Daily deals day is done?

The rate at which flash sale and daily deal sites, which offer retailers new ways to sell goods at even deeper discounts than they’ve always done through their own stores are being launched and later the eye-watering valuations they are achieving resembles nothing less than the old internet bubble of the late 90’s.

The daily deals segment is abuzz with new entrants. Groupon and the other early entrants have been joined now mushroomed into what Inside Retailing’s Michael Baker called “a retail Wild West, where new players ride into town in posse’s and wave their deals like six-guns”.

The phenomenal growth that’s fuelled this gold rush will be sustained only so long as the retailers get something out of the deals. But cracks are showing and stories of dissatisfied retailers and customers abound.

When a restauranteur offers 50 per cent off a meal he’d better hope the deal-takers brings some full price friends or revisits. What some have done in order to make the price reduction work is delivered such a cut-price product or else used such aggressive add-on price gouging to recover margin  that the customer experience suffers to the extent that business is actually damaged.

Flash sales sites are similarly proliferating,  most recently supplemented by Amazon’s Myhabit.com. What the breathless ‘bricks and mortar is dead’ headlines rarely point out is that these flash sale sites are pretty much new-model factory outlets simply unloading excess stock. Their role can be overestimated; HauteLook.com, recently bought by department store retailer Nordstrom, is believed to generate just US$100 million a year in sales after 3+ years of operation whereas  Nordstrom had sales of US$9.3 billion last fiscal year.

My view is that the top has been reached already. Consumers love novelty but get quickly jaded. They’ve been habituated for years by store-based retailers constantly pushing promotions and sales at them – the main difference with these sites is the impulse-orientation they offer, but this will be undermined by the fact that the product is in many cases inferior.

Discounting-as-retailing is one of the fundamental problems the retail industry has struggled with for years. These sites elevate this problem to new levels: “You will never ever have to pay full price if you wait long enough.” The process of chasing prices ever downwards is ultimately cannibalistic, builds a bottom-feeding consumer mentality and must delivers inferior products resulting in once-bitten, twice-shy consumers. At that point the influence of this sector will wane.



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