* Groupon shifts to quicker US approach to paying some
* Groupon runs less risky repeat deals with some European
* CFO says Groupon Goods inventory risk is limited
By Alistair Barr
SAN FRANCISCO, June 12 Groupon Inc is
speeding up payments to some merchants in Europe as the world's
largest daily deal company gets more comfortable running repeat
offers in more mature markets, according to Chief Financial
Officer Jason Child.
The shift, which has been happening gradually over recent
quarters, may be considered a negative trend by some analysts
because it could reduce the amount of cash Groupon has to fund
operations and growth.
In a recent interview, Child also addressed concern about
potential inventory risk that Groupon is taking through its
growing Groupon Goods business, which sells products at deep
Groupon has lost half its market value since last year's IPO
on concern about the company's growth prospects and accounting.
One area of focus has been accrued merchant payables - what
Groupon owes merchants that run its daily deals. [ID: L1E8G7OWS]
In the U.S., Groupon generally collects money for deals from
consumers and then pays merchants their cut in installments over
60 days. In most overseas markets, Groupon uses a redemption
model where merchants are not paid until customers redeem their
Groupon gets to hold the cash before it pays merchants,
which has helped it fund operations and growth efficiently. But
some analysts are concerned that this cash cushion may dwindle
if competition or merchant demands force the company to pay more
The company mentioned this as a risk in recent regulatory
"In the current period presented, we have offered our
merchant partners more favorable and accelerated payment terms
which has affected our overall cash inflow for merchant payables
for the period," Groupon said in a May 15 filing.
Groupon did not provide more details in the filing. However,
Child said in a recent interview that Groupon has moved to the
U.S. model of paying merchants in some mature overseas markets,
especially in Europe.
Paying merchants before customers redeem their Groupons is a
potential risk because if some merchants go out of business or
fail to honor the deals properly, Groupon promises refunds.
In some mature European markets, Groupon is running more
deals with merchants it has worked with before, which is less
risky because the company knows the businesses better, Child
This shift has been happening slowly in recent quarters.
About a year ago, Groupon took about 75 days to pay merchants on
average. In the first quarter of 2012, the company took about 66
days to pay on average.
Still, Groupon took about 64 days on average to pay
merchants in the fourth quarter of 2011. Such swings are also
influenced by other factors, such as the type of deals Groupon
runs or the type of merchants the company works with.
If Groupon is negotiating a deal with a large, well-known
merchant, it may offer that business more favorable terms, Child
"We wouldn't sacrifice good deals to maintain a strict
structure for terms," he said.
Analysts have also been watching Groupon Goods, which sells
gadgets, jewelry and other products at steep discounts.
This business has been growing quickly, however, and some
analysts are concerned Groupon may be exposed to inventory risks
and possible write-downs from the initiative.
"Groupon has disclosed that it sometimes takes title
(ownership) to some of the hard goods it offers - which if it
fails to sell at adequate margins could result in inventory
losses," Chuck Cerankosky, an analyst at Northcoast Research,
wrote in a note to investors last month.
Groupon mostly uses third-party shippers when it sells
products through Groupon Goods. In those cases, the company
takes on inventory risk, but usually only for a week or two,
"It is very different from Amazon or Wal-Mart, which take on
new inventory early on in the product cycle and for several
months at a time," added Child, a former Amazon finance
Groupon also sells items that are usually in the middle or
near the end of product life cycles, the CFO said. This is
especially true in the case of electronic gadgets, which is a
popular category for Groupon Goods.
For example, Groupon may sell flat-screen TVs for a
manufacturer that is planning to bring out a new version of the
product soon, Child explained.
This is less risky because the value of such products has
already declined, making it less likely that major write-downs
are needed on unsold goods.
"We're not selling a lot of low-discount, new products that
may need to be deflated," Child said.