March 15, 2013, 4:06 PM

Groupon Goods makes its move

The discount voucher company quietly builds its business selling overstock items.

Lead Photo

Faisal Masud

While parent company Groupon Inc. strives to improve its image on Wall Street after firing CEO and founder Andrew Mason, the company’s lesser-known Groupon Goods direct-to-consumer retail sales arm is aggressively rolling out new services, including in-store pickup of online orders, as it aims for $2 billion in sales this year, up from $455 million last year.

“Our business is poised to take a whole new step globally,” says Faisal Masud, the vice president who heads up Groupon Goods, which offers a general range of contemporary brands at discount pricing in limited-time sales. Groupon says Groupon Goods is on a run rate to hit $2 billion in sales this year.

In the second half of this year, Groupon Goods will begin to roll out what is being tentatively called Groupon Goods Local, a new service that will let shoppers see on a mobile app as well as on Groupon.com/goods promoted products available in participating stores near them, Masud tells Internet Retailer. Shoppers would be able to buy a product immediately online, then choose to either pick it up at the store or have it shipped to their address.

Groupon Goods will test the new local service with a number of retailers in the second half of the year, though the company isn’t ready to name the retailers, Masud says. He adds that Groupon research shows its customers have a strong interest in buying products on sale from local merchants. “We know customers love local stuff,” he says.

Groupon Goods Local will continue Groupon Goods’ strategy of building on the brand, customer base and technology of Groupon Inc., Masud says. For example, Groupon Goods and Groupon’s coupon marketing program use the same customer e-mail list, sending out some 10 million to 15 million e-mails a day in the United States. In addition, Groupon has a team of 40 Groupon Goods merchandise buyers—many of whom came from major retailers like Sears, Amazon and Best Buy, Masud says—who search for suitable products from the excess inventory of thousands of brands. Those brands include Kenneth Cole for apparel and jewelry, Lego for toys, Dyson for vacuum cleaners and Panasonic for digital cameras, Masud says. He adds that in some cases brands will also use Groupon Goods to introduce new products as well as move end-of-life excess inventory.

Such marketing and merchandising techniques, combined with Groupon Goods’ policy of offering products for periods of up to several days, have led to sudden surges in sales, Masud says. Recent sales, he notes, have included 39,000 Kenneth Cole wool jackets sold over a two-day period and 185,000 pairs of imitation diamond earrings, also sold over two days. He didn’t note the prices for which those products sold, but says the company generally prices its products below the average prices of other retailers.

Recent deals offered on Groupon Goods included a Panasonic Lumix digital camera for $299.99, marked down from a stated list price of $449.99; and Armani Exchange sunglasses for $34.99, marked down from $85.00.

Groupon Goods is also planning to begin selling to overseas customers either later this year or early next year, says Masud, who is a veteran of Drugstore.com, Amazon.com Inc. and eBay Inc. “We get significant international traffic to our site,” he says. Amazon is No. 1  in the Internet Retailer Top 500; Drugstore.com is now a part of Walgreen Co., No. 33.

Most of the products offered through Groupon Goods are sold by the company itself, with about 5% or less sold by other companies. Groupon Goods ships about 75% of its own products through some 11 warehouses operated for Groupon by outside logistics providers; the rest of its products are drop-shipped by its suppliers directly to Groupon Goods customers.

To improve the efficiency of how it buys merchandise, Groupon last year acquired CommerceInterface, a company that provides an Internet portal and software for exchanging product information and business documents with the retailer’s suppliers. Groupon has not said what it paid for CommerceInterface, though the company says CI’s technology will be part of its plan to sell to consumers worldwide. It also says CommerceInterface will no longer provide services to other retailers after a transition period through the first half of this year.

As Groupon Goods accounts for a larger share of its parent’s revenue, acquiring merchandise more efficiently will become even more important as merchandise sales operate on much tighter profit margins than Groupon’s coupon business. For the fiscal year ended Dec. 31, 2012, Groupon reported direct revenue, that is, revenue from products sold through Groupon Goods, of $454.7 million, with related costs of $421.20 million. By comparison, Groupon reported third-party revenue, or revenue from the coupons it sells for other companies, of $1.88 billion, with related costs of $297.7 million.

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