Blum: Leaner Buy.com Can Sustain Free Shipping
By JENNIFER BELLANTONIO
Buy.com Inc. founder and owner Scott Blum is sure his Aliso Viejo-based online retailer will steal buyers from rival Amazon.com Inc.,and keep them,with its latest carrots, free shipping and cheaper books.
“These are not short-term, knee-jerk reactions,” Blum said. “These are long-term business decisions.”
Blum, who recently moved to Jackson Hole, Wyo., and is spending the summer in Orange County with his family, called the moves “permanent,” not gimmicks to temporarily buy market share.
“We think this is going to win some Amazon customers over to Buy.com,” he said. “We have to do a good job in terms of customer support and the overall experience. We think we have them beat in a couple of categories.”
But Buy.com faces skeptics. Analysts roundly dismissed the moves last week as a throw back to the unrealistic days of the dot-com era.
Ken Cassar, senior analyst at New York-based Jupiter Research, said he has “no doubt” that Buy.com will pick up market share in the short run. But he questions for how long.
“It will have to go away,” Cassar said. “It’s not economically sustainable.”
Blum and other Buy.com officials argue their strategy is well thought out and isn’t a return to the get-customers-at-any-cost strategy of the late-1990s.
Jupiter’s Cassar “doesn’t understand the business very well,” Blum said. “Unfortunately, most analysts don’t.”
The first day Buy.com offered its books at a discount, Blum said book sales were up 800% and the online retailer landed 6,000 new customers.
But Cassar argues that free shipping is too costly to maintain and won’t have a material impact on Amazon.com.
“When the promotion goes away, it remains to be seen whether the customers will go away as well,” he said.
Consumers “almost never choose the lowest-priced (online) merchant,” Cassar said, but rather one that has fair prices and one they’re comfortable with.
“Amazon hits that target squarely,” he said. “Buy.com’s prices would have to be a lot better than Amazon’s to convince Amazon’s longtime loyal customers to switch.”
This is the latest chapter in the battle between Buy.com, which bills itself as the “low price leader,” and its larger, older Seattle-based competitor, which boasts that it has “Earth’s biggest selection” of products.
Amazon.com recently announced free shipping for customers who spend $49 or more. Buy.com countered a day later, offering free shipping for all products, with no minimum buy required.
Last week Buy.com raised the ante again, and said it will beat Amazon.com’s book prices by 10%. Blum said Buy.com is planning to extend the discounts to other items, such as videos, DVDs and game products.
“You’ll see more moves from us in the future,” he said.
Buy.com is able to make the offers, Blum said, because it has low overhead costs, doesn’t hold inventory and has a lean staff,about 100 employees, down from 650 at its 2000 peak.
“We can sell (products) at very low margins and still make a profit,” Blum said.
He added that Buy.com is profitable on an operating basis, but said it’s too soon to tell how the promotions will affect “the bottom line.”
“We may see some short-term losses to capture more customers in the long term,” he said. “We won’t know until we start finishing up some quarters.”
That has analysts saying here we go again.
“Back then (in the late-1990s), customers were more than happy to take advantage of aggressive offers,” Cassar said. “The customers disappeared when the offers weren’t there. I’d be surprised if things were any different this time around.”
Buy.com got burned by its low-profit selling back then.
Last year, Blum rescued the flailing public company, which had credit problems, and bought the onetime highflier for about $24 million and took it private. A major reworking followed, including layoffs.
Buy.com is “a different company” now, Blum said.
“We model everything before we make a business decision,” he said. “We’re not running a business at a loss. We can’t afford to do that. We’re not a public company. We don’t have deep pockets.”
When Blum bought the company back, he said he made it clear he wouldn’t bankroll a money-loser.
“I had to rescue the company in terms of credit card processing and I wasn’t willing to fund the company at a loss,” he said.
Buy.com’s executives streamlined operations quickly and watched every dime they spent, he said.
“It’s a different mentality than two years ago. Two years ago it was ‘get big fast,'” Blum said. “Now our mentality is ‘get big slow.'”
But Blum, who now spends most of his time in Wyoming pursuing non-tech business ventures,such as a place to build a 30,000-square-foot fitness center,said he isn’t afraid of a fight.
“Anytime you’re trying to win a customer over it’s not easy,” he said. “But we think we have the ingredients long term to do it we just have to deliver consistently.”
