Groupon still struggles to burn the empty shopping calories
- Summary:
- Groupon's new CEO is 100 days into office and there's still a lot left to do to execute on the roadmap for the company's transformation from coupons to marketplaces.
After some downbeat assessments of its progress towards a new business model, discount voucher firm Groupon can take some small cheer today from a seeming vote-of-confidence from e-commerce giant Alibaba’s decision to take a 5.6% stake in the company.
In another manifestation of its global expansion strategy - and its need to improve its understanding of the US market - Alibaba splashed out on 33 million shares of Groupon, making it the fourth largest shareholder. While that inevitably gets takeover scuttlebutt started, it can also be read as an indication of faith in Groupon's direction of travel.
In fact, all told, it wasn’t really a bad end to the week for Groupon, despite turning in a net loss of $46.5 million, against a profit of $8.8 million a year ago, on revenues of $917.2 million, up 4% year-on-year.
When we last took a look at Groupon’s progress in transforming its business model to a higher end, higher margin operation, outgoing CEO Eric Lefkofsky was talking about how the firm was tackling what he called an “uphill struggle”.
His successor, Rich Williams, is of course able to take advantage of the ‘not on my watch’ privileged status of the new guy in the hot seat to admit to the problems the firm has had in this struggle, in the knowledge that none of it is his fault - yet. So it's very much a case of ‘mea culpa’ at a corporate level when he admits:
We continue to have much left to do. 2015 was also a tough year for Groupon with seven years of pioneering in local, we've learned some hard but valuable lessons.
We learned that our supply and product efforts will take much longer than expected to drive the kind of growth we believe is possible. We learned that we weren't focused enough on high frequency local categories and that they would require investment to unlock their potential.
Similarly, we realized that empty calories in our shopping business might be good for revenue, but that they often weren't in line with the long term health of the business and model. We realized just how critical it is to focus our energies on levers that make sizeable impacts on the business long term.
OK, but that was then, this is now - so what does Williams intend to do about all this? Well, he’s not shirking his role as ‘the guy who’s going to fix things’:
When I stepped into my new role just about a hundred days ago, I said that I didn't need 100 days before sharing my plan for putting Groupon on a stronger growth path. I knew that would likely sound more like ego than strategy, but I'd been at the company for four-plus years. I knew that I had to move fast and I knew what needed to change.
He adds:
It became clear that we needed to make some tough decisions and some big changes. When I moved into the CEO role in November, we made those tough calls along with some big commitments, commitments to streamline and focus the business, to improve our shopping business, to invest in bringing more customers to our marketplace.
In practical terms, that’s meant Groupon pulling back from business in certain geographies:
We biased our streamlining efforts to our international operation. When we entered 2015, we were operating in 47 countries. We're now operating in 28 countries and are quickly moving closer to the footprint we want to operate and grow long term.
As we reduced our footprint and increased our focus on key geographies, we've begun to see proof that we're on the right track. In EMEA for example, we returned profitability to previous-year levels, aided by our restructuring efforts. As expected, these kind of gains create more opportunities to reinvest in the business yet create pressure on go-forward revenue. We still believe we're making the right trade-off.
There have also been consolidation initiatives in key regions. For example, the customer service organization in EMEA has gone from 20 separate teams to one centralised operation. There will be more of this to come, says Williams:
It wasn't just about challenging our country footprint. It was also about challenging how we work in given markets and in particular, how we're organized and how we're creating operating leverage and actually operational leverage in the teams. So, examples of that are our shared service centers, our customer service centers that we're still in the process of centralizing, particularly in EMEA. Moving away from dozens and dozens of separate operations into a handful of shared services so that work will continue.
Tough decisions also mean pulling out of certain business lines as well:
We also made the decision to integrate businesses like Ideal which now live inside the Groupon experience instead of as standalone properties that require large standalone teams. We exited the shopping business in some APAC Markets where we did not see the opportunity to build a thriving, healthy business and experience for customers. We're stopping dozens of initiatives that aren't making the Groupon experience materially better for customer and merchants.
Calorie counting
Alongside these cutbacks is a desire to move away from what Williams calls those “empty calories in shopping” - or less colourfully, focusing on higher margin categories, such as healthcare, home goods, jewellery and apparel, and only using low margin products to attract attention as part of targeted marketing campaigns.
Marketing is one area that is getting some additional love - and money - in order to boost customer acquisition. Williams explains:
We continue to believe that adding acquisition marketing to our transactional marketing efforts has significant long term growth potential for the business. The kind of cohort data that showed us we should invest more in customer acquisition, held strong as we increased marketing investments by over $20 million sequentially.
The end result was adding 645,000 active customers in the quarter, the most we've added in five quarters.
But while Williams boasts of considerable progress being made in his first 100 days in office, he does admit that there’s something that still needs to be tackled - the customer experience itself:
Without question, we've made improvements over the years, but the core Groupon experience simply hasn't moved far enough or changed fast enough. Too often customers can't find what they're looking for. Groupons still expire and we haven't yet moved beyond the long list of deals that are interesting to scroll but not suited to a true marketplace experience.
The same kind of program and execution discipline that are driving gains in our three other focus areas need to apply to the customer experience fast. We plan to deploy the product and engineering horsepower we freed up in our streamlining initiative against this challenge.
Not only do we believe that it will help us move faster along achieving our vision of becoming the daily habit in local, but better customer experience should help us increase the long term leverage in our customer acquisition investment.
It’s clear however that there’s still a long way to go before Groupon can shake off its ‘coupon’ past. Williams acknowledges:
The site today is that long list of deals that's much more rooted in our daily deal past than in a marketplace that's trying to serve high frequency use cases. You'll see some big changes to the mobile interface, in particular, to help people get to those use cases a lot faster. You'll also see us make some movements on the redemption process. We still, for whatever reason, we still have paper Groupons redeemed an awful lot these days and there's really no reason for it given how strong we're in the mobile space and the technology that we have as well as then on the service front.
But he insists that the roadmap is clear:
If you look at Main Street USA and pretty much Main Street anywhere around the world, the vast majority of merchants on Main Street are retailers. Those retailers continue to be underserved in e-commerce and I think Groupon is really well positioned long term to be able to provide a valuable local e-commerce solution. A local retailing solution for those retailers, much in the same way that we do for restaurants and spas and salons and ticketed events, locations and venues. So, I think that's a potential for us long term.
My take
Well, the ‘to-do’ list is clear enough.
Now it’s all about the execution.
With the first 100 days under his belt, Williams needs to deliver on his words.
Groupon’s still a long way away from being the Alibaba-style marketplace it aspires to be.