E-commerce survivors regroup, re-organize - fewer companies surviving - Brief Article

Home Channel News, Oct 22, 2001 by Andrew M. Carlo

With their ranks thinned by bankruptcy, providers look to sharpen offerings

NATIONAL REPORT -- Adapt and overcome, is rapidly becoming the mantra of a dwindling number of business-to-business e-commerce companies operating in the building material and home improvement channel.

Over the course of the past year, the ranks of this once-gung-ho segment have plummeted as company after company burned through investment dollars before being able to show any real returns. The latest such casualties appears to be Internet retailer OurHouse.com, which in early October shut down its Web site, and Installinc, the online installation provider that at one time had test programs with Ace Hardware and Home Depot.

Another high-profile victim was Build-Net, the e-commerce start-up that promised to revolutionize the flow of building materials through the distribution channel. In late summer, the company was forced to declare bankruptcy after spending more than $140 million in an ultimately unsuccessful attempt to convince enough builders, dealers and manufacturers that its products could reduce procurement and distribution costs.

Yet not every e-commerce provider succumbed to overambition or the past year's uncertain economy. Many others resorted to often drastic cost cutting in order to buy them enough time to restructure operations in a way that would better meet market needs.

In September for instance, Buildscape, the Jacksonville, Fla.-based rival of BuildNet, trimmed 50 of its 185 employees as part of a behind-the-scenes restructuring.

In one of the most dramatic restructurings, however, ImproveNet, the Web-based home improvement service provider based in Redwood City, Calif., cut its work force by 50 people, or 30 percent, in a move that the company said will reduce its operating expenses to $19 million in 2002, down from $30 million in 2001 and $60 million in 2000. That cost cutting was part of a broader initiative by the troubled company to reconfigure its services.

The majority of the staffers being let go were field reps and "personal advisers" who had been assisting homeowners who availed themselves of ImproveNet's signature "Find a Contractor" service. Company spokeswoman Nora DePalma told NHCN on Oct. 1 that too few homeowners were actually using the service to justify the number of staff on hand. Consequently, the company will continue to provide homeowners with access to its database of 30,000 qualified contractors in 50 metro markets and its project-planning tools, but it will not offer the kind of personalized service it once did.

Instead, ImproveNet will now focus on a series of marketing efforts and its Premiere Services program, which includes installed sales for home improvement retailers and managed-repair services for insurance claims. In a crucial confidence-builder for the company, announced literally hours after the cuts were disclosed, ImproveNet said it had signed an installed-sales pilot program with Home Depot that encompasses nine of the retailer's warehouse stores in California and six Expo stores in Chicago and Southern California.

Through the pilot program, the Home Depot stores will use ImproveNet's contractors and project support staff on kitchen and bath remodeling projects.

"It certainly gives us very powerful access to consumers because of the quality and strength of the Home Depot name," said. Ron Cooper, president and CEO of ImproveNet. "Depot's standards of quality and service, which are legendary, are helpful to us in terms of building the right kind of processes for delivering high quality and consistent labor services. There's nothing like having a tough customer to help you get better faster."

To date about 50 jobs have been completed through the pilot program, Cooper said.

Should the program prove successful, it would be a huge boost to ImproveNet, which according to Cooper has been losing a little more than $10 million a year while bringing in annual revenue of $8 million. Sales for the current quarter, which are slated to be released Oct. 31, are expected to increase 7 percent to $1.75 million.

The restructuring, Cooper believes, will allow ImproveNet to focus more of its resources on high-margin and revenue-growth initiatives. Cooper said ImproveNet had nearly $17.5 million in bank at the end of the second quarter, giving it some breathing room.

"We have sufficient cash to fund the business for more than a year and reach profitability within a year," he noted. "We're getting there."

BuildNet, on the other hand, simply ran out of time. After declaring bankruptcy, its assets were sold at auction with onetime rival MH2 Technologies of Dallas snatching up significant portions.

Among the items acquired were BuildNet's trademarks and trade names and FAST, a popular home-builder accounting system. FAST was also considered the most valuable BuildNet asset available at the auction, according to Michael Holigan, MH2 Technologies' president.

Through FAST, a system that had already been used by nearly 250 builders, users have access to a range of modules including accounting, project management, estimating, land development, purchasing, finance, payroll, customer service, marketing, sales and many other areas.