Discount commerce done right: quiet NYC startup NoMoreRack will top $325 million in sales this year

By Erin Griffith , written on December 16, 2013

From The News Desk

NoMoreRack is one of those startups that always sounds familiar and I'm not sure why. It's not because the company is pitching me all the time, nor is it because the company's every move is followed by the tech press. NoMoreRack has raised $52 million in VC funding, but it's only been written about a handful of times.

No, the reason NoMoreRack sounds familiar is because its name has been showing up in my Facebook newsfeed every few days for the past year, both organically, from interactions with my friends, and through stories the company paid to promote.

With 3.4 million Facebook fans and five million monthly uniques, NoMoreRack is one of those companies that has grown like a weed around the country before the tech press has gotten wind of it. Call it the Pinterest of discount retail. (The company has called itself the TJ Maxx of the Web.)

Now, the company says it is on track to top $325 million in sales this year, topping its $300 million target and tripling its 2012 sales. Cyber Monday alone brought in $9.7 million in revenue on 350,000 items. The entire holiday weekend had $29 million in sales. On top of that, NoMoreRack is profitable.

NoMoreRack hasn't gotten here in just three years by following the formulas of other successful flash sales sites. (After launching as a flash sale site, NoMoreRack now offers persistent discounts in addition to flash sales.) Compared to the leaders of this wave of commerce companies, NoMoreRack's site doesn't look like much. It doesn't have the serious, almost intimidating all-black look of Gilt. It doesn't have the slick, contemporary design of Fab. And it doesn't carry the produced, Martha Stewart air of One Kings Lane. If Gilt is Vogue, Fab is Dwell, and One Kings Lane is Architectural Digest, NoMoreRack is probably Women's Day. (All of these flash sale companies have black-and-white logos, by the way. NoMoreRack is a very welcoming lime green and grey.) The site isn't working hard to impress anyone -- it's just offering straightforward discounts on what it calls "quality, trendy branded and unbranded, in-demand goods."

Fab and Gilt might want to take note: Luxury, curation and taste aren't the only way to build a big business.

It helps that NoMoreRack didn't get its start in a major startup hub: The company is initially from Vancouver. In 2012, NoMoreRack moved in New York for that exact reason -- to grow and find talent within a startup hub -- but kept 30 employees in Vancouver.

The one thing NoMoreRack has in common with sites that get much more media attention is its venture capital backing: NoMoreRack raised $40 million from Oak Investment Partners and HTV Industries in October, in addition to $12 million from G-Market, a Korean commerce site.

Aside from its casual look and status as an outsider-turned-insider, NoMoreRack attributes its growth to aggressive social media efforts. A quarter of the company's $78 million sales in November (plus Cyber Monday on December 2) came from Facebook, the company says.

Reliance in social media traffic for your business is still unproven, though. Facebook has shown that its executives will change their minds about what shows up in the News Feed, regardless of who has built a business on gaming the algorithm. The introduction of EdgeRank last year hurt traffic for many brands on Facebook. And more recently, Facebook has reconfigured its algorithm to favor content that fits Facebook's definition of "quality." Brands like NoMoreRack must pay to get in front of customers.

As Fab's recent troubles show, aggressive Facebook marketing can be a blessing and a curse. The company paid a lot to acquire customers, particularly through social media. But as Fab muddles its way through growing pains (including layoffs), it has had to drastically scale back its spending on marketing. As a result, the company's traffic is down and it will not hit its revenue targets this year.

Buying customers on Facebook is great until you can't afford to buy them anymore.

NoMoreRack may already have an advantage there, though. The company says 70 percent of its sales during holiday season this year have come from repeat shoppers, meaning they become valuable to the company very quickly. And NoMoreRack, which has already turned a profit, is watching its costs closely. With 65 people on staff, the company's revenue per employee is $4.6 million a year. CEO Dee Agarwal says that is six times more efficient than Amazon, which earns $691,000 per employee per year.