RetailMeNot Can Learn From its Competitors

Stephanie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

RetailMeNot (NASDAQ: SALE) hit the market with a bang, with its stock soaring 34% in the first day. The company was already a success before announcing its IPO, with more than one billion visits in the past seven years. In 2012, RetailMeNot was receiving more than 24 million unique visits each month.

Like Groupon (NASDAQ: GRPN) and Amazon (NASDAQ: AMZN) Local, RetailMeNot has re-imagined the coupon concept for the digital world. But RetailMeNot is quite different from these competitors in that it provides coupon codes for consumers to copy and paste into online retail sites in order to get discounts. But, as we've discovered with Groupon, consumers can easily grow restless with online discount providers.

Learning from Groupon

Groupon launched its IPO in late 2011, with an initial stock price of $20 a share. RetailMeNot's initial stock price was $21 per share, with the IPO raising $191 million.

But in its first year, Groupon found itself embroiled in a scandal, as information came to light that the company didn't have proper controls in place when it made the offering. While it was legal to omit this from its initial paperwork, the company's stock plunged 17% when the information finally came out.

In its most recent quarterly earnings report, Groupon revealed an 8% increase in revenue over the past year, with $601.4 million in its last quarter. While the company has trouble in its international markets, with revenue dropping 18% overseas, this was offset by domestic revenue growth of 42%.

How has Groupon done it? The company has embraced its mobile strategy, which is something that could help RetailMeNot. Today's consumers are shopping on the go, with mobile device in hand, and RetailMeNot's copy-and-paste coupon code business model could become problematic, especially for those shoppers engaging in "showrooming." With showrooming, a customer is checking prices while standing in a bricks-and-mortar store--a process that could leave RetailMeNot out.

Amazon Competes

One of Groupon's main competitors is Amazon, who not only owns a stake in deal site Living Social, but also has launched its own competing service, Amazon Local. The site is all-too-aware of the increase in showrooming and even builds in deals from multiple companies into a "New and Used Offers" option.

But the company is increasingly focusing on digital content in an effort to compete with Netflix and Hulu. With net income declining in its first quarter, revenue increased 22%, Amazon continues to experience trouble with profitability due to its work to undercut big box retailers.

Through Amazon Local, the company has a chance to add a little extra income to its bottom line. Like Groupon, Amazon Local allows merchants to advertise deals through its service in the form of coupons. Amazon then promotes the offers to its large base of e-mail subscribers in that merchant's region.

Along with its other advertising options, Amazon Local helps build relationships in a way that is a win-win for both the company and local businesses. But as such a small part of its overall operations, Amazon Local seems to be more of an afterthought. Because of this, it's hard to pin Amazon's future success on its coupon segment.

Foolish final thoughts

As it begins a new phase of its history, RetailMeNot must keep an eye on its competition, while continuing to be innovative in each of its offerings. For online discount retailers, future success relies on their ability to leverage partnerships with businesses that bring in the best deals for consumers. Amazon has already mastered this, and Groupon seems to be figuring it out as well. If RetailMeNot can continue to attract millions of unique visitors each month, the stock will definitely be one to watch.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


Stephanie Faris has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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