What if they threw a buyout and no one came? That’s what happened last week to Borders bookstores, and as a result the big box media chain has begun liquidating.
Some will look at this event as a sign of the nation’s increasing economic woes, or as an indication of an empire in decline. Others will see this occasion as a symptom of advanced anti-intellectualism in America.
I’m not convinced that either of those arguments really hold any water, but they do make for some great fear-mongering.
In any free-market economy there are going to be losers and winners. Certainly, it’s startling when a large national retail chain becomes one of the losers, but the path of capitalism is littered with the detritus of fallen brands (Pan Am, Woolworth, Saturn, and Pennsylvania Railroad, to name a few).
What does the bankruptcy of Borders say about our culture? I believe that as our people’s basic needs are being met by pervasive, omnipresent national brands, those people increasingly turn to their smaller local communities for specialized needs.
The closure of Borders bookstores is indicative of the great wave of the shopping mall–that crested in the late 80’s–finally receding. For nearly the entire history of the world, shopping was a series of encounters with very specialized providers. You needed flour? You went to a mill. You needed meat? You went to Sam the butcher. To our modern eyes it was a drawn-out and exasperating process, but the business model of craftsman-as-sole manufacturer demanded it. In the 19th century, that started to change.* People began ordering unrelated products through catalogs. Eventually department stores were invented, and people started destination shopping--that is, going to one place for all their needs. We were just a short hop at that point from the mall and the death of the boutique.
But then the Internet happened, and the whole idea of the “store” got all mucked up.** Anyone could sell anything (or any number of things) to anyone else, anywhere in the world. At first, this was novel and exciting, but eventually it became just another way to shop. We buy our Xmas presents on Amazon, we buy our music from iTunes, and we buy weird knitted garden gnome scarves from Etsy†. The Internet became the destination, and the individual websites were able to go back to the making-and-selling-one-type-of-thing-expertly model.
This change in consumer attitude wasn’t the only thing that did in Borders (they bungled a lot, and made some dumb choices that were obviously wrong at the time), but it contributed. It’s something that other companies (or anyone who sells or buys anything) should examine, and see where they fit in in this new-market thinking.
*Yeah, there were merchants who traded in a number of goods long before the then, but such variety was a rarefied thing. I say modern shopping happened after the Civil War.
**for the better, IMO.
†that’s what you use Etsy for too, right?
The Groupon Hustle
Groupon is bad for the American economy.
Like really, really bad. For lots of reasons.
Lately Groupon has been the belle of the ball. Last year the company increased its annual revenue an astounding 2241%. I wish there were uppercase numbers so I could type that figure in all caps.
Because it’s important to understand how the big G pulls in all this cash, I’m going to summarize here how Groupon works; if the progressive coupon racket is old hat to you, feel free to skip ahead to the next paragraph. Essentially, Groupon sells coupons for local businesses' products at stupendously deep discounts (40-50% off is commonplace). The rub--and there's always a rub--is that a certain number of people have to purchase the coupon before it becomes valid. So if there's some deal that really interests you, it behooves you to tell all your friends and get them to buy in as well. There is no limit to the number of coupons available. Good deals on popular services in metropolitan areas routinely move thousands of vouchers. Groupon takes a cut of every voucher's sale price, usually around 50%.
On the surface, and this of course is the way Groupon frames it, this setup is good for the participating businesses. Groupon has a ginourmous audience, and customers who weren't previously aware of your product will be made aware of it. Groupon is essentially a marketing and promotions engine. But all this comes at a huge cost; not only to the participating businesses, but to the larger economy in general.
First and foremost, it’s very hard for businesses to absorb the deep discounts Groupon demands. Businesses often operate at a loss on the products they discount and 50% is a HUGE margin. These businesses are just hoping against hope to create some new trickles of revenue.
Next, you have to face the fad factor. Groupon is the hot-shit thing in marketing right now. There is a great deal of peer pressure to be on the service. If you aren’t and your competitors are, what does that say about you to your customers? Honestly, no one is sure. It probably doesn’t say much of anything at all, but very few companies are willing to take that risk.
Lastly you have the devaluation problem. When you give your customer a product at 50% off, they come to expect to pay that much for it. When they return to see your normal, non-Grouponed price points, they might feel the products aren’t worth that much. It’s nearly impossible to change a consumer's mind once they’ve decided a product's worth. Groupon devalues the products it promotes, and that’s about the most damaging thing you can do to a brand.
The funny thing is, despite all the money Groupon’s taking it at the expense of local businesses, it’s not a very fiscally solvent company. See, for every dollar that Groupon makes, they spent $1.45 to get there. Apparently, having an army of salespeople cold-calling every business in the world takes a lot of up-front investment. Recently they raised nearly a billion dollars in venture capital, but almost that entire amount was sunk into repaying earlier investors.
I’m not going to say Groupon is a sinking ship (the rats are still swarming the decks). Nor is it the wrong move for every business using it, but it is overvalued in our cultural mindspace, and at some point in the near future the other shoe is going to drop, and it’s going to be a hell of a thing when it does.
Like really, really bad. For lots of reasons.
Lately Groupon has been the belle of the ball. Last year the company increased its annual revenue an astounding 2241%. I wish there were uppercase numbers so I could type that figure in all caps.
Because it’s important to understand how the big G pulls in all this cash, I’m going to summarize here how Groupon works; if the progressive coupon racket is old hat to you, feel free to skip ahead to the next paragraph. Essentially, Groupon sells coupons for local businesses' products at stupendously deep discounts (40-50% off is commonplace). The rub--and there's always a rub--is that a certain number of people have to purchase the coupon before it becomes valid. So if there's some deal that really interests you, it behooves you to tell all your friends and get them to buy in as well. There is no limit to the number of coupons available. Good deals on popular services in metropolitan areas routinely move thousands of vouchers. Groupon takes a cut of every voucher's sale price, usually around 50%.
On the surface, and this of course is the way Groupon frames it, this setup is good for the participating businesses. Groupon has a ginourmous audience, and customers who weren't previously aware of your product will be made aware of it. Groupon is essentially a marketing and promotions engine. But all this comes at a huge cost; not only to the participating businesses, but to the larger economy in general.
First and foremost, it’s very hard for businesses to absorb the deep discounts Groupon demands. Businesses often operate at a loss on the products they discount and 50% is a HUGE margin. These businesses are just hoping against hope to create some new trickles of revenue.
Next, you have to face the fad factor. Groupon is the hot-shit thing in marketing right now. There is a great deal of peer pressure to be on the service. If you aren’t and your competitors are, what does that say about you to your customers? Honestly, no one is sure. It probably doesn’t say much of anything at all, but very few companies are willing to take that risk.
Lastly you have the devaluation problem. When you give your customer a product at 50% off, they come to expect to pay that much for it. When they return to see your normal, non-Grouponed price points, they might feel the products aren’t worth that much. It’s nearly impossible to change a consumer's mind once they’ve decided a product's worth. Groupon devalues the products it promotes, and that’s about the most damaging thing you can do to a brand.
The funny thing is, despite all the money Groupon’s taking it at the expense of local businesses, it’s not a very fiscally solvent company. See, for every dollar that Groupon makes, they spent $1.45 to get there. Apparently, having an army of salespeople cold-calling every business in the world takes a lot of up-front investment. Recently they raised nearly a billion dollars in venture capital, but almost that entire amount was sunk into repaying earlier investors.
I’m not going to say Groupon is a sinking ship (the rats are still swarming the decks). Nor is it the wrong move for every business using it, but it is overvalued in our cultural mindspace, and at some point in the near future the other shoe is going to drop, and it’s going to be a hell of a thing when it does.
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