How Groupon Helps a Business to Thrive

Adapting quickly to market changes is key to entrepreneurial success

By China Business Knowledge @ CUHK

With its headquarter in San Francisco in the United States, Deal Decor is a group-buying platform for savvy shoppers to get factory-direct deals for furniture from manufacturers in Asia. Joy & Revelry is its latest offshoot — a blog offering style tips and a seamless w furniture shopping experience for its customers.

Deal Décor company was founded in 2011 by Gregory Lok, an MBA graduate at CUHK Business School. A former strategy consultant with IBM Global Business Services, Lok has extensive merchandising and direct sourcing experience with industry-leading furniture organizations such as Home Depot Direct and Home Decorators Collection and Hamilton Spill Furniture Group.

He came up with the idea of creating a “Groupon” type of online furniture business that leverages on group-buying power and just-in-time inventory management.

“The idea aimed at addressing the following crisis faced by the furniture industry: Furniture exporters in China were faced with excess capacity as home sales and subsequently, furniture sales in the United States declined. Their desperation led them to accept small orders, which they would otherwise not do,” he says. “However, these factories worried about not getting paid by American retailers. To alleviate their concern, Deal Décor would pay these factories upfront once the orders are placed.”

Business Model

Unlike traditional furniture retailers, Deal Décor sells furniture and home furnishing items on its website before they are actually in production. That means inventory is kept at zero at the time of sales. The company adjusts the timing of the deals so that when a factory is producing similar items for other clients, Deal Décor can easily piggy back its small order. There are no middlemen involved.

Online customers would pay right away for a piece of furniture they commit to buy. Once Deal Décor gets enough interested buyers for that item, it would order the exact quantity from its manufacturers in China or Vietnam. When the products are shipped, it would pay the manufacturers immediately, rather than a month or more later as in the traditional business model.

“This is a win-win strategy for the factories, Deal Décor as well as its customers. The manufacturers would not have to face the problem of access inventory and they are paid quickly.”

Deal Décor would not have to pay for items that may not eventually be sold or that may have to sit in a warehouse, which would be costly in the long run. Products are shipped to a hub in the United States and dispatched to the city where the group of buyers is located, thus reducing shipping and warehousing costs.

The customers would get their furniture from 8 to 16 weeks after placing an order. They get to save 30 to 70 percent off the retail prices for similar items even when shipping costs are included.

Challenges

However, there are still challenges and that includes the logistic cost.

“The cost of logistics is an issue when not enough orders are placed by customers in the same physical location. How do you get enough people to purchase the same product in the same city and at the same time?”

With Groupon, each new customer costs about $2 to acquire. For Deal Décor, how much would it cost to acquire a new customer?

“With sites like Groupon, you can keep selling different products to the same customer forever. But with furniture, once you have sold a sofa, the customer wouldn’t buy another one for a long time. How do you acquire long-term customers?”

Proposed Solution

The solution is to set up a new business, Joy & Revelry, by partnering with bloggers who act as “curators” and select a list of items from Deal Décor’s product catalog according to different decoration themes.

“Readers of the blogs are linked to Deal Décor’s online shop. This is a good way to acquire new customers,” he says.