Modern Wellness Spa Says Botched Groupon Could Destroy Business

Who knew a massage could be so stressful?

A Groupon for a discounted rub-down may cause a spa in Hallandale, Fla. to shut down.

Modern Wellness Spa has accused the daily deals giant of withholding payment and then threatening to sue when the small business said it could no longer afford to honor discounts promoted through Groupon’s site.

“We’ve serviced around 70 people free of charge,” said Michael Roitman, a manager at the spa who set up the deal after he was approached by a Groupon sales representative two months ago.

Modern Wellness is just the latest small business to hop on the anti-Groupon bandwagon. The daily deals service is not only facing the ire of Main Street. It's also suffering from a crumbling stock price amid dismal earnings and reports that its earliest backers are dumping their shares.

Groupon works with merchants to sell discounted goods through its platform. The website collects the funds as the deals are sold, takes a cut of the sales -- typically half -- and disperses the rest to the vendor in three separate installments. But when those payments are slow to arrive, businesses suffer from the surge in customers without a corresponding boost in revenue.

"Groupon still hasn’t paid us the $2,700 it owed us on August 9th. So we got fed up and told the rep we would not continue to honor the deal without payment,” Roitman told HuffPost. “His reply was to threaten us with a lawsuit.”

“We can’t go on much longer servicing these customers,” said Roitman, adding that the spa is seeing six to 10 Groupon-wielding customers walk through its doors each day. “But if we don’t serve the customers who come in with Groupons, they’ll go online to complain and we’ll get bad reviews.”

If that happens, it wouldn’t be the first time a small business saw its online reputation suffer because of a daily deal. An academic study conducted earlier this year found that, after offering a Groupon deal, businesses tend to see their Yelp rankings fall.

Nicholas Halliwell, a Groupon spokesman, denied that a company sales rep threatened Modern Wellness with a lawsuit. In an email to HuffPost, Halliwell said Groupon was withholding payment because too few vouchers had been redeemed by users and because a large number of users reported being unhappy with their experience and asked for refunds.

“It’s absolutely in line with Groupon’s policy to withhold payments due to high refund rates and low levels of customer satisfaction,” Halliwell said. “If a customer has a bad experience and seeks a refund, then that directly affects a merchant’s payment.” He added that Groupon has already paid the spa more than the value of the massage vouchers redeemed thus far (a claim that the spa disputed).

Other vendors have complained that Groupon is slow to pay. A Washington, D.C. waffle house recently said that Groupon didn’t pay what was owed right away, causing the business to collapse.

Rocky Agrawal, a stock analyst who has placed bets on Groupon’s demise and regularly publishes blogs that poke holes in the business model, said he reached a former Groupon sales rep about the late payment reports.

“Dealing with the finance department was a huge pain in the ass, they mailed the checks so damn slow, it was terrible,” the anonymous sales rep told Agrawal. “It was just a constant fight (it seemed) for a vendor to get a check on time.”

To date, Groupon has paid $3,750.96 to Modern Wellness Spa, both companies confirmed. But the $2,700 scheduled to hit the spa’s bank account earlier this month never came, despite several emails from Groupon staff reviewed by HuffPost that claimed the payment had been released and was on its way.

It was not until Monday, after a VentureBeat story publicized the dispute, that Groupon staff told Roitman the company was holding the payment because of the refunds.

"The big picture here is we didn't know what we were getting into when this deal was put together," said Roitman. "Groupon is just not transparent."

This article has been updated to include additional comments from Groupon.