Retailers down on daily digital deals

Sharon Townsend points to her own use of “daily deal” websites to question just how beneficial their proliferation is to Vancouver retailers.

The South Granville Business Improvement Association executive director bought a 50%-off meal coupon to her favourite Vancouver restaurant a few weeks back from one of the city’s nearly dozen daily deal sites.

Each site follows a similar model: it sends its subscriber base a daily deal, which usually includes discounts on goods or services that range between 30% and 90% at a particular store.

A critical mass of consumers taking up the offer is usually required for the offer to be completed.

Like all businesses that sign up to deliver offers on such sites, Townsend’s favourite restaurant hopes its discount offer will draw a flood of new clientele.

“At 50% off, they’re not making any money,” said Townsend, “so they’re counting like blazes that somebody is going to come back a second time and cover off that loss.”

But because Townsend’s a regular patron at her favourite restaurant, she’ll continue to patronize it with or without the discount.

Next time she dines there, however, the restaurant will foot half of Townsend’s bill.

“Are they going to make any money with me coming in there like that? No,” said Townsend.

There’s no question that consumers and businesses have taken to daily deal sites like Indulge Living, Steal The Deal and Grooster, which emerged in Vancouver less than a year ago.

Newcomers are trying to differentiate themselves by offering deals that are exclusively ethical, green or local or that fit into some other niche.

Groupon, the Chicago-based website that started the trend, recently spurned what was reported to have been a US$6 billion takeover bid from Google.

But Townsend and some Vancouver retailers are concerned that the online discount trend isn’t the boon to retail that daily deal sites would have them believe.

“Some of my merchants [are] throwing their hands in the air and saying, ‘What do we do with this?’” said Townsend. “I think there is a lot of pressure to use them. And I’m not convinced and I don’t think [retailers] are convinced that the payoff is there long term.”

Lynda Barr, director of Dianes Lingerie on South Granville, doesn’t offer mass discounts to the lingerie retailer through daily deal sites because she thinks such marketing ploys would erode the store’s unique service-oriented brand.

“We’re a niche market and we specialize in bra fittings,” said Barr. “I think that women who come to our store value the service and selection that we provide.”

She acknowledged that daily deal sites have worked for some retailers, but she believes the daily-deal trend is training consumers to wait until they can scrounge up a deal before they shop.

“When [retailers] mass market [themselves on] things like Groupon and Grooster … I’m not so sure how much of a benefit they’re going to realize from that in the long run.”

Barr noted that some of her retail colleagues have been disappointed by the minimal repeat business their daily deal offers have generated.

“To me, it’s a cash grab,” said Barr.

Daily deal offers are typically so generous that they’re what retailers refer to as “loss leaders.”

Mark Startup, president and CEO of Shelfspace, which advocates on behalf of B.C. retailers, said that if retailers post deals online, they have to be certain of their fiscal ability to handle a potential onslaught of discount-bearing customers.

“But … retailers have been offering loss leaders for as long as there has been retailing,” he said. “You could call [daily deals] the socially networked version of the coupon book.”

He said that from the feedback he’s received about daily deals, retailers are more concerned about the opportunities related to mass exposure to potential customers than about the risks of reducing margins to unsustainable levels.