation.

 

Further, the majority of our management team have either no or limited experience in managing publicly traded companies. Our management team may not successfully or efficiently manage our transition to being a public company and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, and could materially adversely affect our business, financial condition, results of operations and prospects.

 

If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.

 

We have been a private company since inception, and as such, we have not had the internal control and financial reporting requirements that are required of a publicly traded company. We are required to comply with the requirements of the Sarbanes-Oxley Act, following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an “emerging growth company,” as defined in the JOBS Act, which could be as early as our first fiscal year beginning after the effective date of this offering. The Sarbanes-Oxley Act requires that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation, document our controls and perform testing of our key controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock would likely decline and we could be subject to lawsuits, sanctions or investigations by regulatory authorities, which would require additional financial and management resources.

 

We continue to invest in more robust technology and in more resources in order to manage those reporting requirements. Implementing the appropriate changes to our internal controls may distract our officers and employees, result in substantial costs to implement new processes or modify our existing processes and require significant time to complete. Any difficulties or delays in implementing the system could impact our ability to timely report our financial results. In addition, we currently rely on a manual process in some areas which increases our exposure to human error or intervention in reporting our financial results. For these reasons, we may encounter difficulties in the timely and accurate reporting of our financial results, which would impact our ability to provide our investors with information in a timely manner. As a result, our investors could lose confidence in our reported consolidated financial information, and our stock price could decline.

 

In addition, any such changes do not guarantee that we will be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy could prevent us from accurately reporting our financial results.

 

Our quarterly operating results may fluctuate, which could cause our stock price to decline.

 

Our quarterly operating results may fluctuate for a variety of reasons, many of which are beyond our control. These reasons include those described in this “Risk Factors” section, as well as the following:

 

•

fluctuations in net revenue generated from the brands on our sites, including as a result of seasonality;

 

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•

fluctuations in product mix between sites;

 

•

our ability to effectively launch new product offerings;

 

•

fluctuations in the levels or quality of inventory;

 

•

fluctuations in capacity as we expand our operations;

 

•

our success in engaging existing customers and attracting new customers;

 

•

the amount and timing of our operating expenses;

 

•

the timing and success of new products and brands we introduce;

 

•

the impact of competitive developments and our response to those developments;

 

•

our ability to manage our existing business and future growth;

 

•

the continuing effect of the COVID-19 pandemic on our business and operations;

 

•

disruptions or defects in our sites, such as ransomware, supply chain attacks, privacy or data security breaches; and

 

•

economic and market conditions, particularly those affecting our industry.

 

Fluctuations in our quarterly operating results may cause those results to fall below the expectations of analysts or investors, which could cause the price of our common stock to decline. Fluctuations in our results could also cause a number of other problems. For example, analysts or investors might change their models for valuing our common stock, we could experience short-term liquidity issues, our ability to retain or attract key personnel may diminish and other unanticipated issues may arise. Accordingly, you should not rely on the results of one quarter as an indication of future performance.

 

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the U.S.

 

Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. Any change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.

 

We are subject to changing laws and regulations regarding regulatory matters, corporate governance, and public disclosure that have increased our costs and the risk of non-compliance.

 

We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in increased general and administrative expenses and a diversion of management time and attention.

 

Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include all statements that are not historical facts such as information concerning our possible or assumed future results of operations and expenses, business strategies and plans, competitive position, business environment and potential growth strategies and opportunities. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

 

Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

•

our future financial performance, including our expectations regarding our net revenue, gross margin, Active Buyer count metrics and other operating results, as well as our ability to achieve and maintain future profitability;

 

•

our business plan, beliefs and objectives for future operations;

 

•

our ability to continue to experience and effectively manage our rapid growth;

 

•

our market opportunity;

 

•

our ability to promote our brands, particularly the RueLaLa and Gilt brands;

 

•

our ability to increase sales of our products, further penetrate our existing customer base and maintain and expand our customer base;

 

•

our ability to develop new products and bring them to market in a timely manner;

 

•

our expectations concerning relationships with our brand partners;

 

•

our ability to maintain, protect and enhance our intellectual property;

 

•

the effects of increased competition in our markets and our ability to compete effectively;

 

•

the effects of the coronavirus, or COVID-19, pandemic or other public health crises; and

 

•

economic and industry trends, projected growth or trend analysis.

 

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Those risks include those described in the section titled “Risk Factors” and elsewhere in this prospectus. The inclusion of forward-looking information should not be regarded as a representation by us, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Given these uncertainties, you should not place undue reliance on any forward-looking statements in this prospectus. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, and any related free writing prospectus, completely and with the understanding that our actual future results may be materially different from what we expect. See the section titled “Where You Can Find More Information.”

 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

 

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Any forward-looking statement made by us in this prospectus speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

 

56

MARKET, INDUSTRY DATA AND USER METRICS

 

This prospectus contains estimates and information concerning our industry, including market position, market size, and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in these publications and reports.

 

In addition, industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third parties. The third-party industry publications, studies and surveys contained in this prospectus are provided below:

 

•

QYResearch, COVID-19 Impact on Global Off Price Retail Market Size, Status and Forecast, 2020 – 2026;

 

•

Statista, eCommerce Report 2020 – Fashion;

 

•

Euromonitor International Limited, Global Retail Market Retail Sales Value;

 

•

eMarketer, Retail ecommerce sales, US;

 

•

Deloitte, 2021 Retail Industry Outlook; and

 

•

McKinsey & Company, Perspectives on Retail and Consumer Goods, August 2020. All references to McKinsey & Company or McKinsey refer to the foregoing publicly-available source, and all of the McKinsey sources cited herein, including all statistics and other information referenced or derived therefrom, have been sourced from publicly available sources.

 

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USE OF PROCEEDS

 

We estimate that our net proceeds from this offering will be approximately $             million (or approximately $             million if the underwriters exercise their option to purchase additional shares in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover of this prospectus).

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover of this prospectus) would increase (decrease) the net proceeds to us by $             million, assuming that the number of shares offered by us on the cover of this prospectus remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us as set forth on the cover of this prospectus would increase (decrease) the net proceeds to us by approximately $             million, assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The principal purposes of this offering are to increase our capitalization and financial flexibility and create a public market for our common stock, obtain additional working capital, and facilitate our future access to the public equity markets to allow us to implement our business plan. We currently intend to use the net proceeds received by us from this offering for sales and marketing expenses to fund the growth of our business, operating expenses, and capital expenditures, and the remainder, if any, for working capital and other general corporate purposes. In addition, we may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. However, we have no current understandings, agreements or commitments for any specific material acquisitions at this time. We cannot specify with certainty the particular uses of the net proceeds to be received upon the completion of this offering. Accordingly, we will have broad discretion in using these proceeds.

 

The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending our use of the net proceeds received by us from this offering, we intend to invest the net proceeds in short and intermediate term, interest-bearing obligations, investment grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

 

58

DIVIDEND POLICY

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of our existing credit agreement restrict our ability to pay dividends. Any future decision to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws. The terms of our existing credit facility restrict our ability to pay dividends, and any additional future debt we incur or preferred securities we issue may contain similar restrictions.

 

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CAPITALIZATION

 

The following table sets forth our cash and capitalization as of October 2, 2021 on:

 

•

an actual basis;

 

•

an as adjusted basis to give effect to the issuance and sale of                  shares of our common stock in this offering at an assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The as adjusted information below is illustrative only, and our cash, total stockholders’ equity and total capitalization after this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with the sections titled “Prospectus Summary—Summary Consolidated Financial and Other Data,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock” and our interim condensed consolidated financial statements and related notes included elsewhere in this prospectus.

 

		As of October 2, 2021
		Actual				As Adjusted
		(unaudited) (in thousands, except share and per share data)
Cash		$	653			$
Credit Facility(1)			30,225
Stockholders’ equity:
Preferred stock, $0.01 par value; no shares authorized, issued and outstanding, actual;              shares authorized, no shares issued and outstanding, as adjusted			—				—
Common stock, $0.001 par value; 265,000,000 shares authorized, 233,632,399 shares issued and outstanding, actual;              shares authorized,              shares issued and outstanding, as adjusted			233
Additional paid-in capital			296,963
Accumulated deficit			(204,115	)
Total stockholders’ equity			93,081
Total capitalization		$	123,306			$

 

(1)

As of October 2, 2021, available borrowings under the Credit Facility, after consideration of the borrowing base and minimum availability covenant was $14.4 million. For a further description and definition of the Credit Facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Indebtedness.”

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover of this prospectus) would increase (decrease) the as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity, and total capitalization by $             million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover of this prospectus, would increase (decrease) the as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity, and total capitalization by $             million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The information presented in the table above is based on 233,632,399 shares of our common stock outstanding as of October 2, 2021, and excludes:

 

•

7,286,343 shares of our common stock issuable upon the exercise of options outstanding as of October 2, 2021 under the 2011 Plan, with a weighted-average exercise price of approximately $0.68 per share;

 

•

shares of our common stock reserved for issuance under our equity compensation plans, consisting of:

 

•

shares of our common stock that will be reserved for issuance under the 2021 Plan, which will become effective on the date immediately prior to the date our registration statement of which this prospectus forms a part becomes effective (and which excludes any potential annual evergreen increases pursuant to the 2021 Plan); and

 

•

2,422,567 shares remaining available for future issuance under the 2011 Plan, as of October 2, 2021, which will cease to be available for future issuance at the time that the 2021 Plan becomes effective.

 

Our 2021 Plan provides for annual automatic increases in the number of shares reserved thereunder, as well as for increases to the number of shares of common stock that may be granted thereunder based on shares underlying any awards under the 2011 Plan that expire, are forfeited or are otherwise terminated, as more fully described in the section titled “Executive Compensation—Equity Plans—2021 Plan.”

 

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DILUTION

 

If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock immediately after this offering. Dilution results from the fact that the per share offering price of our common stock is substantially higher than the book value per share attributable to our existing stockholders.

 

Our historical net tangible book value as of October 2, 2021 was $18.7 million or $0.08 per share of our common stock, based on 233,632,399 shares of common stock outstanding. Our historical net tangible book value represents the amount of our total tangible assets less our total liabilities. Historical net tangible book value per share represents historical net tangible book value divided by the number of shares of common stock outstanding as of October 2, 2021.

 

After giving effect to our sale in this offering of shares of common stock at an assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of October 2, 2021 would have been approximately $         million, or $         per share of common stock. This represents an immediate as adjusted dilution of $         per share to investors purchasing shares in this offering.

 

The following table illustrates the dilution per share of our common stock, assuming the underwriters do not exercise their option to purchase additional shares in full:

 

Assumed initial public offering price per share						$
Historical net tangible book value per share as of October 2, 2021		$	0.08
Increase in as adjusted net tangible book value per share attributable to new investors purchasing shares in this offering
As adjusted net tangible book value per share immediately after this offering
Dilution per share to new investors purchasing common stock in this offering						$

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover of this prospectus), would increase (decrease) our as adjusted net tangible book value per share after this offering by $         per share, assuming that the number of shares offered by us, as set forth on the cover of this prospectus remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of 1,000,000 shares in the number of shares offered by us, as set forth on the cover of this prospectus, would increase our as adjusted net tangible book value by $         million, or $         per share, and the dilution per share to new investors participating in this offering by $                 per share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover of this prospectus, would decrease our as adjusted net tangible book value by $         million, or $         per share, and the dilution per share to new investors participating in this offering by $                 per share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions. The as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

 

If the underwriters exercise their option to purchase additional shares in full, the as adjusted net tangible book value per share after giving effect to this offering would be approximately $         million, representing an immediate increase in as adjusted net tangible book value per share of $         to existing stockholders and

 

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immediate dilution in as adjusted net tangible book value per share of $        million, to new investors purchasing common stock in this offering, assuming an initial public offering price of $         per share (the midpoint of the price range set forth on the cover of this prospectus), and after deducting estimated underwriting discounts and commissions.

 

The following table summarizes, on an as adjusted basis described above as of October 2, 2021, the total cash consideration paid and the average price per share paid by our existing stockholders and by our new investors purchasing shares in this offering at the assumed offering price of our common stock of $             per share (the midpoint of the price range set forth on the cover of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us):

 

		Shares Purchased								Total Consideration								Average Price Per Share
		Number				Percent				Amount				Percent
Existing stockholders			233,362,399					%		$	297,196,000					%		$	1.28
New investors																		$
Total							100	%							100	%

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover of this prospectus), would increase (decrease) the total consideration paid by new investors by $         million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by          percentage points and, in case of a decrease, would decrease the percentage of total consideration paid by new investors by         percentage points, assuming that the number of shares offered by us on the cover of this prospectus remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover of this prospectus, would increase (decrease) the total consideration paid by new investors by $         million, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters were to exercise their option to purchase additional shares in full, the percentage of common stock held by existing investors would be reduced to                 % of the total number of shares of our common stock outstanding after this offering, and the percentage of shares of common stock held by new investors would be increased to                 % of the total number of shares of our common stock outstanding after this offering.

 

The foregoing tables and calculations (other than the historical net tangible book value calculation) are based on 233,632,399 shares of our common outstanding as of October 2, 2021, and excludes:

 

•

7,286,343 shares of our common stock issuable upon the exercise of options outstanding as of October 2, 2021 under the 2011 Plan, as amended, with a weighted-average exercise price of approximately $0.68 per share;

 

•

shares of our common stock reserved for issuance under our equity compensation plans, consisting of:

 

•

shares of our common stock that will be reserved for issuance under the 2021 Plan, which will become effective on the date immediately prior to the date our registration statement of which this prospectus forms a part becomes effective (and which excludes any potential annual evergreen increases pursuant to the 2021 Plan); and

 

•

2,422,567 shares remaining available for future issuance under the 2011 Plan, as of October 2, 2021, which will cease to be available for issuance at the time that the 2021 Plan becomes effective.

 

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To the extent that any outstanding options are exercised, new options are issued under our stock-based compensation plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements, our condensed consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts. See “Cautionary Note Regarding Forward-Looking Statements” and “Market, Industry Data and User Metrics.” Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Our fiscal year ends on the closest Saturday to December 31. References in this section to “2019” and “2020” are to our fiscal years ended December 28, 2019 and January 2, 2021, respectively.

 

Overview

 

We are the leading premium and luxury off-price eCommerce company in the U.S., delivering a daily curated, high-end shopping experience for our members. We operate primarily through RueLaLa and Gilt, two luxury off-price eCommerce destinations that were purpose-built for online and off-price. With over 5,000 premium and luxury brands at prices that often are up to 70% off full-price retail, we have become a trusted online fashion authority that provides a differentiated value proposition for a highly coveted shopping demographic. We pioneered premium and luxury off-price eCommerce through our extensive experience in the art of off-price retail, supported by the science of our unique technology platform and data capabilities. We acquired Gilt in 2018 to enhance our scale, increase operating efficiencies and broaden our member file. We maintain RueLaLa and Gilt as two distinct brands given their limited customer overlap with less than 7% of total Active Buyers on both destinations as of October 2, 2021. In 2019, as part of its investment, Simon contributed Shop Premium Outlets, an emerging eCommerce off-price premium and luxury outlet marketplace that benefits from Simon’s strong relationships with brands and loyal following of visitors to its properties, including its Simon Premium Outlets^® locations. Collectively with RueLaLa, Gilt and Shop Premium Outlets, we have established a leading disruptive premium and luxury off-price eCommerce platform supported by our combined customer base, brand relationships, data insights, shared technology capabilities and strategic partners. As shown in the following table, since inception, we have transacted over $5.0 billion in GMV on our platform. Management believes that GMV is useful in evaluating our overall volume of transactions and presents GMV as a metric to compare our aggregate operating results over time. GMV enables us to evaluate and compare the total amount of customer spend that is being directed through our sites over a period of time.

 

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For 2020, we generated $571.9 million of net revenue, representing growth of 5.3% from $543.3 million in 2019. For the trailing 12 months ended October 2, 2021, we grew net revenue by 28.3% to $702.5 million from the trailing 12 months in the prior year. We have also incurred operating losses each year since our inception, including a net loss of $(15.9) million and $(16.3) million in 2019 and 2020, respectively, and $(8.8) million for the trailing 12 months ended October 2, 2021. The number of Active Buyers on Rue+Gilt increased to 0.9 million in 2020 and 1.1 million for the trailing 12 months ended October 2, 2021.

 

Our Business Drivers

 

Our growth is driven by new customer acquisition, strong member engagement and net revenue retention, profitable cohort economics and a highly efficient operating model. The key drivers of our business model include increasing the number of Active Buyers and our net revenue while enhancing gross margins and increasing operating cost efficiencies:

 

•

Accelerated customer acquisition:    We increased Active Buyers for Rue+Gilt by 6.8% in 2020 and by 23.5% over the trailing 12 months ended October 2, 2021 over the prior year periods, respectively.

 

•

Strong net revenue retention of existing buyers:    We have a long history of customer loyalty and sustained engagement with 83% average net revenue retention rate of prior customer cohorts since 2014. In 2020, our net revenue retention rate was 87% from prior customer cohorts.

 

•

Increased average net revenue per customer cohort:    Since 2016, the average net revenue per customer cohort increased at a CAGR of 7.3% on our platform, after the first full fiscal year since purchase, exemplifying our member loyalty and ability to increase our Active Buyer spend on our platform over time.

 

•

Profitable cohort unit economics:    Our strong unit economics from our customer is demonstrated by our customer lifetime value to customer acquisition costs of our cohorts since 2016, which increased from 1.4x on average in the first year to 4.0x by the fifth year.

 

•

Gross margins:    We achieved gross margins of 33.9% and 32.5% in 2019 and 2020, respectively. Gross margins for the trailing 12 months ended October 2, 2021 was 33.6%, compared to 32.4% for the trailing 12 months ended September 26, 2020.

 

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•

Driving efficiencies on our platform:    With shared capabilities across our platform, we have driven sourcing and operating cost efficiencies by leveraging our existing infrastructure, as evidenced by our general and administrative expenses of 15.5% in 2019 compared to 13.4% in 2020 as a percentage of net revenue.

 

Key Operating Metrics, GAAP Financial Measures and Non-GAAP Financial Measures

 

We use the following key operating metrics, GAAP financial measures and non-GAAP financial measures to assess the progress of our business, make decisions on where to allocate capital, time and technology investments, and assess the near- and long-term performance of our business:

 

		Fiscal Year Ended								Nine-Month Period Ended
		December 28, 2019				January 2, 2021				September 26, 2020				October 2, 2021
		(in thousands, other than percentages and Net Revenue LTM per Active Buyer)
Operating Metrics
Rue+Gilt
Active Buyers			851				908				876				1,081
Net Revenue LTM per Active Buyer		$	639			$	629			$	624			$	648
RGG GAAP Financial Measures
Net revenue		$	543,304			$	571,914			$	385,930			$	516,472
Gross margin			33.9%				32.5%				32.1%				33.8%
Net loss		$	(15,908	)		$	(16,313	)		$	(20,122	)		$	(12,604	)
Non-GAAP Financial Measures
Adjusted EBITDA*		$	472			$	3,055			$	(5,675	)		$	1,252

*

See “—Non-GAAP Financial Measures – Adjusted EBITDA—Reconciliation of Non-GAAP Financial Measures” below for additional information on this non-GAAP financial measure, including a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, and our calculation of Adjusted EBITDA.

 

Active Buyers

 

We define Active Buyers as the number of unique members who have purchased at least one item on our platform in the trailing 12 months preceding the measurement date, without accounting for returns. A unique member is identified by a unique email address used to make purchases on our platform. The number of Active Buyers is a key driver of net revenue, as well as a measure of the scale, engagement and growth of our customer base. We believe it is also an important indicator of our ability to convert visitation and browsing activity on our websites into net revenue.

 

Net Revenue LTM per Active Buyer

 

We define Net Revenue LTM per Active Buyer as the total net revenue for Rue+Gilt in the trailing 12 months preceding the measurement date divided by the total number of Active Buyers for Rue+Gilt in the same trailing 12 months. The Net Revenue LTM per Active Buyer is a component of net revenue, as well as a useful measure for investors and management to understand our overall market growth and ongoing business operations and trends. However, we may experience intermittent growth in new Active Buyers at different periods of time, as well as changes in product sales mix and other factors, which may cause this metric to fluctuate over consecutive periods and may not be relevant for comparing on a quarterly or year-over-year basis.

 

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Net Revenue

 

Net revenue primarily consists of sales of women’s and men’s apparel, handbags and accessories, beauty, jewelry, footwear, home décor and more sold exclusively through our websites and associated mobile applications. We also earn commissions based on a percentage of net revenue of merchandise on the Shop Premium Outlets marketplace. Net revenue represents the sale of these items and other revenues, such as sales through third-party marketplaces and shipping revenue. Net revenue is reduced for provisions for expected returns and promotional discounts, and excludes sales tax. We derive substantially all of our consolidated net revenue from our Rue+Gilt segment.

 

Gross Margin

 

Gross margin is expressed as gross profit as a percentage of our net revenue. Gross profit is equal to our net revenue less the cost of revenue. Cost of revenue consists of the purchase price of merchandise sold to customers and includes inbound shipping costs, damaged or defective merchandise returned from customers, inventory reserves and other miscellaneous items. During 2019 and 2020, we recorded gross margins of 33.9% and 32.5%, respectively. Our gross margin decreased year-over-year due to the shift in merchandise category mix and increased discounts in 2020 in response to the COVID-19 pandemic.

 

Non-GAAP Financial Measures – Adjusted EBITDA

 

Adjusted EBITDA means net loss adjusted to exclude interest expense, income tax expense, depreciation and amortization, stock-based compensation expense, impairment of intangible assets, IPO-related costs, loss on disposal of property and equipment, acquisition and integration related costs, and severance and other costs. Adjusted EBITDA is a key performance measure used by management and our Board of Directors to assess our consolidated operating performance, to make budgeting decisions, to establish our annual management incentive bonus plan compensation and to compare our performance against other peer companies using similar measures. We believe providing this metric to investors allows for better comparison of our financial results across reporting periods. We believe Adjusted EBITDA is useful for investors as they help identify underlying trends that could otherwise be masked by certain expenses that we do not consider indicative of our long-term operating performance, and is frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

 

Our definition of Adjusted EBITDA may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish similar metrics. Furthermore, this metric has certain limitations in that it does not include the impact of certain expenses that are reflected in our consolidated statement of operations and comprehensive loss that are necessary to run our business. Thus, our Adjusted EBITDA should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP. We compensate for these limitations by providing a reconciliation of Adjusted EBITDA to the related GAAP financial measure, net loss. We encourage investors and others to review our financial information in its entirety and not to rely on any single financial measure.

 

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The following table provides a reconciliation of net loss to Adjusted EBITDA for the periods indicated:

 

		Fiscal Year Ended								Nine-Month Period Ended
		December 28, 2019				January 2, 2020				September 26, 2020				October 2, 2021
Net loss		$	(15,908	)		$	(16,313	)		$	(20,122	)		$	(12,604	)
Adjusted to exclude the following:
Interest expense, net			3,834				1,076				802				1,119
Income tax expense			328				90				189				189
Depreciation and amortization			5,952				9,118				6,955				7,084
Stock-based compensation expense			300				1,076				753				1,771
Impairment of intangible assets(a)			2,533				500				—				—
IPO-related costs(b)			—				—				—				2,559
Loss on disposal of property and equipment			—				4,785				3,251				349
Acquisition and integration related costs(c)			3,433				920				718				375
Severance and other costs(d)			—				1,803				1,779				410
Adjusted EBITDA		$	472			$	3,055			$	(5,675	)		$	1,252

 

(a)

Represents impairment charges related to the RueLaLa trade name within the Rue+Gilt reportable segment during 2019 and 2020. For further information on the impairment charges, see Note 2 and Note 7 of the consolidated financial statements included elsewhere in this prospectus.

(b)

Represents expenses during the nine-month period ended October 2, 2021 primarily composed of legal, accounting and professional fees incurred in connection with this offering that are not capitalizable, which are included within general and administrative expenses.

(c)

Represents acquisition and integration costs primarily related to our acquisition of Shop Premium Outlets in 2019 of $3.4 million, as well as acquisition and integration costs related to our acquisition of Indi.com of $0.9 million in 2020, $0.7 million during the nine-month period ended September 26, 2020 and $0.4 million during the nine-month period ended October 2, 2021.

(d)

Represents severance costs primarily attributable to the cost reduction plan implemented in April 2020 to reduce operating expenses and to better align our workforce with the needs of the Company in light of the COVID-19 pandemic, as well as other recruitment costs for our senior management changes during the nine-month period ended October 2, 2021.

 

Key Factors Impacting Our Performance

 

To help review our business performance, make financial forecasts and devise strategic plans, we focus on the factors described below. While we believe these factors highlight our strengths and significant opportunities for our business, they also show risks that we seek to address on an ongoing basis in order to sustain and accelerate our growth, improve our operating results and achieve greater operating profitability, including those risks discussed below, in the section titled “Risk Factors” elsewhere in this prospectus. Our 13-year operating history provides us with significant data to analyze these factors and an enhanced visibility into the predictability of our model.

 

Customer Acquisition Cost and Lifetime Value (Rue+Gilt)

 

We invest in marketing resources and use a variety of advertising efforts to acquire new customers. To measure the efficacy of our marketing spend in Rue+Gilt, we analyze customer acquisition cost (“CAC”) and customer lifetime value (“LTV”). We believe the LTV:CAC ratio can be used to measure our ability to profitably acquire and retain customers over time while optimizing our customer acquisition spend by marketing channel. In addition, we use LTV:CAC to measure the success of our marketing strategy and the loyalty of our customer base.

 

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Our CAC comprises all of our acquisition marketing expenses that we attribute to acquiring new customers in a given period. We constantly adjust or reallocate our marketing expenses using data analytics and data science models to optimize our spend across channels, media and advertising placements to improve the return on our spend.

 

We define LTV as the cumulative contribution profit attributable to a particular customer cohort, which we define as all of our customers who made their initial purchase during a fiscal year. We define contribution profit as gross profit, less selling and distribution expenses and the portion of marketing expenses attributable to the retention of prior customer cohorts. We measure how efficiently we acquire new customers and the respective return on investment by comparing the LTV of a particular customer cohort with the CAC attributable to such cohort.

 

The following graph depicts our LTV:CAC ratio as an average across fiscal 2016, 2017, 2018, 2019 and 2020 annual cohorts, which includes Gilt for 2019 and 2020 only:

 

Average LTV:CAC by Cohort for Rue+Gilt

 

 

The LTV:CAC of these cohorts has increased over time as a result of repeat purchases and increased spend per retained customer, as discussed in greater detail below in this section. This results in a 4.0x payback on our original cost to acquire the customers within these cohorts, which demonstrates the strength of our marketing efficiency and profitable unit economics. The addition of Gilt customer cohorts improved our average Year 1 LTV:CAC for our 2016 to 2020 cohorts by 3.3% and our Year 2 LTV:CAC for our 2016 to 2019 cohorts by 3.6%.

 

Historically, we have only spent approximately 5% of net revenue on marketing efforts. We believe we have significant potential to grow through increased marketing spend using proven customer acquisition channels in order to acquire more customers. Our marketing capabilities are state-of-the-art, including a dedicated in-house marketing team, agile test and learn methodology, a sophisticated member data platform and investment criteria based on return on investment (“ROI”). We have a highly efficient strategy diversified across key marketing channels, including social media, search, display and television. This provides us with a foundation to drive future growth. We expect to increase our marketing spend significantly and also adjust the composition of our total spend over time to maximize customer acquisition and engagement while maintaining a continued focus on cost optimization and profitable unit economics.

 

Net Customer Revenue Retention and Customer Engagement (Rue+Gilt)

 

In addition to our efficient and profitable customer acquisition, our success is also impacted by our ability to retain customers who make repeat purchases and increase their spending on our platform over time.

 

Net Customer Revenue Retention

 

We have a compelling track record of retaining revenue from our customers, as evidenced by our strong net revenue retention rate. We believe that our strong customer loyalty is demonstrated by the net revenue retention behavior exhibited in our customer cohorts. We define net revenue retention rate as net revenue attributable to all prior year customer cohorts in a given fiscal year divided by the total net revenue attributable to the same customer

 

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cohorts from the prior fiscal year. The following chart summarizes our net revenue retention rate from our prior year customer cohorts since 2014, including Gilt for 2019 and 2020:

 

Net Revenue Retention Rate of Prior Year Cohorts Over Time for Rue+Gilt

 

 

We have a long history of customer loyalty and sustained engagement with 83% average net revenue retention rate of prior customer cohorts since 2014. In 2020, our net revenue retention rate was 87% from prior customer cohorts.

 

Net Revenue Retention Rate of Prior Cohorts for Rue+Gilt

 

This cohort behavior demonstrates our ability to retain customers who are drawn to the value proposition of our platform on an ongoing basis. We believe this strong buyer spend retention over all of our customer cohorts is reflective of our customers’ fierce loyalty and our ability to retain our customers through our diverse and always fresh merchandise offerings and high-end shopping experience.

 

Customer Engagement

 

In addition to our success in retaining customers, the longer our customers remain active on our platform the more they spend over time, as demonstrated by the average net revenue per customer growth of 7.3% CAGR across our 2016 to 2019 cohorts. This trend reflects the value of our loyal and active customers over each cohort’s lifetime, which gives us greater predictability and visibility on our future performance and allows us to manage our business more efficiently. This trend fuels our increasing LTV:CAC ratio over time and reinforces our profitable unit economics. The addition of Gilt customer cohorts improved our average net revenue per customer by $30 in 2020. As a result, we plan to continue to invest in marketing for new customer acquisition to accelerate our growth, as our customers have a demonstrated history of loyalty and increasing spend over time.

 

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We believe that the trends reflected by these customer cohorts are illustrative of the value of our existing customer base of over one million Active Buyers and also of the potential value of acquiring new customers as we increase our marketing spend.

 

This is evidenced by the growth in our average net revenue per customer cohort demonstrated by the below chart, representative of our fiscal 2016, 2017, 2018 and 2019 cohorts, including Gilt for 2019:

 

Average Net Revenue per Customer Cohort for Rue+Gilt

 

 

Merchandise Mix

 

We offer merchandise across a variety of brands, product types and price points. The brands we sell on our platform consist of a mix ranging from established European and domestic luxury brands to emerging premium brands. In general, we offer merchandise from premium and luxury brands across a diverse set of categories, including women’s and men’s apparel, handbags and accessories, beauty, jewelry, footwear, home décor and more. We sell merchandise off-price across a broad range of price points with varying discounts to full-price retail depending on a variety of factors including the brand, timing and supply.

 

Premium and Luxury Brand Partners

 

Our business model is predicated on unique access to a broad selection of premium and luxury brands across product categories and price points. We have developed and strengthened our relationships with our brand partners, and have become a trusted channel providing flexible inventory solutions and access to our member base. We believe these relationships provide a competitive advantage and barriers to entry for new entrants. As we grow, we will endeavor to continue to strengthen and deepen our existing relationships while also creating new relationships to increase the breadth of our offering.

 

We employ a robust infrastructure and deep buying expertise, informed by our data, to methodically buy and curate a unique assortment of off-price merchandise across our destinations. Due to our strength and scale, we have been able to offer a broad selection of some of the world’s leading premium and luxury brands through our platform.

 

Inventory Management (Rue+Gilt)

 

We believe that our inventory management and merchandising capabilities are key points of differentiation and another competitive advantages. We have been successful in responding to market trends due to our ability to predict customer demands and preferences and translate them into compelling merchandise offerings. Our experienced team of merchants leverage our data-driven technology platform to collect and analyze a significant amount of data, such as purchase history, site visits and browsing behavior, impact of marketing campaigns,

 

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personal data, reaction to changes in product assortment and pricing, and other data points that we use to make data-driven category management, pricing and marketing decisions to address market trends and developments. In addition, we focus on product breadth versus depth, which allows us to ensure that our products are intentionally “fresh” for our members. Our merchants purchase in-season product opportunistically and close to the time we launch new items online, allowing us to react quickly to changes in consumer preferences. While we own and warehouse a majority of the goods we sell on Rue+Gilt, dropship inventory, where the goods are shipped directly from brands to customers, accounted for 25% of GMV in 2020 across more than 2,000 brands. The significant percentage of dropship sales lowers our inventory risk and provides us the flexibility to be more agile in responding to consumer trends.

 

We believe our inventory management also can impact our gross margin. Specifically, we believe improvements in primary sell-through, higher penetration of fashion merchandise, improvements in inventory pricing from volume discounts, and a higher mix of dropship sales can each contribute positively to our gross margin.

 

Our inventory investments fluctuate with the seasonality of our business, as described under “—Seasonality” below. Shifts in inventory levels may result in fluctuations in the percentage of off-price sales, levels of markdowns and merchandise mix, which in turn impacts gross margin.

 

Investments in Technology and Infrastructure

 

We intend to continue to invest in our technology and infrastructure to provide a seamless customer experience across our destinations and support the growth in our Active Buyer base and higher levels of merchandise offering. We have and expect to continue to make capital investments in our inventory and warehousing management, customer service operations and logistics and technology infrastructure to support and drive efficiency in our operations and enhance customer experience. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments.

 

Business Acquisitions

 

Gilt Acquisition

 

In 2018, we acquired Gilt from Hudson’s Bay Company to combine into the leading premium and luxury eCommerce off-price company in the U.S. The acquisition of Gilt brought complementary brands, product categories and data as well as a customer base with limited buyer overlap. We also benefited from significant operational and back-office synergies, and by re-prioritizing marketing, technology and inventory resources, we were able to launch Gilt on our platform within two months after signing the deal. With our combined marketing and data capabilities we have seen an increase of new buyers and reactivation of shoppers who had previously made purchases on the website. We have leveraged the scale of merchandising, buying and operations across Gilt to capitalize on the market opportunity to operate as one Rue+Gilt segment.

 

Shop Premium Outlets

 

In 2019, as part of its investment, Simon contributed Shop Premium Outlets, an emerging eCommerce off-price premium and luxury outlet marketplace. In connection with the acquisition and Simon’s investment, we issued new primary shares and sold secondary shares to Simon, who then became an investor and strategic business partner. We have combined our off-price expertise and expansive data and infrastructure with Simon’s unique brand relationships, advertising capabilities and access to Simon’s VIP customer database. This unique combination offers customers the opportunity to shop 24/7 for their favorite premium and luxury brands at a great value, all in one place. Following the acquisition of Shop Premium Outlets, we assembled a new management team for Shop Premium Outlets, including its new leader, Neel Grover, and have subsequently upgraded the site platform and experience, which in less than two years has grown to include over 100 brands.

 

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Seasonality

 

Although we generally have demand for our products throughout the year, our business is affected by the pattern of seasonality similar to other retail businesses, which causes our quarterly results and cash flows to fluctuate during the year. Historically, we have recognized a significant portion of our net revenue and operating profit or loss in the fourth quarter of each fiscal year as a result of increased sales during the holiday season, followed by decreased activity in the first quarter of the following fiscal year. As such, we believe that comparisons of net revenue and results of operations for a given quarter to net revenue and results of operations for the corresponding quarter in the prior fiscal year are generally more meaningful than comparisons of net revenue and results of operations for sequential quarters. We expect this seasonality trend to continue for the foreseeable future.

 

Overall Economic Trends

 

We launched RueLaLa in 2008, in the midst of the Great Recession. Our business is affected by general economic and business conditions in the United States. During economic downturns and recessions, consumers tend to spend less by reducing the volume of their purchases or by shifting their purchasing pattern towards discounted products. The off-price market in the U.S., of which we are a leading eCommerce market participant, has demonstrated a sustainable growth rate since 2008 primarily driven by a shift in consumer behavior towards value.

 

We believe that our business model, focused on our attractive value proposition underpinned by our efficient pricing and diverse brand selection, has allowed us to grow in the aftermath of the Great Recession and during the uncertainties of the COVID-19 pandemic. In addition, we also believe that any improvements in the general economic conditions in the U.S. and any growth in consumer spending generally have a positive impact on our performance by leading increased spend per customer.

 

We believe that we have been successful in responding to market trends, including in consumer purchasing patterns, due to our agility in buying goods and ability to predict customer demands and preferences and translate them into compelling merchandise offerings. This success is largely based on a thorough analysis of historical data, customer data insights and our experienced merchants.

 

Impact of COVID-19 Pandemic

 

During 2020 and into 2021, volatile macro environment and business conditions relating to the COVID-19 pandemic required us to be nimble and continue to refine our business model.

 

Impact on eCommerce Industry

 

As brick-and-mortar retailers shut down in the first half of 2020 in response to government mandates to “shelter-in-place” and close non-essential businesses, customers flocked to eCommerce. Our eCommerce platform, as well as our agile supply chain and access to premium and luxury branded inventory, positioned us well to capture pent-up demand by providing customers relevant and trending categories such as home décor, beauty and jewelry.

 

Shifting Customer Preferences

 

Changes in customer preferences due to the pandemic led to inventory management changes, such as reducing new inventory receipts and shifting our category mix as customers migrated from fashion and footwear merchandise to home décor, European luxury goods and beauty products. We also experienced increased dropship sales and lower customer returns during 2020 as compared to 2019.

 

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