Southampton: Begbies Traynor warns companies to avoid ‘daily deals’

Retailers, restaurants, hotels and leisure operators in Southampton have been warned against making ‘daily deal’ vouchers a consistent and significant part of their marketing.

The warning follows the demise of a number of businesses across the UK that have staked their future on offering such deals – only to find that they can later face significant cash-flow issues.

Gavin Savage, director at the Southampton office of business recovery specialists Begbies Traynor, said that offering such discounts could seriously impact on a company’s viability.

“In recent years, we have seen the rise and rise of the ‘daily deal offer’ where consumers subscribe to sites such as KGB, Groupon and VoucherCodes.co.uk. Such offers may be great for consumers, who lap up the opportunity, for instance of a £60 meal for two for £19, but they can pose a serious health risk to the business,” said Savage.

“Sales and discounts are nothing new and they are an acceptable means of boosting business, moving unwanted stock or creating demand. But daily deals and discount vouchers if used excessively by businesses can be bad news.

“They are fine to boost trade during a quiet period or on quiet days and perhaps even to get the business over a small hiccup but they are not the solution to long-term problems.

“Effectively, such deals pre-sell a company’s turnover. That means the business receives most if not all of its funding upfront but will still have to meet its overheads in the future.”

Savage said that hotels, restaurants and some leisure operators were the most vulnerable.

“They receive between 70% and 100% of the pre-payment in advance; that is used to offset their overdraft and then, several weeks later, when their premises are full of guests that have already paid, they have to meet current staffing costs, catering and overheads.

“Unless they have a robust business it just doesn’t add up.”

Recent research has shown that nearly 70% of UK adults now go on line to find discount vouchers – while millions subscribe to daily deal newsletters.

“From the merchant’s point of view, such offers can expose them to a host of new customers or encourage lapsed customers to re-visit – but they have to be used wisely.

“There is no point in selling turnover in advance if you can’t meet a commitment when you have to deliver,” said Savage.

Instead Savage recommends using them tactically to generate top-up sales – restricting numbers and not becoming over-reliant on them.