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Will Groupon's Liquidation Service Be Worth Your Time?

In an effort to bolster its e-commerce business, Groupon may be testing a service that helps small retailers move inventory stuck on their shelves.
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Groupon reportedly is testing a service to help mom-and-pop shops sell their unwanted goods at a discount. The news is intriguing, but, warns Forrester analyst Sucharita Mulpuru, the service may amount only to an offshoot of the Groupon Goods e-commerce channel--and depending on the nature of your business, you may be wise to avoid it. 

According to Recode.net, Groupon's new service will function a lot like T.J. Maxx, "serving as a liquidation service for local stores" and notifying customers when there's a sale or discounted items nearby. Customers also will have options to order items online and receive them the same day or pick them up at a retail location. 

The service has yet to be made public, but Groupon is expected to make an announcement sometime next week. In an email to Inc., Groupon spokesman Nicholas Halliwell said the company is conducting "an early test," but declined to elaborate on its plans. Recode reports that the test is taking place in Chicago, where Groupon is headquartered.

Since co-founder Andrew Mason's departure in February 2013, Groupon has raced to diversify its revenue beyond the daily deals that made it famous. The company expanded its stake in e-commerce in 2011 with Groupon Goods, which emails customers deals on specific discounted products, then acquired ideeli, a fashion-focused flash-sale site, earlier this month.

With the rumored addition of a liquidation service, Groupon presumably hopes to broaden to a new customer base. Unfortunately, it faces stiff competition from e-commerce giants like Wal-Mart and Amazon. 

Historically, Groupon went after consumers, says Mulpuru, but that market is fairly saturated at this point. Now the company views small businesses as a lucrative target because of their tendency to be repeat customers. And since Groupon Goods has experienced some robust growth, it's no surprise Groupon wants to beef up its e-commerce offerings, creating a prime destination for online shoppers. 

You might be cautious about trying the business out for yourself, however, at least if you run a high-end retail company, says Quentin Fleming, an adjunct professor at the University of Southern California's Marshall School of Business. Since such businesses offer products perceived to be of great value or worthy of "a premium price," he says, selling them on Groupon might do nothing more than teach customers that all they'll have to do is wait for a sale. 

"It reminds me of what happened years ago when the major branded breakfast cereal companies--Kellogg's, General Mills, and so on--relied heavily on a strategy of issuing coupons for their name-brand cereals, which were priced significantly higher than the private-label brands found in supermarkets," Fleming says. "What this literally did was teach customers that unless they were purchasing name-brand cereal with a coupon, they were overpaying." 

On the flip side, companies dealing with more common products, like electronics and luggage, might find Groupon's liquidation service to be a viable sales method.

"You're not in the business of charging excessive markups to begin with," says Fleming. "But again, how do these companies walk the fine line of moving merchandise in this way while making sure the customers understand not to sit back and always expect these types of discounts?" 

IMAGE: swanksalot/Flickr
Last updated: Jan 28, 2014

JILL KRASNY | Staff Writer

Jill Krasny is a staff writer for Inc. magazine, where she covers the intersection of entertainment and startups. Prior to Inc., she was a writer for MTV and Esquire and an editor at TheStreet. She is a graduate of the University of Southern California with a degree in communication. She lives in New York City.




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