Hudson's Bay pairs online shopping business Gilt with its Saks Off 5th stores

A man leaves the downtown Toronto flagship Hudson Bay Company store in Toronto, Jan. 27, 2014. (Nathan Denette / THE CANADIAN PRESS)

TORONTO -- Hudson's Bay Co. is scooping up Gilt Groupe Holdings Inc., one of the last independent e-commerce retailers built on the niche market of "flash sales."

The owner of Saks, Lord & Taylor and Hudson's Bay department stores said Thursday that it will pay US$250 million in cash for Gilt, as it looks to attract shoppers from another corner of the increasingly fragmented e-commerce market.

"One of the biggest lessons from the last holiday is that the Internet was the star," HBC chief executive Jerry Storch said in an interview.

"We want to make sure we are absolutely at the forefront of growth in e-commerce."

Gilt has fostered its business on a model that curates a selection of brand name clothes at lower than usual prices. The company drives business by signing up shoppers to a free membership and then sending them sales notifications through email and its smartphone app.

The Toronto-based retailer says Gilt has more than nine million members and the acquisition is expected to add about US$500 million to overall revenue at Hudson's Bay (TSX:HBC) this year.

What the acquisition gives Hudson's Bay is a presence in the e-commerce that would take years to develop on its own. Gilt will be incorporated into its Saks Off 5th brand, which sells brand clothing at outlet prices.

Over half of Gilt's sales are completed on mobile devices, which puts HBC's brands in a better position against Nordstrom, which bought fellow "flash sale" retailer HauteLook in 2011.

Other "flash sale" retailers have been acquired in recent years, including Zulily, which was bought by U.S. shopping channel operator QVC, and Ideeli which was taken over by Groupon.

Beyond the Rack, a Montreal-based company, is one of the last of the big independent "flash sale" companies in North America.

Storch said Saks Off 5th will integrate Gilt into its stores, meaning that e-commerce shoppers will be able to return items to its bricks and mortar stores.

"We eliminate what is probably the No. 1 negative they have as (an e-commerce) business," he said.

Headquartered on New York City's prestigious Park Avenue, Gilt was founded by Kevin Ryan in 2007 as an invitation-only site for women's clothing and accessories. It has since expanded into products for homes, babies and children and men.

HBC says it expects the transaction to close by Feb. 1, after getting approval from Gilt's shareholders.