groupon is still a thing?
That brief period where it looked like voucher bazaar Groupon might actually make some money could be over already. The site has forecast a quarterly loss for its next financial results as it turns to advertising to try to keep its fortunes on track. Groupon said it was going to use a swathe of its money on advertising its …
The suckers who invested in a loss-making company at IPO?
Well Fancy Accounting needs credible loss-leaders..
If they go bust how will I get my fake tan while having my teeth whitened and my feet nibbled by fish?
Unless you've got a really, really good reason for having a sale at the retail level it's a pretty dumb thing to do. It's even dumber to pay someone a premium for ramming your financials into the ground. That doesn't cost anything to do in-house!
If you exclude pubs/bar, non quick serve restaurants, hospitality and cosmetics/smell good sprays and businesses with floor planned inventory, an established business having a sale to generate traffic and boost revenue is marginally worse for business than offering a free kidnapping with each purchase.
If you've got an excess inventory problem, moving those items out, at a loss even, is usually OK, but if you've just got not enough money then giving money away will not help you. The problem, is that price driven buyers do not make loyal customers. If customers aren't loyal they cost you money.
People don't understand, but at full margins a retail customer who makes one purchase and doesn't take any collateral (brochures) and pays with cash the deal is break even. They've got to visit and make full margin purchases at least twice before they've offset their own servicing costs. If they use anything other than cash the math becomes an actual task.
It seems obvious if you're a factory, hundreds of people standing around with their thumbs in their ass is expensive. But a ma & pa store is also constantly chewing through money, simply because it exists. There are several ways to do the figures, but even if you figure on 365 days, 24hrs a day you'll never actually accrue a surplus (you know, the make money part) without recurring customers (service costs tend to rise, but so do purchase amounts).
You are stabbing yourself in the crotch every time a customer buys something that's on sale unless that sale meets very defined requirements. Not actually grasping true expenses kills most businesses anyway. It's sad and it sucks, but they get credit for trying. What I can't stand though are shifty things like Groupon taking advantage of those people who are trying. Feeding off the desperation of others is a despicable thing to do. I kind of have a secondary mission (self assigned) to see those places die horrible, horrible deaths. Groupon is the equivalent of picking on a retarded person or performing 'traditional fertilization' for women who come into a fertility clinic. Screw them.
Repeat business is great, but any business that makes a loss on any single sale is already destined to die, whether the customer comes back or not.
Of course, assuming that all stock was paid for when it was brought in store, rather than being on "sale or return", then turnover is generally more important than margin...
"That brief period where it looked like voucher bazaar Groupon might actually make some mopey could be over already."
Is "mopey" a typo, or is it Brit slang/humor that went right over my head?
Typo. They fixed it now
Groupon seems to offer a service, certainly loads of businesses still use it and seem to sell lots of deals through it. Even if sales are declining, their model - a cut off the top - means they are bringing in substantial money worldwide. That they are making losses means they are spending too much, not that they need more revenue and fancy features. Surely Groupon is a perfect example of an online business which should not cost that much to run?
A few things:
- Groupon has insanely high turnover. It actually couldn't be much worse if they were selling suicide pills. They've got a few largish corporate accounts from the types of companies who advertise everywhere (the same kind that buy space on urinal screens) but the small, market specific, entities Groupon aims for never come back. It's expensive and, except for the categories I outlined in the post above, it's just a waste of money. Sales/discounts are terrible things for business longevity.
Groupon has (unwittingly?) targeted one of the most unique things in the known universe: The Small Business Owner. You can take a Hassidic Jew who does landscaping in Gaza, a fundamentalist Muslim who sells throw away rockets and an Aryan Nation butcher specializing in bacon wrapped porkcicles, put them in a room together and within 10 minutes they'll be comrades all laughing it up and telling their worst customer stories and complaining about the new service charges their payment processor is rolling out. Small business owners the world over tend to stick together and if one feels screwed the word spreads faster than physics should allow.
- You can run a business making losses forever as long as you keep revenue growing. Revenue is what pays everyone's salary, insurance, 401k's, rent and utilities, all the operational costs of a business. Profits are what pays for the mini-sub on your yacht and smoking jackets made from only the finest Giant Panda hides.
No publicly traded business operates using their own money. That's just dumb. It's also impossible. Apple, Google, ExxonMobile, Samsung, everybody borrows operations money. The company I was with before going solo was borrowing many millions of dollars a day and we were not remotely close in size to those big name companies. They borrow just crazy huge money by the hour. It's impossible because you can't move that much money that fast from one place. You've got to get some from here, some from there, bit more from over yonder and pay it back the same way. You get it from whoever has it, at the best rate, whenever you need it. Some of the truly huge companies could collapse entire economies if they took all their daily operations funds from a single country.
What all that means is that as long as you grow revenue at a rate that matches the cost of your borrowing your value isn't much effected by any losses. Shareholders will hold on, or buy more, as long as that growth/funds cost relationship is balanced. But, if you do something to cut losses and it hits your revenue growth the whole thing falls down, and it falls down quickly. Revenue first, everything else later, or you're out of business. Groupons biggest expense is the army of people who deal with the businesses but you can't touch that without revenue taking a hit.
- I'm not sure why anyone ever thought any 'Internet business' would be inexpensive to run. It doesn't make any sense that it would be that way. An Internet business has exactly the same needs as a traditional company plus the technology costs and employee costs are significantly higher. Small sub-$500k businesses (2/3 of US businesses) are the least efficient places for significant technology use. You've got to have a very specific set of circumstances to make more than one computer in those businesses effective or worthwhile. Technology doesn't offer a lot down at the small shop level. There just isn't much need for tech there. No amount of tech is going to put products on the shelves, answer the phones, check customers out, count the till and make sure the doors are locked at night. If you are the owner, and don't want to, literally, live at your store you've got to hire staff to do all that stuff. Not buy tech.
At first I thought you were trying to be ironic but then I realised that you really don't seems to get it. Explains some of your other posts perhaps.
Groupon's model is because its business model involves encouraging the customers of its customers to be disloyal. It's hardly surprising that this makes it hard to keep customers which means it needs continually new customers which is acquires not from the internet but from a good old-fashioned sales force. It's closer to Tupperware or Avon than it is to an internet-based service or even classic voucher services which seek to spread the cost of promotion between manufacturers and retailers. It doesn't scale well which is why its expansion has just led to higher costs. This might be okay if it had a business model that wasn't so parasitic. Other businesses with similar requirements (people on the ground) are doing better either because they cover new markets (AirBnB) or improve yields (Opentable). Maybe the "pull" approach as has legs.
Non of that answers the question of how they are haemorrhaging so much cash. Their business model brings in LOTS of money and at this point, surely most target businesses are aware of Groupon in the same way most takeaway owners are aware of JustEat.
Where do I get a few hundred million dollars to toss down a hole?
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