As Buy.com starts to sink, ceo jumps ship

DSN Retailing Today, March 5, 2001 by Doug Desjardins

ALISO VIEJO, CALIF. -- In lockstep with a pattern that's become all too familiar in the dot.com world, on-line retailer Buy.com last month posted poor fourth quarter revenue figures, followed by news of the unexpected resignation of its top two executives, the closing of its U.K. operations and the paring back of its merchandise offerings.

Chairman and ceo Gregory Hawkins and cfo Mitch Hill filed their resignations on Feb. 13, and did not comment on their departure. They were replaced by board members James Roszak as interim ceo and Donald Kendall as chairman. Robert Price was appointed to fill Hill's post as cfo. Price had been cfo of PairGain Technologies, a telecommunications firm in Tustin, Calif. The board is now in the process of seeking a permanent replacement for Hawkins.

In a prepared statement, Roszak thanked Hawkins and Hill for "playing an integral role in the development of the company over the past couple of years," but added that "the realities of the marketplace demand that we drive vigorously toward profitability." A Buy.com spokeswoman said neither Kendall nor Roszak were available for comment.

Although Buy.com executives recently predicted the company could turn a profit by the end of the year, its fourth quarter results and sales projections for 2001 make that seem unlikely.

The on-line retailer reported fourth quarter revenue of $196.7 million, a 2% drop from the $200.7 million it generated the same quarter in 1999. Executives attributed the lackluster results to more competition on line and a lower-than-expected demand for technology products--its core business.

The company also reported a net loss of $27.4 million for the quarter, warning that it expects total sales of $580 million to $600 million for 2001, as compared to $787 million in 2000. The company's stock, which was trading for more than $20 a share less than one year ago, was down to 50 cents per share on Feb. 21.

Buy.com hopes the closing of its operations in the United Kingdom, which is still an ongoing process, will serve to remedy the situation; it recently took similar measures when it shuttered its Canadian division. The on-line retailer, which now sells a wide range of products that includes office supplies and sporting goods, also plans to refocus its business and concentrate on selling computers, software and consumer electronics.

Analyst David Kathman said Buy.com, like many other on-line retailers, faces the daunting task of selling its product at a high-enough price to turn a profit and keep its customers at the same time. "They followed the model of growing fast by offering rock bottom prices and getting people to come," said Kathman, of research firm Morningstar Inc. in Chicago. "But they found that it's hard to get people to come back, especially if you have to raise your prices."

Kathman estimates that Buy.com has approximately $67 million in capital left to burn, and said the company will have to cut its costs drastically and hope for higher-than-expected sales this year. "From their own projections, sales could be below what they were in 1999, and that's not a good sign," Kathman said.