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Are Coupon Aggregator Sites Worth Retailers' Investments?

Written by Tom Ryan

How valuable are digital coupon websites? On Wall Street at least, RetailMeNot, the largest one, just received a whopping valuation of $1.05 billion in its IPO, with a 32-percent leap on its first day of trading Friday.

RetailMeNot featured digital coupons from over 60,000 retailers and brands in 2012, with its partners realizing over $2.4 billion globally in sales driven by its coupons. Its main sites are RetailMeNot.com in the U.S. and VoucherCodes.co.uk in the U.K.

For consumers, RetailMeNot provides one source for a wide array of coupons across categories, better assurances against invalid or expired coupons and personalization, such as coupon alerts from preferred stores. Digitally downloading also ends the chore of hunting down newspaper coupons.

According to its prospectus, RetailMeNot offers four core solutions for retailers:

  • Access to a large consumer audience: In 2012, RetailMeNot's websites had on average over 24.2 million unique monthly visitors, more traffic than the majority of its retailers' own websites;
  • Multichannel engagement with consumers: In 2012, RetailMeNot had over 450 million visits to its websites. It has had more than six million mobile app downloads and has more than nine million e-mail subscribers. It also offers in-store solutions tied to mobile devices as well as social media programs;
  • Trusted partnerships and strategic approaches: RetailMeNot said it actively works "with our paid retailers to curate their digital coupons to drive sales and build consumer trust;"
  • Quantifiable, pay-for-performance model: Retailers pay a commission to RetailMeNot only after a consumer has made a purchase and are able to track the performance of their digital coupons.

With 94 percent gross margin, RetailMeNot is already profitable. With its low expense base, however, investor concerns include ease of entry. Large competitors include Couponcabin.com and dealnews.com.

Groupon's poor IPO also brings worries that RetailMeNot may largely cater to non-loyal cheapskates. The Wall Street Journal found one company, Jewelry Television, which no longer uses coupon sites. Its chief strategy officer, Tim Engle, told the WSJ, "We ended up discounting a lot of products that didn't need to be discounted."

A difference is that RetailMeNot offers a solution for national retailers versus Groupon's local concentration.

"For RetailMeNot, they're being a traffic driver to large-scale e-commerce sites and helping consumers find coupons for these sites," Tom Forte, an analyst at Telsey Advisory Group, told Bloomberg. "It's an effective business model — they're catching you on your way to your shopping choice with coupons."

A Toys "R" Us spokesman, Kathleen Waugh, also favorably told the WSJ, "We've had great success with these sites and consider them an important part of our overall marketing strategy."

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