What’s the Deal With Coupon Sites?

Footwear retailers are increasingly finding that online coupon sites, or so-called “daily deal” partnerships, are an effective new tool to drive traffic in stores.

Coupon providers such as Groupon, Gilt City, LivingSocial and DailyDealTime, among others, are helping retailers both attract new customers and reward existing patrons.

“Everyone, regardless of their income, loves a great deal,” said Julie Mossler, director of communications for Chicago-based Groupon Inc., whose revenues are expected to top $1.59 billion this year, according to Wall Street analysts. “With daily deals, we are able to tailor these deals to be compelling for [members]. They’re personalized offers. Because of that, you feel like you have a personal connection with that site.”

This exposure to potential new customers is one of the top reasons footwear retailers say they have — and will continue to — partner with daily-deal websites such as Groupon that offer members coupons at big discounts of 40 percent to 75 percent off. According to research firm BIA/Kelsey, consumers are expected to spend $4.17 billion at daily-deal sites by 2015.

But the coupon “deal” is really a masked advertisement, noted Internet executives and footwear retailers. Its electronic nature helps stores track how many people have actually used the coupon, how much is spent in one transaction, and whether the consumers are new clients, among other aspects.

“We don’t consider ourselves a daily-deal site. We’re a marketing suite for businesses,” said Mossler. “We are working with you to help you grow your business.”

Mossler said Groupon offered between 600 and 900 deals that included footwear in 2011, up from just 70 deals in 2010. “The interest level [in footwear] is rising rapidly,” she said.

Mindy Henderson, manager and buyer at The Shoe Mill in Tempe, Ariz., said online deal sites are a way to reach new customers in the digital age. “Everyone is online and no one reads the newspapers. And TV [advertising] is too expensive,” she said. “That’s what prompted me to try [Groupon].”

In December, The Shoe Mill ran an online coupon with Groupon costing $40 for $80 worth of store credit, and another one costing $25 for $50 in credit. Nearly 700 people bought the coupons.

“It makes the tightwad part of me cringe a little bit, but I definitely think it was the valid thing to do. And I’d do it again,” said Henderson. “What other kind of advertising can you do that’s relatively inexpensive [and] that guarantees people are going to come into your store and spend money?”

For Henderson, Groupon is effective because it helps her clear the store of excess merchandise. “My favorite motto in footwear is: ‘Take your markdowns, make sure your inventory is fresh, recoup your money, and move on,’” she said.

At Footloose & Fancy, with two locations in Lincoln, Neb., owner Matt Stricker said his company’s customer base has increased by about 30 percent over the past two years following two Groupon deals. “Even if [consumers] are coming in to buy socks, if that’s all they buy, they might come back. We’re thrilled with the experience. It’s a cheap way for [consumers] to get in the stores and try the products,” said the retailer, whose last deal cost $25 for a $50 store credit and ran in November.

Stricker, whose average price points are between $100 and $150, also sees the Groupon deals as a way to reward existing customers. “We don’t run a lot of promotions or sales. [Existing customers] feel like it’s a good way to get things on sale,” he said.

Like Henderson, Stricker said he is willing to overlook the lower profit margins. “You have to view it as an advertising expense, not as trying to make money off it. You don’t want to have a poor attitude about it,” he said. “If you feel like you’re offering something different than other stores in town, [coupon deals are] a good way to highlight it.”

Alexis Cozzini, owner of the Chicago-based footwear and apparel boutique Sarca, recently ran two deals simultaneously on Gilt City: one offering $150 in store credit for $75, and another that was a “V.I.P. package,” where buyers spent $500 and received a discount off purchases for the entire year.

She said the appeal of Gilt City is that her store could create its own deal packages. “The options are endless,” she said. “You can customize to how it would best suit your business.”

And choosing the right partner is as important as catering your deal to new and existing customers, Cozzini added. “We try to give [our store] a higher-end, upscale image. Gilt is a bit more selective and upscale,” said the retailer, whose most popular footwear brands include Tania Spinelli and Ruthie Davis, which can range from $575 to $1,395 per pair.

But at least one retailer warned that a coupon deal might not bring in a store’s target customer. Tim Butler, owner of Charlotte, N.C.-based Shoe-In, said a coupon he ran in September via LivingSocial that gave buyers $30 in store credit for $15 — with nearly 500 coupons sold — has not had the desired outcome.

“I would never do it again. It kills your margins,” said Butler, whose average price point is $50. “I’ll take a hit like that to get some additional customers.” But, he added, the new customers who came to the store were not his typical clientele. “Customers would come in and actively search for something that was only $30 so as to pay nothing out of pocket,” he said. “Will that person come back again? Probably not.”

When contacted by Footwear News, a representative from Washington, D.C.-based LivingSocial said the Web company plans to contact Butler to better tailor potential future deals.

Regardless, LivingSocial said footwear is a solid category. The company reported it sold more than 7,700 vouchers in 2011 that were specifically footwear-related. That included one deal from Los Angeles-based shoe merchant WSS that resulted in the sale of at least 3,100 vouchers as part of a $20-for-$40 deal.

Looking ahead, Unaiz Kabanai, a data product analyst at Yipit.com, a website that aggregates online coupon deals, said the number of companies operating coupon sites is likely to shrink.

“You see a lot of these sites and not everyone is doing well,” he said. “It’s really easy to enter this market, but it’s challenging to have success and have scale. The top 10 deal sites comprise more than 80 percent of the gross billings in this industry, and the top 25 are really 90 percent.”

That process is already playing out. Gilt recently annouced a 10 percent reduction in staff, which included the layoff of CEO Nate Richardson. Also, the site is refocusing its resources. The company closed six markets to focus on its core cities of New York, Los Angeles, San Francisco, Chicago, Miami, Washington, D.C., and Boston.

Other coupon sites are searching for a competitive advantage and, as a result, are turning to footwear.

For example, DailyDealTime is seeking to add more shoe brands to its site by working directly with manufacturers, said CEO Tom Luu. He plans to sell the product via vertical categories that the site expects to launch in the coming weeks.

To make potential deals more enticing to footwear brands, Luu said his site aims to sell a high volume of shoes at one time. In addition, Luu said, his site charges lower fees than many other coupon sites — between 10 percent and 20 percent of the deal’s total buy-in, as opposed to as much as 40 percent or 50 percent at some other sites.

“If [the brands] make money, they will come back,” Luu concluded.

 

Clipping Tips

Footwear retailers reveal some best practices for implementing an effective daily-deal strategy.

1 Make sure your employees know how to redeem the coupons at point of sale, said Matt Stricker, owner of two stores called Footloose & Fancy in Lincoln, Neb. Practicing how to complete a sale is also particularly important in case of any returns or exchanges.

2 “Read the fine print. Make sure you completely understand [the coupon deal’s terms]” as they relate to your store and the customer, advised Mindy Henderson, manager of The Shoe Mill in Tempe, Ariz. That includes having the coupon site’s customer-service numbers on hand for any questions once redemptions start rolling in.

3 Time your coupon offer appropriately. Alexis Cozzini, owner of Chicago-based footwear and apparel boutique Sarca, recently ran her second group of online coupon deals in the weeks after Christmas, a typically slow time for her 2-year-old store.

4 Be aware of your online coupon partner’s redemption policies. Some retailers noted that if a consumer buys the coupon but does not redeem it in the specified time window (often around 6 months), your store may not get paid by the coupon company. Or customers may be able to redeem the coupon after the redemption period, but only for the purchase price. In other words, if the deal offered a $50 store credit for $25, the purchaser would get a $25 store credit.

5 Consider putting a price restriction on the coupon, said Tim Butler, owner of Charlotte, N.C.-based Shoe-In. To help maintain your profit margins, pick a minimum price consumers have to purchase, so you are not essentially giving away shoes or accessories once the coupon is used.

6 Pair your online coupon site with your store’s image, suggested Cozzini, who chose Gilt City as a partner because its higher-end appeal suited her store’s price points.

7 Be clear about the requirements for redemption. “Remind consumers that they need to have the actual coupon or voucher with them when they come in to make the purchase,” said Cozzini, who noted that a specific code might be needed to complete the transaction.

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