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STRATEGY

Groupon Goes National With Gap Deal

The site traditionally has featured deals from small businesses. Is it changing strategy?

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GroupOn Founder & CEO Andrew Mason

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Socially charged group-buying site Groupon – known for its daily discounts at local merchants, often small businesses – made its first foray into nationwide bargains.

The site, which has more than 10 million subscribers, partnered with Gap to offer clothing and accessories valued at $50 for $25. The deal also was promoted on Twitter's new Earlybird feature, which allows merchants to offer exclusive, limited-time deals.

Is the Chicago-based company planning to leave small businesses behind?

"Local 'brick and mortar' businesses are the foundation of Groupon, and that isn't changing," Groupon spokeswoman Julie Mossler told Mashable. She said many of their customers had asked for a national deal, and that the offering was "a perfect back-to-school deal, and a great way for us to reach subscribers in Gap cities where Groupon hasn't yet launched."

She added: "Customer feedback (positive or negative) will be taken into consideration when we determine if we'll do partnerships of this scale in the future."

Gap already made headlines earlier this week with a 25 percent discount for Foursquare users who checked in at one of its shops in the U.S. or Canada. While consumers surely welcome deep discounts, they aren't exactly a sign of a strong economy and can be construed as acts of desperation by retailers heading into the important back-to-school season, which many expect to be lackluster.

Previously, Gap saw same store sales drop 4 percent in the last quarter alone. CEO Glenn Murphy said of the company's latest earnings: "I was disappointed in our inability to generate the sales that we had expected to."

The Gap-Groupon deal was selling at a rate of 10 per second, selling 200,000 of the vouchers before noon. It was Groupon's biggest seller yet, overwhelming the company's computer servers even though the company had boosted capacity before launching the offer. (Groupon's previous record was 41 sales a minute for a $12 75-minute architectural tour of Chicago.)

Analysts questioned whether the Gap deal would do much for the retailer's bottom line. Mashable estimated that with sales of around 300,000 Groupons, Gap lost $7.5 million in revenue on the deal.

Patricio Robles of digital marketing publisher eConsultancy blogged: "Successful businesses don't simply move product; they acquire profitable customers…The risk for business relying on group buying sites like Groupon is that they're moving product (and lots of it) but many not be acquiring profitable customers."

Groupon, which hasn't yet reached its second birthday, in April was valued at more than $1 billion.

Last updated: Aug 20, 2010

COURTNEY RUBIN

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.




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