LivingSocial snapped up its latest deal for $3 million: the renovation of a historic Penn Quarter building where it will set up an experimental retail “experience” space.
After a dramatic remodeling of the six-story, 120-year-old former insurance building at 918 F St. NW, the company will host small dinners by big-name chefs, intimate concerts and other productions in an effort to carry it beyond its business model of online daily deals, which some critics say lacks long-term potential.
There’s an industrial-grade kitchen for temporary “pop-up” restaurants. In a cooking classroom, high-definition, flat-screen monitors connected to motion-sensor cameras give an over-the-shoulder view of a chef at work. Another area could host intimate music sessions, and “flex” rooms will host everything from yoga classes to book lectures.
The company — which has helped reinvent the concept of localized advertising — will draw upon its database of 60 million subscribers to help steer people to the building and, if it succeeds, to similar clubhouses in other major markets around the world.
“LivingSocial is trying to create a business model no one has ever seen before,” said Morris Panner, a board member of the Software and Information Industry Association. “It’s really cool, but it’s not a slam dunk.”
With plans to go public this year, the company has a lot riding on projects that boost its profile and expand its role in local commerce. It took a hit when Amazon.com, which owns 31 percent of LivingSocial, reported that the daily-deals company lost $558 million in 2011. Losses are common in the early stages of high-growth companies, but the report raised questions about viability.
To combat the notion that it is just a “coupon” company, LivingSocial now refers to itself as a local commerce company and talks about its daily-deals model as a voucher business. At the very least, analysts say, the new store puts a face on the cloud-based enterprise.
“It’s not that far removed from what the NBA, Nike, Harley-Davidson, ESPN and other brands have done with local retail stores,” said Peter Krasilovsky, an analyst at Chantilly-based BIA/Kelsey. “As a marketing effort, it’s probably about the same cost as a Super Bowl ad, and potentially has much more legs.”
LivingSocial is led by co-founder and chief executive Tim O’Shaughnessy, who is a son-in-law of The Washington Post Co. chairman Donald E. Graham.
It’s not the first time the company has tried to blaze new paths for consumers to reach local businesses.
It launched Instant Ordering in November, allowing members to order food for pickup or delivery from a range of restaurants, often at discount. It has a gourmet program for foodies that includes special tastings, special menus and behind-the-scenes access to top restaurants. The company also has Adventures, which are customized experiences led by staffers for everything from skydiving to shooting instruction. The company’s Escapes product ranges from bed-and-breakfast weekends to African safaris.
LivingSocial’s foray into bricks and mortar comes as traditional, big-box stores are heading in the opposite direction. Retailers from Wal-Mart to Barnes and Noble have expanded into Web commerce, which allows people to shop where they want and when they want.
By building its own stores, “the risk is you get a building that you can’t fill and you still must pay for, and you go from sexy cloud computing play to a poorly capitalized retail play,” Panner said.
Cloud-based LivingSocial thinks it has an advantage: a huge trove of customer information gleaned from people who have bought 63 million coupons for everything from Mexican food to to hot air balloon rides. The database allows LivingSocial to surgically target customers based on its knowledge of what they like to do, buy, eat, drink and where they travel.
“We already know the patterns of demand,” said Doug Miller, LivingSocial senior vice president for new initiatives. “We know who our audience is, and we are building a space where we can program content that is relevant for that audience. It’s not like we built 918 F and hope they will come. It’s the natural extension of the LivingSocial business.”
Miller said 918 F will be exclusive and small, or what he calls “scarce experiential.”
Take the dinner planned for Thursday’s opening: celebrity-chef Mike Isabella will be cooking a Mexican menu — a prelude to a restaurant he plans to open in Georgetown this spring called Bandolero.
The tickets were $119 each — not exactly fast-food prices.
“The value of access is not about a discount,” said Miller, who likens LivingSocial’s foray into experiences to HBO’s creation of its own content. “We are going to create a menu with Mike Isabella that you are not going to get anywhere else. It’s about the value of that experience.”
Scarce experiential appears to be working. The Isabella offer sold out in eight hours.