Why Groupon Is In Trouble and Flash Sale Sites Aren't Going Anywhere

You better start using those Groupons you picked up (or else start buying more) because the company is in some trouble. As of yesterday, the company's stock was down 54.9% since November, which is when it went public, according to WWD. While it seems like everyone I talk to is always crowing about the amazing Groupon deal they got, it turns out that the model is not so great for retailers. And in the long-term, flash sales sites--which have also faced issues--will have better longevity in the long haul because of their benefit to both retailers and shoppers. Here are the issues in a nutshell:
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You better start using those Groupons you picked up (or else start buying more) because the company is in some trouble. As of yesterday, the company's stock was down 54.9% since November, which is when it went public, according to WWD. While it seems like everyone I talk to is always crowing about the amazing Groupon deal they got, it turns out that the model is not so great for retailers. And in the long-term, flash sales sites--which have also faced issues--will have better longevity in the long haul because of their benefit to both retailers and shoppers. Here are the issues in a nutshell:
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You better start using those Groupons you picked up (or else start buying more) because the company is in some trouble. As of yesterday, the company's stock was down 54.9% since November, which is when it went public, according to WWD. While it seems like everyone I talk to is always crowing about the amazing Groupon deal they got, it turns out that the model is not so great for retailers. And in the long-term, flash sales sites--which have also faced issues--will have better longevity in the long haul because of their benefit to both retailers and shoppers.

Here are the issues in a nutshell:

•You won't see a lot of fashion retailers--especially small boutiques--on Groupon because they can't make a profit from it. Groupon takes a whopping 50% of the sale, which is usually offered at a discount anyway. Gap and Old Navy reportedly do well on the site, but that's about it. This explains why you see mostly services and experiences offered on Groupon as opposed to things.

•Customer information isn't given to stores and merchants by Groupon--unlike on Gilt, where you have to provide contact information--so store owners can't follow up with customers to try to make them regular shoppers as opposed to one-time deal hunters. Good for customers maybe, because who needs more annoying emails? But it definitely discourages retailers, especially since those original Groupons aren't very beneficial to them in the first place.

•There are a lot of Groupon competitors out there. Flash sale sites had the same problem, but those with the best business models survive, and the consensus seems to be that flash sales are more likely to stick it out than "local" sales sites like Groupon.

•According to MSNBC, refunds may also be hurting Groupon. The company is "backed up" in processing refund requests, and it already had a "need to increase its loss reserves on refunds."

Flash sale sites aren't great for small stores either, but at least they offer benefits to both the participants (brands and manufacturers) and consumers. Brands can put items directly on flash sales sites, and while the shopper can get them at deep discounts compared to buying at retail, the brands are still able to make a decent profit since retail mark up is so high. The local retail movement is inspiring a lot of start-ups, but it looks like at least for now, national flash sale sites are a better bet.

Do you use Groupon? Tell us about your experiences.