The Groupon IPO - Bad News For Main Street?

November 04, 2011


Groupon, as you know, raised my hackles last August from a Facebook fan post. It led to a series of blogs and the ebook: Groupon: You Can't Afford It - Why Deep Discounts Are Bad for Business.

That's why my original blog Groupon Review: Worst Marketing For Your Local Business still gets plenty of traffic. Independent business owners are curious about whether they should do it or not.

When reporters ask me why I'm so against these "daily deals" sites I refer them to my mission. I crafted the Retail Doctor to help businesses of all sizes remove obstacles standing in the way of their own profitablity. That means I speak, blog and talk about retail sales training, marketing and financial aspects of business.

The excitement about Groupon is being helped further by an aggressive staff. Yesterday I received an email from Joel Cohen from RestaurantMarketing, "This from a restaurant friend of mine:

'My Groupon "rep" has called and e-mailed me at least three times in the past ten days desperate to make a deal happen. I told her that the only way that I would ever consider it was if we did a 80% (me) and a 20% (Groupon). She countered with a 75/25 that she thought she could get her supervisor to sign off on.'

Now that Groupon has gone public with their highly anticipated IPO, it seems there are a lot more voices looking at what they are doing as a business and to consumers. Here are a sampling:

Groupon to Collect More Personal Info - In addition to so-called “geo-location” information, Groupon's new privacy policy in July announced they "may" also collect relationship information, transaction information and financial account info according to the Chicago Tribune.

Groupon Doomed By Too Much of a Good Thing - The Harvard Business Review started, "Alright, you caught us. We're actually not making any money. In fact, we are really losing a lot of money. This is the essence of Groupon's declaration last week."

Then there's the Business Insider profile: Inside Groupon: The Truth About the World's Most Controversial Company which outlines a lot of dates and history and poses the question about a "comeback."

Finally there's this Forbes article, Groupon Dodged Bankruptcy With Its IPO which stated, "Also remember that 95% of all merchants who use Groupon never come back. That means the company must replace almost all of its business all the time. That’s a very tough model and why they are no longer growing. "

None of that is what I am concerned about. It's stories like this one posted today from a blog reader,

"My competitor is running these almost every month. I think he got caught up in expanding too much and too fast, needing an immense influx of cash. At first I thought he was just trying to fill up unused capacity, but now he has cut back on his advertising. I think he's in trouble but it's killing all of us because he is basically selling a $100 product for $50, and netting 1/2 that. He's churning money, probably cutting costs to stay even.

I feel he's taking everyone down with him."

These desperate merchants, restaurants and service providers are all trying to get people to notice them. But notice doesn't pay the bills!

In a BBC article, Groupon declined to "give an interview to the BBC for this article, but in an email a spokesperson said it was 'difficult to give an accurate figure' for how many businesses are repeat users of the site."

Yet like the next diet fad or cosmetic surgery, these deal sites all work on HOPE.

HOPE that customers will buy more than the deal voucher

HOPE that customers will return.

HOPE that customers will pay full price in the future.

And, I'm sure that's just what investors are doing today - hoping they can make enough on the uptick that they don't get burned.

While many deal sites have closed, Groupon and LivingSocial grow larger.

And if small independent merchants continue to run to these massive deals based on hope, how will they pay their employees and rent?

If you are a local Chamber of Commerce, Downtown Association or Main Street you need to educate your members on the risks that there is no magic bullet. You can't run a business on "feeling" promotions were successful, you need the sustained, profitable, measurable cash of loyal customers returning again and again.

Please add your comments below:

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