Penney’s and Groupon Plummet: Is Your Retail Shop At Risk Too?

GrouponDisruption – the buzz word when talking about new businesses. It refers to how traditional modes of commerce and retail, in particular, are being disrupted by new ways of doing things.
Groupon was one of the first to get the disruptive buzz as a new way to buy. Out with the old paper coupons, the fliers on car windows, the expensive direct mail… and in with daily email offers from local merchants.  Only if enough friends claimed a Groupon would it go live, encouraging even more people to share among their friends.
The buzz got so large that it was rumored Google wanted to purchase Groupon in 2010 for $6 billion and when that offer was spurned, it made all the news.
In spite of my articles and ebook on the dangers of local merchants offering Groupons, Groupon continued to grow, eventually going public.
Yesterday the WSJ announced Groupon posted a net loss of $81.1 million for the fourth quarter, wider than its year-earlier loss of $65.4 million.
The funny thing is, they took a page from their own message to retailers and, according to the conference call with Groupon Chief Financial Officer Jason Child, gave select merchants special discounts on the rates it typically charged them to offer deals. He conceded the campaign came at the cost of margins, but said it was helpful in bringing new merchants through the door.
Their stock has lost 75% of its initial public offering price. And their CEO and founder Andrew Mason was fired Thursday night.

J.C. Penney

On the same day, Penney’s (JCP) announced that they lost $4.3 billion in sales in the 12 months after Ron Johnson took the helm as CEO.  As I covered initially, Ron Johnson went cold turkey on coupons and sales. Their customers stayed home in droves.
On Wednesday’s conference call, Johnson capitulated by saying, “We’ll offer sales each and every week as we move forward.”
One of the biggest challenges to JC Penney is that their margins are down because their fair and square pricing didn’t move the merchandise. Now they are forced to discount merchandise that doesn’t have enough markup to even break even. (See my trip down their aisles in December with photos.)
In an effort to reinvent and revitalize the Penney’s brand, Johnson and his crew knocked the pillars of the brand’s success out from under it.
Those pillars were their loyal customers.
Not the most stylish, not the most hip and certainly not the youngest shoppers, but they were the ones who voted with their feet and simply shopped elsewhere.
Fourth quarter sales plummeted 32% in-store and even more online. One headline read, Worst Quarter In Retail History 
The brand has been devastated.  And their beautiful Oscar commercial seems to be lipstick on a pig.
Like President Herbert Hoover said during the depression, each quarter the JCP CEO has promised success is just around the corner – but it keeps getting worse.  Analysts are now openly speculating on the liquidation of the very brand itself.
This disruption of an iconic department store was done from the inside. The same thing is likely to happen to merchants who use Groupons.
Many merchants have reported, in comments on my blogs and online, that their Groupon offers kicked the pillars out of their small businesses too, in several cases wrecking havoc on their very existence. 

In all of this, the basic lessons of building your business are still the same

• Know and respect your customer.
• You can’t build profits by discounting.
• Cutting costs to try to capture market share penalizes profits.