Groupon Plans Warehouses, Wants To Compete With Amazon, Costco

Groupon (NASDAQ:GRPN), the one-time daily-deals company, now wants to take on Amazon (NASDAQ:AMZN), Costco (NASDAQ:COST) and Sam's Club (NYSE:WMT) all at the same time, the Wall Street Journal reported on Tuesday (Aug. 27).

Groupon CEO Eric Lefkofsky said his company is planning a network of North American warehouses, beginning with one in Kentucky and adding two more over time. The distribution centers would serve Groupon's Goods business, which has nearly tripled its revenue in the past year. Groupon Goods sold $186 million in merchandise in the most recent quarter. But because much of the merchandise is shipped through third-party companies, items can take up to seven days to arrive in some cases, Lefkofsky said, adding that bringing shipping in-house would also improve profit margins.

He also compared Groupon's plan for a low-price, limited-selection service with Costco and Walmart's Sam's Club membership chain. Unlike those chains, Groupon offers a revolving selection of merchandise, and the Goods business it started in 2011 now makes up almost 40 percent of its sales.

But as VentureBeat points out, competing with both brick-and-mortar retailers and Amazon isn't just a matter of opening a warehouse or three (Amazon has 89) and hoping to cut delivery time to less than a week. With eBay, Walmart, Amazon and others aiming for same-day delivery in a low-margin business, Groupon will need to offer comparable service, especially as goods makes up a bigger piece of the business.

Still, Groupon may not have many other good choices. The daily-deals business proved to be a fad, and competitors that didn't diversify saw business plummet. For example, daily deals competitor Living Social lost $650 million in 2012, and investors had to pump in more than $100 million just to keep it afloat.

For more:

- See this Wall Street Journal story
- See this VentureBeat story

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