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Can Groupon be the T.J. Maxx for local retail stores?
The Chicago-based deals company is currently testing a new business that aims to help small mom-and-pop retail shops sell off items they are having trouble selling at full-price, according to two people briefed on Groupon’s plans. The new business would serve as a liquidation service for local stores and would notify Groupon customers when a business located near them is having a sale or looking to unload specific products at a discount.
It is being tested in Chicago, these people said.
Groupon spokesman Paul Taaffe said it was “a little early” to talk about the business. “It’s at best in pilot stage,” he wrote in an email to Re/code.
Groupon’s history, of course, is in working with mostly service-type business such as restaurants and salons to bring in new customers by offering Groupon members discounts on meals or pedicures, for example.
Since 2011, Groupon has sold discounted physical products through its Groupon Goods business. The division sells everything from tablet computers to sports bras, but the products typically don’t come from small, brick-and-mortar stores. The Goods business now accounts for about 40 percent of Groupon’s revenue.
If Groupon turns this new test into a full-fledged business, it would give the deals company a potentially new huge category of small businesses to work with. That assumes, of course, that Groupon can find enough local shops that want to associate their brand and products with Groupon.
Groupon CEO Eric Lefkofksy is said to be a big fan of the new business idea and believes it has the potential to do for local retail stores what discount retailers T.J. Maxx or HomeGoods have done for brand-name clothing brands or furniture manufacturers.
Under the new business, Groupon customers would order a product from a local store through Groupon.com or through a mobile app and then pick it up at the retail location, the sources said. There’s also the potential for a same-day delivery option in some instances, according to one of these people.
Longer term, the new business idea could improve Groupon’s profit margins from sales of products. Its current Goods business is increasingly shouldering the expense of storing and shipping the stuff it sells, according to its regulatory filings. The company also provides free shipping for orders of $20 or above and free returns as well.
The new business working with local stores, on the other hand, would most likely not require Groupon to hold inventory or incur shipping costs since the items would be marketed to shoppers in the vicinity of the store.
The big challenge will be enticing a scattered network of local businesses to join up.