In order to reduce shipping times and gain customers, Groupon Inc (NASDAQ:GRPN) is striding into new territory by altering its business model. The firm is originally known for offering coupons for a rotating selection of products, which are then delivered by local shops. Surprisingly, the company recently made headlines in India by offering onions at 80-90% less than market prices. This is surely a novelty for Groupon Inc (NASDAQ: GRPN), which usually sells restaurant deals, cheap movie tickets, teeth whitening services and beauty products.
Yet Groupon Inc (NASDAQ: GRPN) is not only offering onions in India.
Rather, the firm is seeking to expand its “goods” business and cut out local distributors in the process. This shift is part of an overall strategy to expand from coupons, to the direct sale of products. This comes as no surprise, since the “goods” business already has a proven track record in North America, where revenue increased 300% this quarter from the past year. In accordance with this new strategy, CEO Erik Lefkofsky announced that Groupon Inc (NASDAQ:GRPN) is already looking at possible warehouses to store the growing number of products offered by the firm.
Leaving retailers on the sidelines and selling their products directly to users, the company is bound to improve margins and shipping times. Yet storage is becoming an issue for Groupon Inc (NASDAQ:GRPN). As it increases the range of the goods it offers, the firm will need physical space to store the items until they are purchased and delivered. According to Lefkofsky, three warehouses should be enough to outweigh the downsides of leaving its original model of emailed coupons for local merchants behind. Nevertheless, this also means more competition, as Groupon Inc (NASDAQ:GRPN) now enters an area dominated by Amazon.com (NASDAQ:AMZN) and Overstock.com (NASDAQ:OSTK).
Lefkofsky, who was declared CEO after serving as interim since co-founder Andrew Mason’s departure in February, is convinced the new strategy will bring about benefits for the firm. By concentrating on offering a limited, yet rotating, selection of products at very low prices, the CEO claims Groupon Inc (NASDAQ:GRPN) can capture a portion of the market and thus reap large profits. Whether this strategy will pay off is yet to be seen, but either way, expansion and business model alteration are already underway.
Disclosure: Pablo Erbar holds no position in any stocks mentioned