Retailers overwhelmed by daily deal sites
At a Pop Physique class in Silver Lake, about a dozen students stretch, extend and squeeze their muscles during an hour-long workout. Pop Physique began offering daily deals over a year ago. Thousands of people buy deals when they're available.
Kai Ryssdal: The deal-a-day company Groupon has seen better days. It's trying to go public into a stock market that can't quite figure out what it's doing. Its profit loss calculations -- and they're mostly losses right now -- have been called unreliable.
Whatever the merits of its finances, Groupon's very business model depends on a lot of local companies being willing to feed the demand for all those eye-catching offers. So the scads of wanna-be Groupons out there trolling for mechanics, spas and restaurants are working hard to keep merchants on their good side.
Marketplace's Jennifer Collins reports.
Jennifer Collins: Jennifer Williams owns a chain of seven exercise studios in California and Florida called Pop Physique.
Pop Physique teacher: Lift the left leg up. And up.
Classes combine elements of ballet and strength training in a grueling hour-long workout.
Student: Ah it hurts!
Pop Physique offered its first deal on Groupon over a year ago. Two thousand people bought the $20 offer. Ever since then, Williams says she gets calls and emails from other daily deal companies trying to sign her up.
Jennifer Williams: Literally every day.
Williams: Yes, and sites that I've never heard of.
Sites like SocialBuy, Bloomspot, PopSugar. The bigger players call too, like LivingSocial and Tippr.
Williams: I don't answer the phone much anymore.
The daily deal craze has gone way beyond the cut-rate spa visit. The market is expected to top $2.5 billion this year. Over 400 companies are scrambling to get in on it -- restaurant sites, newspaper sites, sites for your pet. If you can dream it, it's there.
Dan Hess: The competition is fierce.
Dan Hess runs a site that aggregates daily deals and helps businesses start their own.
Hess: The largest sites have hundreds of salespeople and they're calling, in some cases, dozens of dozens and dozens of merchants per salesperson per day.
And for businesses, it can be overwhelming. The big sites typically take a commission fee of 50 percent. The small sites take less commission,
but may not sell as many deals. Merchants also pay credit card processing fees and taxes. And Hess says the deal sites come with deals of their own.
Hess: Increasingly, those fees are negotiable.
On a recent Saturday, a couple dozen business owners gather in Southern California for a class given by the nonprofit organization SCORE.
Malissa Hallenbeck: Part of the question that I have here today is how much discounting do you do?
Vicky Nichols: Before you're put out of business.
Marketing consultant Keith Kaplan says daily discounts are part of doing business now. But small businesses need to choose the right site.
Keith Kaplan: If you get a response, and you're a little teeny sandwich shop, for 10,000 sandwiches, that's going to hurt your business instead of help your business.
Plus the larger sites now ask merchants to sign exclusive contracts -- and may not pay them if they do business with others.
Jennifer Williams has had that kind of deal with Groupon for nearly a year. She says it's allowed her to offer deals when she needs to, especially when she's opening new studios -- she's opened three this year.
Williams: I think once you find the one that either reaches the most people or a very specific group, then you stick with that.
Her most recent offer -- just a few weeks ago -- sold the most classes ever.
Pop Physique teacher: And press. It's like you're stamping the sole of your foot up on the ceiling.
Over the next few months, as many as 2,500 customers will stamp into Williams' studios, just loudly enough to drown out the sound of the phone ringing.
I'm Jennifer Collins for Marketplace.