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Groupon Plans to Stop Selling Physical Goods

By Daniel B. Kline - Feb 19, 2020 at 1:12PM

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The company is taking drastic steps to cut its losses.

Groupon (GRPN -1.01%) plans to return to its roots as a website that sells local deals. This decision was reached after the company has posted several disappointing quarters including its most recent one -- where revenue dropped by 23%.

The app/website had been selling a mix of experiences and physical goods at deep discounts. Selling goods required warehousing, shipping, and other expenses while selling experiences can all be done digitally.

A person holds a smartphone.

Groupon has struggled to stay relevant. Image source: Getty Images.

What is Groupon doing?

The company plans to refocus on what it first became known for -- local deals. CEO Rich Williams explained the plan in a letter to shareholders.

Our strategy is simple: turn Groupon into THE local experiences marketplace. This means planning a quick exit from the Goods category, dedicating our resources to expanding our local experiences marketplace and executing a new course of action.

Basically, Good has been a low-margin business that takes eyeballs away from the company's core mission. Williams noted that the category got 40% of site impressions while only delivering 20% of gross profits.

Will the audience still come?

Williams assumes that dropping Goods will lead to customers seeing experiences or local deals and buying more of those. That's potentially a risk because the category may have driven some people to Groupon and when the goods disappear, those consumers may take their discretionary income elsewhere.

Selling hard merchandise -- even highly discounted and distressed items bought for pennies on the dollar -- comes with more risk and expense than selling a digitally delivered product. Groupon may lose audience doing this (or it may not) but it's definitely taking a safer path toward being a profitable, albeit probably smaller, company.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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