Flash-sale website Rue La La takes on Groupon, LivingSocial in local e-coupon market

A full-body massage for half off or 10 yoga classes for $20 sounds appealing, especially in recessionary times. But can coupon websites such as Groupon and LivingSocial thrive in better times?

Rue Seattle, a new online venture by the Boston-based flash-sale website Rue La La, is betting the answer is yes.

Launched in mid-December, Rue Seattle works with local merchants to offer a deal-of-the-day to shoppers who sign up for free e-mail alerts about the latest discounts.

Rue La La recently introduced similar sites in Boston and Philadelphia, giving a portion of its 2.6 million-strong audience localized deals.

For merchants, it can be a way to attract new customers.

"It comes out of my marketing budget," said Kimberly Love, owner of Lashed with Love in Bellevue, which offered $200 eyelash extensions for $99 on Rue Seattle last week. "The thing with eyelash extensions, they're addictive. I believe most people will come back in."

Rue Seattle is the latest local player in an increasingly lucrative part of the e-commerce market.

By far, the two biggest players are Groupon and LivingSocial. Together, they captured 90 percent of all local visits to group-buying websites for the four weeks ending on Christmas, according to Experian Hitwise.

To set itself apart, Rue Seattle carefully selects merchants based on what it knows about its members, said general manager Marka Jenkins Waechter.

"We're not as mass-market as a Groupon," she said. "We're trying to create an authentic experience for our members. We may offer a tasting menu for only 30 people, because we know it's not beneficial for the restaurant if we sold 3,000."

Experian Hitwise counts more than three dozen local group-buying websites in all.

"There's no question there's been a proliferation of companies trying to carve out a niche in this space," said John Long, a retail strategist at Kurt Salmon Associates in New York. "Time will tell how many the market can support."

Chicago-based Groupon, which pioneered the group-buying trend in late 2008, takes a 50 percent cut of each deal sold. It activates a deal only when a minimum number are sold, though most deals go through now that the website is so popular.

After rejecting a recent $6 billion buyout bid by Google, the privately held company is in the process of raising $950 million.

LivingSocial, of Washington, D.C., took on Groupon in mid-2009 and snagged a $175 million investment this month from Amazon.com. LivingSocial Chief Executive Tim O'Shaughnessy said in an e-mail he'll use some of the money to nearly double its reach to about 300 places worldwide in 2011.

As for new rivals, he said, "I can't speak to anyone else's business model, but six months ago, two of us had 90 percent of the market" — meaning LivingSocial and Groupon — "and today, even with hundreds of competitors, two of us maintain 90 percent of the market share."

Occasionally, the websites work too well: For some merchants, the crush of coupon-wielding customers is more than expected and they end up disappointing people rather than winning them over.

Others complain many customers come only for the deal and never return, causing them to lose money.

Also, Groupon has been known to suffer website problems. The site experienced intermittent outages one day in November when it offered $50 worth of Nordstrom Rack merchandise for $25 and scored a mention on the Oprah Winfrey Show.

Still, Groupon sold more than 625,000 Rack coupons over six days, said Nordstrom spokesman Colin Johnson.

"It was an opportunity to connect with new customers," he said. "If we have that opportunity, we're going to try really hard to show them what we can do, with the hope being they'll come back and shop with us."

Retail analysts say merchants will try to wean shoppers off discounts in a post-recessionary environment, but it remains to be seen if the Great Recession has changed buyer behavior for good.

New holiday sales data show U.S. shoppers spent at the fastest pace since 2007. A big reason is that stores offered special deals and other promotions to persuade shoppers to open their wallets a bit wider after two years of cutting back on nonessential purchases, said Jill Puleri, retail chief for IBM Global Business Services.

"Retailers got really smart about putting things on sale, and consumers responded," she said.

Puleri predicts many people will continue to limit their purchases to things they need rather than want, even if they feel better about their finances. "It's kind of chic to be frugal," she said.

Jessica Yen, 34, of Bellevue, said she had been wanting eyelash extensions for a while when she saw last week's Lashed with Love deal on Rue Seattle. For $99, she decided to give it a try.

Her first appointment with Love is next week. After that, refills would cost her about $65.

"I don't think I would have spent $200 on it. I probably would have just kept putting on mascara," she said. "But after the first time, if I like it a lot, I might go back."

For Jackie Taylor, 52, of Kirkland, sites like Groupon and LivingSocial are a way to learn about new businesses on the Eastside. She figures she buys two deals a month, mostly to restaurants, spas and other types of services.

"I'm not super bargain-driven," said Taylor, a sales rep for a designer women's clothing label out of Los Angeles. "I'm just curious to have a different experience and go to a new place at a discount."

Love, who opened her business about a year ago, said she turned down other coupon websites before Rue Seattle approached her.

Why Rue Seattle? It offered a more attractive financial arrangement than a 50-50 revenue split, she said, declining to divulge details, and it worked with her to set a maximum number of coupons that could be sold to ease her concerns about being overwhelmed.

"My hope is to do this once and build my clientele," she said. "Maybe it's something I won't need to do again."

— Amy Martinez

Apple growers have a new device for measuring crispness, and it's not their taste buds. Mohr and Associates in Richland likens the device to "a mechanical tooth." Called MDT-1, it goes beyond measuring firmness to actual crunchiness, and Washington state researchers found that it works, according to a report in the December issue of HortTechnology. Washington State University's apple-breeding program plans to use the MDT-1 to reduce the need for labor-intensive taste testing in developing new apple varieties. — MA

Seattle-based Internet retailer Amazon.com released bits of information about buyer behavior during the holiday shopping season. Among them: Amazon customers bought enough pairs of jeans that if you folded and stacked them on top of each other, they would be as high as Mount Everest, or more Philips Norelco shavers than the average beard hairs on a man's face (about 30,000). Citi Investment analyst Mark Mahaney said Amazon was driving home the point that it has become much more than an online seller of books and other media products. — AM

Retail Report appears Fridays. Amy Martinez covers goods, services and online retail. She can be reached at 206-464-2923 or amartinez@seattletimes.com. Melissa Allison covers the food and beverage industry. She can be reached at 206-464-3312 or mallison@seattletimes.com.