Jason Del Rey

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Groupon Wants to Be Costco, Not Amazon, CEO Says

When Groupon reported second-quarter earnings earlier this week, its Groupon Goods business accounted for $242 million of the company’s $609 million in sales, or 40 percent of total revenue.


That’s a huge percentage for a business that launched less than two years ago. But with that growth comes challenges.

And new CEO Eric Lefkofsky said in an interview this week that he recognizes that improvements are needed. For starters, the company needs to increase the selection of products for sale under the Groupon Goods banner.

“Today, we don’t have enough SKUs to merchandise the site as much as I’d like,” he said in an interview on Wednesday.

On Friday, for example, there were just 578 products available to purchase through Goods in the U.S. Featured Goods products included single-serve coffee cartridges and something called “tint hair chalk.”

At the same time, Lefkofsky said he only wants to see the Goods business expand to a point.

“The way I envision it, it will be a highly curated selection of deals,” he said. “It’s not going to be a big-box retailer like an Amazon or Walmart; it’s going to feel much more like a Costco with a select number of SKUs.”

Lefkofsky also admitted in a call with analysts that Groupon has a long way to go to lower costs on the Goods business. Gross profit of the Goods business decreased 16 percent year over year in the second quarter. He said shipping and logistics costs are “disproportionately high” compared to other big e-commerce companies.

In prepared remarks, Groupon CFO Jason Child echoed those concerns.

“We continue to spend too much on shipping and infrastructure, which has driven our overall goods gross margins into the mid-teens,” he said. “We expect that margins will improve over time as we scale these costs. But it is important to note that we could see variability quarter-to-quarter until then.”

Over time, Groupon hopes to incorporate products from local merchants into the Goods business, instead of just focusing on items sold by national brands.

For now, it’s a business line that Wall Street will continue to watch closely.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik