Groupon Sales Team Files Class-Action Suit
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The first rule of bad journalism is to confuse the first and second derivatives. Groupon is enormously popular with users and investors--it's just not the most popular it's ever been. Yipit's fairly recent data indicate that while the daily deal market contracted slightly over the summer, but Groupon shrank more slowly than LivingSocial ( http://techcrunch.com/2011/08/25/yipits-daily-deal-report-gr... ).
In "Fooled by Randomness," Taleb points out that the more frequently you measure results, the more random they are. Second-by-second, Warren Buffett is losing money just about half the time.
Groupon obviously has problems, and LivingSocial is executing amazingly well, but it should be laughable to call them "unpopular" rather than "less massively popular than at their peak a couple months ago," in the same way that you wouldn't call someone "poor" because they moved down a spot in the Forbes 400.
The journalist may be sensationalizing here, but a high-growth, pre-IPO start-up that is contracting, before it begins to exploit profits, is in trouble.
Whether it's the market or the company that is in trouble, or a mixture of the two, is debatable. But I do think "suddenly unpopular" conveys the gist of the story better than "contracting from its previous peak." The first tells me something is wrong in Groupon world (and there probably is), and the second tries to convince me the whole thing is a non-story.
(It's "unpopular" right now because it's come under a lot of heat in the press; perhaps "embattled" would be a more accurate word).
Without knowledge about their churn rates, especially in comparison with their competitors, it is not obvious either way. There are also users who still receive the daily emails because they did not bother to cancel the subscription, but rarely look at them.
Now Groupon pulls back on their IPO plans, folks who had been "taking one for the company" feel cheated because they have a harder time imagining huge returns than they did before. (On a related note I've had this issue with calling options and stock 'compensation' in the past because really until someone buys your paper it really isn't something you can spend) So the sales folks turn around and say well if we're not going to get that money we foolishly believed would be dripping out of the IPO spigot, they're going to ask for it in cash.
I really wonder if they would have crossed this threshold (suing) if the 'big cheeses' in the company hadn't decided to do a huge funding round to pay themselves off. (another way to convert 'potential' in earnings into cash).
From the filing (in Justia - http://docs.justia.com/cases/federal/district-courts/illinoi...) it looks to my completely-not-an-expert-eyes like Groupon's mistake here was not treating its salaried employees like salaried employees - on rare occasions it gave them overtime pay, and on the attached pay stub hours and an hourly rate ($15.62) are clearly recorded. Whoops.
More common than breaking people's status with overtime payments: threatening to dock pay for coming in late or missing days.
FWIW, CA appears to exempt outside sales but not inside sales, so probably all groupon salespeople in CA have a case.
Gag.
I can't tell if you're objecting to the law or the messenger. The site is obviously trying to drum up business, but their advertizing tactics aren't really germane.
http://www.management-advantage.com/products/overtime-exempt...
1. "Minimum Salary Test" The minimum salary level for exempt white collar employees according to A.B. 60 is "no less than two times the state minimum wage for full time employment." "White collar" exemptions refer to the executive, administrative, learned professional, creative professional, computer employee, and outside sales exemptions specified in the Fair Labor Standards Act (FLSA) as amended effective 8/23/2004. Computing the California minimum salary level for January 2009 we do the following: Current minimum wage = $8.00 per hour X 2,080 hours in a year = $16,640, multiplied by 2 times the minimum wage = $33,280
Just because she's the lead plantiff doesn't mean the others aren't involved.
(ii) As a result, OT compensation for sales staff is usually zero.
(iii) This filing claims Groupon paid OT comp in the past. That was probably dumb. They don't have to.
(iv) By doing that, they created a basis for sales staff to argue that they were in fact non-exempt. But see (i): the expectation among sales professionals is that they are exempt.
(v) The other specific complaint in this filing is that Groupon didn't include commissions (variable comp) in the calculation for time-and-a-half overtime. In other words, they paid time-and-a-half overtime, which (see (iii)) they didn't need to do, but didn't do it to someone's satisfaction.
How legit does this case seem to you? It looks like a gotcha case over FLSA status. You think the whole sales team signed on for that?
I'm not saying they're going to lose (it'll probably settle out). But does the core issue in here really seem legit to you? It doesn't to me.
Actions speak louder than words, and treating a purported-exempt employee as a non-exempt employee (i.e., compensating them based on hours worked, or docking pay for not working specific hours) is pretty much all you need to do (as an employer) for the employee to be classified as non-exempt. The laws, and especially the NLRB administrative decisions, favor the employees in this regard.
The "expectations" bit doesn't matter in this case, because the specific actions of Groupon make those industry-standard expectations irrelevant. It's about what Groupon did, not what everyone else does.
Once Groupon began treating the sales staff as non-exempt employees, they became non-exempt employees, and Groupon became obligated to compensate them for time-and-a-half overtime.
Based on the facts currently available in the linked article and other sources online, I am saying that Groupon would lose if it gets to a hearing. But chances are better than 99% that they'll settle (or go bankrupt before the case gets anywhere in the court system).
http://www.groupon.com/blog/cities/groupon-organizes-class-a...
...suggests that Groupon's "completely open return policy" can be used, rather than a lawsuit, to get a refund on an expired Groupon, that's not true. They won't give such refunds, and their customer service responses have advised that the Groupon in question may still be usable "if state law applies". So rather than providing "unbelievable" customer service, or even following through on the refund promises of their CEO, they're doing the absolute minimum required by law.
So in the single interaction where I could independently test whether what Mason touts is true, it was not. As a result, I don't put much weight in anything Groupon claims.
But I trusted them, and was burned. Miniscule amount of money, but now I know that they strategically deceive about the refund policy, so I won't be trusting them again.
I'm OK if a particular business wants to grind out their margins from fine print, 'breakage', and other gotchas. I'm all for caveat emptor. They could change the "Groupon Promise" to read "If your Groupon experience ever lets you down, let us know and we’ll refund your purchase. Period. Except for expirations." And Mason could fix his blog post so that it doesn't portray the 'completely open return policy' as the preferred remedy for people with expired Groupons.
I just hate the act that they've got Nordstrom/Bed-Bath-Beyond/Costco/Zappos/etc-style customer service, when they don't. Together with the other reports of dodgy advertising claims, encouraging businesses to raise their prices pre-Groupon to inflate discount percentages, and pushy sales practices, it gives me the impression that they've ranked 'honesty' far below 'growth at all costs'.
What happens if my Groupon's promotional value expires?
All is not lost! If your Groupon's promotional value expires, you can always redeem it for the amount paid. For more information about expiration dates and voucher values, read our Terms of Sale
"a federal judge in San Francisco permitted a tour operator to proceed with a merchant class action lawsuit over alleged false advertising"
leads to
http://www.reuters.com/article/2011/08/24/us-groupon-lawsuit...
1. Files for IPO
2. ASCOI (Adjusted Segmented Consolidated Operating Income) falls under scrutiny from public & SEC
3. VP of Global Communications resigns
4. Internal Memo "leaked" to major press outlets
5. SEC investigates said memo
6. Sales Team files Class-Action suit
Wow.
8. Insolvent in 6 months
9. Layoffs
10. Lawsuits
The usual shtick about how growth trumps all other considerations. "It's the fastest growing company ever!" "Who cares if COGS is absurdly high / users aren't buying / revenues have been overstated / etc? Fundamentals don't apply when they're growing this quickly!" "This is a winner-take-all market, like with Amazon in the 90s!"
I remember reading endless defenses of Groupon's business model on SeekingAlpha in the months leading up to the IPO filing. People would trot out all sorts of highly sophisticated models and theories to demonstrate how Groupon was pretty much exempt from the laws of thermodynamics. I'm too young to remember if the same pitch was used for the Dotcoms of the '90s bubble, but the logic sounds eerily familiar.
Amazon is often pointed to as a company that was doubted much and then succeeded. What isn't talked about as much, in addition to the fact that there were many more companies that went bust than hit, is the fact that Amazon lost 3 billion before it became profitable. (Source: financials on Amazon investor site). The fact is Amazon should have failed and the critics were right more than they were wrong.
"I'm too young to remember if the same pitch was used for the Dotcoms of the '90s bubble"
Same idea. Making people think they are stupid if they don't "get it". I know otherwise smart people who lost $100,000 on dot com stocks that they had no business in back then.
Where exactly did they find 3 billion to lose? How did Jeff Bezos manage to convince investors to give up so much cash? I'm really surprised about this
So, in 2001 the total current liabilities and ltd was over 3 billion dollars.
So they borrowed - they issued bonds as well as used other types financing. The interest payments for that year are actually pretty low in relation to the debt, interest expense for 2001 was only about 139 million.
With people investors or not
a) consistency principle - people not wanting to be proven wrong (so they will throw good money after bad)
b) sure failure if they don't give more money so they take a chance and throw good money after bad.
c) people issuing the debt make money on the deal so they have incentive to push and not as much if a failure.
"They've solved a problem that no one else was able to solve ... how to go that last mile to the merchant"
And
"They've assembled a team like no one else [implication they can pivot if necessary]"
And
"Anything done by [supposed-superstar-manager] is worth a lot"
And naturally, all this was wrong-headed. The retail sector as a generic is pushed to the boards in this economy. The idea that you can squeeze excess capacity for profits is simply false given that no industry has ever attained economies of scale without building for it from the ground-up. Blood? Stone? You cannot squeeze...
TL;DR; You could say Groupon was built on looking at plans that worked for sky diving businesses and pretending they'd apply to restaurants.
For me and my social circle, Living Social is something we consistently use. Most people I know have actually unsubscribed from Groupons mailing list.
Anecdotal for sure, but I think there might be at least a kernel of trend in there somewhere:)
Social sizzle like what LivingSocial adds I think is nice, but forgettable (no one I know has gotten/used the "free deal" group buy).
Pigs get fat. Hogs get slaughtered.