Gilt Groupe Holdings Inc., a startup once valued at about $1 billion, agreed to be acquired by Hudson’s Bay Co. for $250 million in cash.

The business will be combined with Hudson’s Bay’s Saks Off 5th division, giving customers more online shopping options, according to a statement from the companies on Thursday. The deal is slated to close around Feb. 1.

Department-store chains are scrambling to add e-commerce capabilities at a time when brick-and-mortar shopping is in decline. Though flash-sale services such as Gilt have lost favor in recent years, the business has more than 9 million members, who use the service to shop online for fashion, accessories and home decor. Hudson’s Bay plans to open Gilt concept shops at its Saks Off 5th stores, an attempt to create a so-called all- channel model.

Hudson’s Bay expects Gilt to add about $40 million in adjusted earnings before interest, taxes, depreciation and amortization by fiscal 2017. The buyer, which also owns Lord & Taylor in addition to its namesake line of department stores, plans to pay for the deal with cash on hand.

For Gilt, the deal represents a comedown from its original ambitions. Founded in 2007 by former DoubleClick CEO Kevin Ryan, Gilt had raised more than $270 million from venture capital firms, including Matrix Partners and General Atlantic. The company had been envisioning an initial public offering and was often cited as a top New York technology startup. But the flash-sale market, which lets customers snap up discounted products for a limited time, became more crowded and many shoppers lost interest in the approach. For more on the challenges facing retailers, see our recent cover story, “American Apparel's Bankruptcy Underscores Challenges for Retailers"

Willkie Farr & Gallagher LLP is representing Hudson's Bay Company.

--Additional reporting by Mary Kathleen Flynn

Technology