How Groupon Hopes To Compete With Amazon And Costco

When people think of Groupon (GRPN), they think of a company that's tailored towards daily deals for products people don't really need, or flash sales on vacations and such. However, with Groupon's latest announcement, it's going to take on the behemoth retailers of the world, including Amazon (AMZN) and Costco (COST).

Groupon announced perhaps its biggest venture yet, launching its online bulk-shipping service, known as Groupon Basics. Chicago-based Groupon, said Basics would start with deals from suppliers such as Gillette, Dove, Airborne, Panete and Burt's Bees, and would continue adding more products as the weeks and months roll on. It will enable "customers to stock up and save money on more than 100 household, personal care and health and wellness items."

To entice customers to use the service, Groupon is giving 5% back in Groupon bucks for customers who make their first purchase.

“We’re putting the bulk buying power of Groupon to work for our customers, helping them save on serious quantities of the things they buy and use every day –– all from the convenience of their home,” said Aaron Cooper, senior vice president of Groupon Goods in a press release. “By adding this service to our marketplace, we’re providing shoppers with great value and yet another reason to always check Groupon first. Best of all, there’s no membership or monthly fees.”

Groupon is differing from Costco, Amazon (via its Amazon Prime) Sam's Club, and BJ's, in that Basics does not have a membership fee, something that allows these companies to have a revenue stream, even if people don't use them. It's also offering free shipping on all orders of $24.99 or higher, and free returns, though some restrictions apply. By doing so, it's betting that users will actually use the service, a tricky bet, given first-quarter U.S. GDP grew just 0.1%.

Despite that, it's a bet Groupon has to make to stay relevant in e-commerce, a world increasingly dominated by Amazon. Groupon did $2.6 billion in revenue in 2013, with Groupon Goods accounting for $1.87 billion of that, up 25% year over year.

Groupon has pivoted its business model under CEO Eric Lefkosky, and is intent on remaining relevant. It's made the necessary infrastructure investments (for now, at least), having a distribution center in Hebron, Kentucky. It's never going to fully take on Amazon, Costco and other big box warehouse stores, but if it can manage to take a small slice of sales away from the aforementioned companies, than Basics will have proven to be worth the gamble.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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