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Daily Deals Sites not sustainable?

Are Daily Deal sites sustainable in the current market environment? The Dominion Post asked the question of Adam from FirstIn, and wrote an article outlining the current state of the market.

The article was published in the InfoTech section of the paper on January 28th and can be seen here.



Boom in one-day deal sites 'not sustainable'
By Claire Rogers

Online shoppers can now buy "deals of the day" from at least 20 New Zealand-based websites, with Trade Me not ruling out adding to the fray with its own group-buying site. However, the boom in daily deals sites has some forecasting a bust.

The sites typically offer discounted products or services in large quantities for a limited time.

Yellow Pages added to the buzz last week when it purchased local site Groupy, while Google is said to be developing its own site to compete with United States market leader Groupon, which it tried to buy for US$6 billion (NZ$7.7b) last year.

Adam Brown, founder of deals site Firstin, said the number of local sites was not sustainable.

"A lot of people probably think it's easier than it actually is to offer compelling deals each day."

Some of the "deals" were more expensive than prices people could get at retailers, and some products available were cheap and tacky.

"You also see a lot of the same products popping up on different sites because they're fighting over excess inventory that's around locally."

Volume was key and he doubted whether many sites would be selling enough products to make their business viable.

"Of the suppliers that we deal with locally they'll only give you a special price if you buy a big number and there's only two or three sites in our space that could make that stock commitment and be able to get sell-through."

Firstin, which had been going for seven years, sold technology, home and kids' products, most of which were imported.

"We've got people on the ground in the US and China constantly sourcing goods for us. We're not fighting for the same clearance products in the local market."

The company also had a separate business supplying retailers in Australia and New Zealand – including Warehouse Stationery – which helped it move the large volumes, he said.

Firstin was not necessarily making huge margins but had mostly cut out "the middleman" and was keeping costs low.

E-commerce analyst Stefan Korn said he had been expecting a consolidation of local daily deals sites for a while.

"For the New Zealand market there seems to be an awful lot of them out there. It seems like `the next big thing' that everyone with an email list is now doing."

For the sites to succeed they would need to be offering very popular items, but retailers would be less likely to offer special deals for high-demand products, he said.

"Another problem is distribution, if you've got 1000 products how are you going to get them to 1000 people? I'm somewhat sceptical about it."

Trade Me has also thrown its hat into the ring, launching a site in July that lets members push through bulk products.

Marketplace manager Craig Jordan said about half-a-million people visited the site each day.

"There's two parts of the sector, there's the `daily experiences' part which is getting more and more competitive and the product side of things is more of a mature market. The cream is probably rising to the top now and some of the smaller sites have probably peaked in their growth."

Despite this, Trade Me believed there was "more in the tank" for its site and would focus on bringing in new retailers and products.

It had not ruled out launching a group-buying site, he said.

"It's an interesting space and we continue to watch what's going on there."

Nielsen online research director Tony Boyte said its 2011 online retail report was due out in March and he expected it would show Kiwis were highly engaged with the sites.

According to its 2010 online retail report, 11 per cent of New Zealand internet users purchased from the daily deals site 1-day.co.nz in the last three months of 2009, compared with just six per cent for the Amazon and Ezibuy websites, he said.

Those sites that required a "tipping point" to be reached before the deal was valid, such as Groupy, GrabOne and Yahoo7's Spreets, were on safer ground than those that bought products in bulk and then had to flog them off, Mr Boyte said.

"The others seem to be doing reasonably well so far but you'd imagine they'd have to reach a tipping point to achieve economies of scale."

Retailing trends suggested there would be a shake-up in the market.

"When you see everyone jumping on the bandwagon that's usually followed by a period of consolidation."