patrick.net

CT, thanks for this and your other great posts. Lots of good reading material here!

EDIT: If found this story invaluable: http://techcrunch.com/2011/06/09/groupon-single-worst-decision/
Thanks again.

I feel really bad for this cafe owner (Jesse of Posie's Cafe) who learned a valuable, but expensive lesson:

After three months of Groupons coming through the door, I started to see the results really hurting us financially. There came a time when we literally could not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign. We literally had to take $8,000 out of our personal savings to cover payroll and rent that month. It was sickening, especially after our sales had been rising. Sure, maybe thinking of it as just marketing may seem justified, but anyone that knows me well knows that I would never pay more than $100 for advertising, much less $8,000, because I don’t believe that regular advertising had much return on investment at all. So the experience jaded me, and the interactions with the few bad Groupon customers we had jaded our staff. After all of this, I find myself not even willing to buy Groupons because I know how it could hurt a business (side note: service industry businesses do quite well with features like this because it is just the cost of time – you are not paying for a product for resale. Resale, in my opinion, get hit the hardest).

http://posiescafe.com/wp/?p=316

Wow. And many of the Grouponers all went back to their computers and White-Whinged* about her cafe too, offsetting all the positive comments and ratings on Yelp, etc. from her Regulars.

* White Whines: http://whitewhine.com/

thunderlips11 says

I feel really bad for this cafe owner (Jesse of Posie’s Cafe) who learned a valuable, but expensive lesson:

Yes, it's sad because, as Agrawal says, many of these restaurant owners wouldn't do a traditional ad campaign due to the expenditure. Yet, they are getting suckered into doing these overpriced ad campaigns that aren't under their control in terms of timing or substance, that have no cost controls, and that largely benefit Groupon and not the business.

You have to love the 'walk away' meme in the last installment.
http://techcrunch.com/2011/06/13/why-groupon-is-poised-for-collapse/
Where have I heard that before?

tdeloco says

All I need to know is that Walmart is one of the biggest companies out there, followed by Target, etc. Yes, I recognize that their business is super competitive and complicated, but if they’re barely profitable, how can they be so big and growing so rapidly? Be it slotting fees or whatever, they have to be making good money.

It has a lot more to do with how fast (and efficiently) they turn their inventory than how much their gross margins are.

This article:
http://www.investopedia.com/articles/stocks/05/04405.asp#axzz1PNqfiUu7

says that Wal Mart does 8 inventory turns per year...I'm surprised as I thought it would actually do a lot better than that. Still, it's a lot better than a lot of mom-n-pop shops that probably struggle to do 2-3 turns per year.

tdeloco says

All I need to know is that Walmart is one of the biggest companies out there, followed by Target, etc. Yes, I recognize that their business is super competitive and complicated, but if they’re barely profitable, how can they be so big and growing so rapidly?

Is Walmart growing rapidly? I haven't looked at their financials, but I don't think of them as a growth stock, except perhaps with respect to their growing international business:

From: http://seekingalpha.com/article/254401-can-wal-mart-be-a-growth-stock-again-let-s-start-with-a-dividend-hike

Walmart’s other option is to accept the fact that the company is no longer a growth stock and increase its dividend payout to reward its shareholders. Long time shareholders have seen no capital appreciation and very low dividend payouts for years. Wal-Mart pays out 29% of earnings via dividend distributions. The payout wouldn’t be that bad if the company had growth.

The dividend payout is comparable to Target and Costco but the stock’s growth is not. Over the past 10 years, Costco’s stock is up nearly 80% and Target’s shares have risen 50%. Wal-Mart is up 2.5%. Wal-Mart has essentially been a low yielding bond for more than a decade.

However, speaking of Walmart's growth, have you seen this animation of Walmart's expansion? It's pretty cool:

http://projects.flowingdata.com/walmart/

After Groupon dumps "exotic" accounting measure, reports loss of almost $200M for the last year.

Groupon Inc., the biggest provider of online coupons, reported a second-quarter loss after backing away from an accounting method critcized by U.S. regulators.

Groupon excluded controversial figures for adjusted consolidated segment operating income, or adjusted CSOI, in an amended initial public offering filing today. The company’s operating income accounting was being studied by the Securities and Exchange Commission as part of a routine review of its IPO registration, a person familiar with the matter said on July 27.

The company, which filed for a $750 million IPO on June 2, reported a second-quarter loss of $102.7 million in the period ended June 30, compared with a loss of $35.9 million a year earlier. Second-quarter sales increased 10-fold to $878 million.

Based on new accounting using CSOI, Groupon said today it had a loss of $181 million last year, compared with adjusted CSOI of $60.6 million in a filing last month.

Groupon’s unusual approach to accounting may have caused “digestive problems” with the SEC, possibly delaying the initial public offering by one month, Richard Sauer, a former official at the government agency, said last month.

http://www.bloomberg.com/news/2011-07-29/groupon-s-digestive-problems-at-sec-may-delay-ipo-former-official-says.html

Another .com Turkey.

What? The Web 2.0 boom is more WebVan style hotair?

Say it ain't so!

PeHub's Connie Loizos wrote a negative story about Groupon yesterday.

Five minutes later, a third-party spokesman for Groupon, Michael Buckley of PR firm the Brunswick Group, emailed Loizos complaining about the story and asking her to call him.

Loizos called Buckley.

Then, this morning, Loizos published a detailed story recounting their entire phone conversation.

It's a doozy.

Despite the fact that Groupon is in a "quiet period" ahead of its IPO, Buckley advised Loizos to please check out a "leaked" memo Groupon CEO Andrew Mason wrote to employees defending the company against critics in the press.

(According to one source, Groupon's last VP of communications quit the company because Mason wanted to do things like "leaking" that memo.)

Buckley also told Loizos to "please call him the next time I plan to write a “nastigram” about Groupon."

http://www.businessinsider.com/wow-this-reporter-just-dropped-the-hammer-on-groupons-pr-rep-2011-9

Sounds like there may be some SEC enforcement action coming soon.

What's next? Mason tweeting: "Srsly guyz, we R not a Ponzi skeme."

Reported on September 23, 2011: 6:30 PM ET

For the first half of 2011, Groupon is now reporting revenue of $688 million -- a big drop from the $1.5 billion it claimed previously. For 2010, its last full year of operations, Groupon is now reporting sales of $313 million -- down from its previous $713 million.

Well isn't that what I said?

Tenouncetrout ridiculed GC on Thu, 2 Jun 2011, 12:27pm

Reporting a 400 million lost on 700 million in revenue in 2010.
Somebody get me a plunger, someone flushing Groupons again.

So let me get this straight, since June Wall and the Regulators have let Groupon continue with accounting practices, that gave them like 60% more in erroneous sales figures? But not only that, but when they were making up the first half figures they were revising the figures for the last quater of '10 that included the merchant's portion of the sales. You would think that back in June, they would have been told THEN, they better not use the same practices that over estimated their worth in 2010.

Seems like there's a lot more to this story, than just a good ole fashioned "Whoopsie! My Bad...".

The most avid Groupon Groupees strike me as the kind of folks who are bargain-braggers, and aren't really interested in coming back (without getting the same discount, that is).

Also, those same bargain-nuts will be the first to run to Yelp and write a whole bunch of negative shit if you get slammed or run out of product.

thunderlips11 says

Also, those same bargain-nuts will be the first to run to Yelp and write a whole bunch of negative shit if you get slammed or run out of product.

Very true, this is one of the criticisms written in some of the links I've read -- thunderlips mentions the article about Jesse of Posie's cafe which is an account of the poor experience of a merchant who tried out Groupon. Groupon's campaign was so damn expensive to begin with, but on top of that, it caused other problems because it brought in so many low quality customers who will never come back because they are GrouponWhores, and because the regular customers would have paid regular price anyway (and were annoyed by waiting in long lines for the idiot Grouponers).

She specifically pointed out that Groupon forced her to increase the size of her Groupon to $10 or $15 minimum even though she owned a coffee shop and most purchases were well under $10. Many asshole Grouponers threatened to badmouth her on Yelp if she didn't let them make $6 purchases now and save the $4 for later, but that's not what's supposed to happen under the offer.

It functions as a very very expensive advertising program and/or as a very above market loan of cash to Groupon (as mentioned in one of the articles on TechCrunch I sent above):

Imagine you’re a small business owner. You have to choose between two propositions:

You can pay $62,500 for marketing. You’ll get a whole lot of customers coming through your door. No guarantees if they will ever come back, but they’ll come once.
I’ll pay you $21,000. You get $7,000 in about 5 days, another $7,000 in 30 days and the remainder in 60 days. In exchange, you’ll give my customers cheap products for the next year.

I’ve been working on local for a long time and I know it’s hard to get small businesses to spend money on advertising. Really hard. Even getting $200 a month ($2,400 a year) is a high hurdle to meet.

There’s no way a business will sign up for #1. Most merchants would laugh you out of the store if you asked for $60,000.

Except they are. In droves.

Although they sound completely different, #1 and #2 are really the same—it’s the Groupon business model.

I have never used a GROUPON and probably never will.

thunderlips11 says

Based on new accounting using CSOI, Groupon said today it had a loss of $181 million last year, compared with adjusted CSOI of $60.6 million in a filing last month.
Groupon’s unusual approach to accounting may have caused “digestive problems” with the SEC, possibly delaying the initial public offering by one month, Richard Sauer, a former official at the government agency, said last month.

Many new media companies and game companies are restating or have restated their Revenue and bottom line earnings. Non traditional products give rise to new accounting treatment. They were restated because the auditors didnt give Unqualified Opinion on the audit report and the 20something year old CEO crapped into his pants.

And to make things even worse many running these companies CFO down to staff dont even have a clue or an accounting degree... pretty scary stuff.

http://online.wsj.com/article/SB10001424053111903635604576472531846174782.html

Groupon is kind of like a RE transaction, all the different little cuts and pieces of the transaction going to different parties, you know the American way of sucking you dry. Also, as newsprint goes, so does the medium for couponing that way. In a way they are still looking for a niche? I have not been to groupon.com but they seem to be strictly advertising, marketing, etc. Groupon reminds me of my pals who tell me how much they save by using credit, well hello, they just jack up the price and we all pay more as a result. Groupon is on that same plane. Groupon will attract more loss leaders, things to get you into the store. Groupon to me is consumerism gone awry. If Groupon can gain exclusivity with corporations they may be on to something. Could be a great way to clear almost expired product off the shelves of grocery stores instead of throwing it away. To bad they are more about $, vs. the common good of man. Just my 2 cents..

Yet another Groupon Fail!

Grouponers cost London Cupcake Baker $20k:
http://www.nbcchicago.com/news/local/Baker-Forced-to-Make-102000-Cupcakes-for-Grouponers-134312058.html

Same situation played out as with Posie's Cafe.

Maybe it works for spa treatments and other shit that is padded heavily, but doing Groupons for restaurants and bakeries that don't have huge margins may not be a great idea.

Chart making a claim that groupon customers are are more likely to review, but give worse reviews, than non-groupon customers:

From:
http://www.theatlanticwire.com/technology/2011/09/more-evidence-groupon-bad-business/42348/

thunderlips11 says

Chart making a claim that groupon customers are are more likely to review, but give worse reviews, than non-groupon customers:

Are the deltas in that chart even statistically significant? The scale on the left is making some fine distinctions between 3 stars and 4 stars.

I don't doubt that Groupon users are generally low quality customers and are known for being jerks sometimes. In fact, if you read some merchants' accounts of having used Groupon (Posie's Cafe I mentioned above), Groupon users generally are more likely to blackmail merchants by threatening a bad Yelp review in order to circumvent the requirements of a Groupon (e.g. "waive the minimum purchase, or I will write a bad Yelp review"). This happens whenever you have bargain basement customers.

Pretty insane stuff Groupon Market Cap: 12.80B

Compare to Nasdaq OMX Group Inc at 4.44B
The NASDAQ process billion transactions daily
and show revenue at $3B with PE at 10x earnings.

Crazy crazy stuff...

thunderlips11 says

I joined Groupon looking for grocery coupons, restaurant discounts, etc. - things I consume regularly. All I got in my email were invites to Belly Dancing Classes, Skydiving, Hovercraft Trips in the Mosquito Infested Everglades, and Lingerie Shops, none of which are useful to me, nor things I use regularly. Nor would I make anybody suffer through watching my hairy ass belly dance in lingerie.

Groupon is great if you have disposable income and are looking to fill up a weekend with a fun activity or two. But I haven't seen anything that saves me money on things I need or want on a frequent basis.

Pretty much..

Thunder called it..stock is down to IPO levels..that only took three weeks.

thunderlips11 says

Groupon is great if you have disposable income and are looking to fill up a weekend with a fun activity or two.

You dont need Groupon to do that, just some sense of adventure.

thunderlips11 says

Not a lot of repeat business comes out of Groupon. What business can keep offering 50% off and stay in business?

There really isn't a 50% off. I have a lot of friends who are in the restaurant business. Profit margins are too low to offer anything close to 50% off. There discounts are typically offset somewhere.

There is a lot of competition in the restaurant business, it is a reason why everyone in the kitchen is a part time illegal working for cash.

FortWayne says

There really isn't a 50% off. I have a lot of friends who are in the restaurant business. Profit margins are too low to offer anything close to 50% off. There discounts are typically offset somewhere.

Loss-leading, Ft. Wayne. Many restaurants participating in Groupon take a loss in the hopes of attracting lucrative regular customers.

Unfortunately, this seldom happens since Grouponers will go out of their way for 50%, but not to pay regular price.

There's a reason why most of the Groupon deals are for spa treatments, stripper pole dancing lessons, etc. The margins are so high in those businesses, and their costs of delivery are flat (ie There is a flat $5000 rent on the spa place, regardless of how many customers are served there; whereas a restaurant has to pay ingredients for every meal, which can vary greatly on volume buys - bakeries are extremely vulnerable to this - one unpaid, cancelled order could spell the end. Not to mention other things, spas can build reservations across many days, whereas restaurants get slammed by Groupon during Peak hours and can't spread the visits out by appointment like manicure places can), they can offer 50% and still make something.

I've been buying a lot of Groupon deals lately but they are all for vendors I am already a customer of and I would go there and buy these services anyway.

here's a good article re: groupon that turned me into a non-believer:

http://www.bargaineering.com/articles/social-deal-sites-groupon-worth-it.html

there's definitely a segment of grouponers are so into the bargain, they'll move on to the next groupon deal without necessarily becoming a repeat customer of the first.

tony manero says:

"If I need to know that a restaurant is so shabby and repulsive that it needs to give half off deals to get people to slurp their swill, I check out the GRoupon listings and then call the health department and tip them off."

comedy!

Well, November 2011: Groupon IPOs in the mid $20s.

August 2015: Group is trading around $4. Just announced higher than expected losses (again) for Q2.

I have never bought a Groupon, and don't intend to.

Businesses that do groupons don't get 50% of the usual price, they get 25% because Groupon takes half. When you're selling for 75% off that's a "going out of business" sale. The successful restaurants Never ever do this.