Oct 26, 2011

Groupon Lessons: One Year Later

As Groupon hits the road this week in a bid to resuscitate its initial public offering of stock, investors will join retailers to assess the long-term value of the Groupon model. Specialty retailers who have sold coupons through the company and competing online coupon vendors will also be pondering such companies’ impact on their business.

While retailers like outdoor DIVAS and Brown Enterprises were impressed by the ability of Groupon to drive new customers to their stores, neither retailer will run another such promotion until they have a better fix on how many of the new customers attracted by Groupon become regular, full-price customers, which can take at least a year.

outdoor DIVAS, which owns and operates women’s outdoor specialty shops in Boulder and Denver, as well as an online store offered a $22 Groupon in October, 2010, that could be redeemed at its stores for $55 in merchandise from Oct. 15 through Feb. 15, 2011. Groupon sold 2,930 of the coupons and kept half the proceeds, said Kim Walker, founder and president of outdoor DIVAS and OIA board member. About 60 percent of those sales were to people who had never shopped the store and about 12 percent of them have returned since the offer expired.

After accounting for lost margin and outdoor DIVAS’ 50 percent share of Groupon proceeds, the promotion basically cost outdoor DIVAS about $34 per new customer. The cost per retained new customer, which won’t be known until at least the end of the year, is currently running ten times that amount but should decline as more new customers return during the upcoming holiday season.

Roughly 850 miles east in St. Louis, Brown’s Enterprises is still waiting to assess the impact of its sale in late February of 4,000 Groupons that expired June 30, said Brenda Swartz, marketing manager for the company. The $45 Groupons were redeemable for $90 in merchandise at the company’s six New Balance concept stores in Missouri, Kansas and Illinois and its online store. As of last week, 2,200 new customers and 1,400 existing customers had redeemed the coupons. On average, they spent $150.

“We’re very pleased,” said Swartz, noting that Brown’s ran the promotion in lieu of a direct mail piece. “It was the most successful prospecting tool we have had to date.”

Still, she noted the retailer won’t know how many of these new customers it retained until the first anniversary of the promotion next February.

“That jury is still out because the offer only expired in June and it may be another year before they shop again,” she said.

“We are not quite ready yet,” said Swartz when asked whether Brown’s would launch a new online coupon promotion. “As an independent retailer, we don’t discount heavily, so for us this was a risk. We love traffic, but we are not looking to give away that kind of margin on a regular basis.”