Groupon Buys Ideeli for $43 Million

Fashion is a growing business for Groupon — and the deal site is looking to fend off the competition by paying for a bigger piece of the action.

The company spent $43 million in cash on Monday to acquire Ideeli, a fashion flash-sale site that has millions of members and specializes in women’s and men’s apparel and accessories, as well as home decor.

“Ideeli is really the platform for Groupon to expand and accelerate what we’re already doing in fashion,” said Lisa Kennedy, vice president and general manager of goods at Groupon, in an interview.

Both companies also have mobile businesses — an area of intense focus now.

“Mobile is quite important to Groupon’s business as we have seen 50 percent of our orders coming through our mobile platform,” Kennedy said.

A Groupon spokesman added that the company believes it’s “the largest mobile e-commerce site in North America.”

Groupon, which is known for using online deals to drive traffic to local businesses in particular, already has a customer that’s looking for fashion.

“They’re clamoring for more,” Kennedy said. “We hear from customers regularly, asking us to bring new brands that we currently don’t have relationships with.”

That’s an area where Ideeli can help.

“Ideeli extends our fashion presence and brings great relationships with many of the top brands in apparel,” said Eric Lefkofsky, Groupon’s chief executive officer.

Ideeli sells goods at 60 to 80 percent of manufacturers’ suggested retail prices and on Monday was featuring rain boots from Hunter, bags from Kate Spade and shoes and bags from Jessica Simpson.

“Our customers have a demonstrated appetite for these offers, and by broadening our reach in this space Groupon is even better positioned as the place you start when you want to do or buy just about anything, anytime, anywhere,” Lefkofsky said.

Groupon is competing in a world of digital giants and is still working on converting all the deals it arranges and the revenues it books into a steady profit flow.

For the nine-months ended Sept. 30, Groupon logged net losses of $14.1 million as its revenues rose 6.4 percent to $1.81 billion from gross billings of $4.16 billion.

Ideeli will help the company grow revenues while consolidating the deal market.

“It’s a rational play, it just comes with some risk as all strategies do,” said Todd Huseby, who’s a partner at A.T. Kearney and heads up the consultancy’s Digital Business Forum. “They’re banking on the strategy that, by making more and more acquisitions, they will be able to strengthen their brand as the preeminent deal site. The more they do that and get that mental real estate in the shopper’s head…that helps them on their journal to profitability.”

Huseby said Groupon needs to keep its eye on the likes of Google, Yahoo, eBay and Amazon.

“Those are all good brands that could come to threaten Groupon if that’s where they put their muscle,” he said. “If Groupon shows weakness or hesitancy, then it’s rather straightforward for one of these other brands to come in.”

There are relatively low barriers to entry in the space as well, giving rise to smaller competitors such as Ideeli.

The fashion flash-sale site will continue to be based in New York and operate a stand-alone site, now with some big corporate backing.

“We will be looking for a lot of opportunities to grow the business now that we’re part of Groupon,” said Stefan Pepe, ceo.

That means introducing Ideeli to Groupon customers and tapping into their expertise in mobile and other areas.