Deal in More Dollars

From daily deal sites like Groupon to flash-sales sites like Gilt Groupe, the deal market is expected to command $4.2 billion by 2015, a new, upwardly revised forecast says.

BIA/Kelsey today released an update of its U.S. deals forecast, with fresh numbers that it says reflect a burst of growth and activity in the deals space during the past six months alone, including increases in registrants for deals and new startups in the space.

The Chantilly, Virginia-based consultancy tracks a number of players under the umbrella of the deal market, including daily deal companies, flash-sales sites, and instant deals. It says consumer spending in this arena will grow from $873 million in 2010 to $4.2 billion in 2015, representing a 36.7 percent compound annual growth rate.

That’s up from the $3.9 billion forecast for 2015 deals that BIA/Kelsey projected in March. While the new forecast indicates only a slight increase overall by 2015, the data reflects a big surge expected for 2011. Instead of the $1.2 billion in revenues that the firm had projected for this year just six months ago, it is now expecting nearly double that: $2 billion.

But daily deal companies dazzled by all those zeros in that revenue projection would do well to tread carefully. As Groupon, which is expanding rapidly but losing money as it delays its bid to go public, aptly illustrates, more revenues do not necessarily add up to more profits. Despite the new projections, BIA/Kelsey's chief number cruncher said that the deal market’s red-hot streak may cool as consumers begin to pick and choose among the deluge of offers.

"Even as more consumers sign up for deals programs and awareness grows and new markets are entered, we see a ceiling on how many deals consumers will buy, and their overall interest level in deals," said Mark Fratrik, BIA/Kelsey vice president and chief economist, in a release on the data. "With that said, a strong foundation has already been created in the promotional ecosystem of this young industry. We believe daily deals reinforce other advertising and that related services, like instant deals and flash sales, will significantly boost income for key players."

Among the drivers of the growth: geographic expansion from the likes of market leaders Groupon and LivingSocial, BIA/Kelsey says. There has also been a rise in the number of vertical sites that specialize in particular types of deals or hone in on specific neighborhoods and an uptick in the number of local media companies that are offering deals via white-label platforms. Among the media companies embarking on local deals is Gannett, which expanded its Deal Chicken offers this spring.

BIA/Kelsey also says it has tracked an increase in the average number of transactions as a result of companies offering services more efficiently and getting into new niches, such as travel deals.

Also noted: The deals aren’t as cheap as they used to be. BIA/Kelsey notes that there is a rise in the average price per transaction “owing to general inflation and the attempt by some providers to offer more valued services at higher margins,” BIA/Kelsey says.

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Teresa Novellino writes for Portfolio.com