Groupon Preps for More National Marketers After $11 Million Gap Promo

Touts Ability to Generate Foot Traffic as Key

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NEW YORK (AdAge.com) -- It looks like Groupon will be topping retailers' holiday wish lists.

Since last week's national Gap promotion, Groupon's phones have been ringing off the hook, said Rob Solomon, president-chief operating officer of Groupon. He expects the company's next national retail promotion will happen "pretty soon," with more to come during the fourth quarter.

Gap's Groupon sold 441,000 units for more than $11 million.
Gap's Groupon sold 441,000 units for more than $11 million.
"The goal is traffic, so you'll see a bunch in" the fourth quarter, he said. "We proved that we can drive traffic in spades."

For Groupon, there's been a flood of publicity. In an average week the company adds about 500,000 subscribers. In the week after the Gap promotion, it added 750,000 subscribers. And then there's the potential for more offers from national retailers and manufacturers -- offers that, if the Gap promo is any indication, will generate a tidy profit for Groupon. Today, for example, Groupon teamed up with Fandango to offer Fandango customers a $4 movie ticket, if they signed up for Groupon.

The company is growing at a dizzying pace. In the last five months, it's expanded from one country to 29 countries, from 3 million subscribers to more than 15 million and from less than 300 employees to more than 1,500 employees. The addition of national brands could boost growth further.

The Gap Groupon, which let users buy a $50 credit for $25 and was timed to the back-to-school season, sold 441,000 units for more than $11 million. Mr. Solomon and a spokeswoman for Gap declined to share specifics of how the deal was structured. However, Mr. Solomon did say that typically Groupon shares equally in the profit with its partners. Regardless, it's clear the Gap promotion was a boon to both companies.

Gap has nearly half a million customers who now have a reason to go into a Gap store -- the coupon isn't valid online -- and the expectation is that those customers will spend more than just $50, likely upward of $75 to $100, Mr. Solomon said. That's $33 million to $44 million in sales if all of the Groupons are redeemed. Not all of them will be, of course. But Mr. Solomon maintains that redemption rates are "north of 80%" for the average Groupon.

"It's a significant chunk of sales. I'm pretty sure if they ran a national TV campaign, they wouldn't have gotten nearly 500,000 paying buyers in the store," said Mr. Solomon. "It's all about getting people in the store. When Gap gets people into the store, they're a fantastic brand, and they merchandise well. I guarantee 80% to 90% of people are buying more [than just $50 worth of product]."

Gap also got points from analysts for experimenting with Groupon. "These one-day-only deals generally focus on local products and services, so Gap's involvement is a testament to the fact that they are thinking outside of the box," wrote retail analyst Jennifer Black in a research note.

For now, Mr. Solomon said the company expects to end the year with between 20 million and 25 million subscribers. And it is on track to generate $400 million in gross sales. That begs the question: Is Groupon thinking about going public? Mr. Solomon said no.

"Currently we are focused on growing the company and defining the category, no IPO plans," he said.

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