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Shares of Groupon (NASDAQ:GRPN) took a steep dive on Wednesday and are down over 10 percent over the last 5 trading days because of concerns that hurricane Sandy will hurt demand. As B. Riley & Co. analyst Sameet Sinha told Reuters, “Daily deals are not top of mind for many merchants right now.”
Damage estimates for the storm are coming in at tens of billions of dollars. Businesses and consumers could understandably be preoccupied with repair and clean-up. Groupon has said that stores in the Northeast will be able to postpone scheduled deals until they are ready to operate.
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However, the post-hurricane environment can work both ways for the turbulent daily deal industry. At the beginning of the week, Citigroup analyst Oliver Chen pointed out that companies like American Eagle Outfitters (NYSE:AEO) had as many as 32 percent of its stores in the region affected by the storm. On average, the retail industry had about 24 percent of its locations in the storm region. Outlets in parts of New York and New Jersey could be closed for the entire week, and consumers may be reluctant to return to discretionary retail shopping.
Groupon and businesses both could be interested in post-Sandy deals to get customers back into the shopping mood. But as American Apparel (AMEX:APP) knows, an ill-timed and arguably poorly conceived promotion can backfire. The clothing company issued a special discount for the duration of the storm that attracted some vehement negative reactions. Urban Outfitters (NASDAQ:URBN) did something similar.
Insensitivity aside, it’s hard to blame retailers for trying to hedge any potential losses. Citigroup analyst Oliver Chen estimates that retail losses will amount to 2 to 3 percent from the month of November, enough to make a 1 to 2 percent impact in quarterly numbers, which could be the difference between beating earnings targets, and falling short.
There’s potential for daily deals to help bring customers back to storms, but the potential downside of looking like a company is trying to capitalize on tragedy could backfire. That being said, there seems to be potential for the daily deal industry to tip its hat to consumers who were hurt by the storm. A special deal for home repair equipment from Home Depot (NYSE:HD) may not be too far out of line, and actually help ease some of the financial burden involved with rebuilding.
Estimated costs of the storm are routinely falling around $20 billion. A sizable portion of repairs done will be by individuals or small businesses doing their own repairs and shopping at places like Home Depot or Lowe’s (NYSE:LOW) for material. Not that Groupon should act as a force for social good, but it is sitting on about $1.2 billion in cash. Call it a marketing stunt — crazier things have been done.
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