Buy.com Shifts Marketing Focus for Holidays
By JENNIFER BELLANTONIO
Online retailer buy.com Inc., which made a big splash in 1998 with a high-profile Super Bowl commercial, has punted TV advertising this holiday season in favor of a venerable low-tech approach: catalogs and newspaper inserts.
“We know that if Amazon is doing it there’s something to it,” said Stew Duncan, managing director of Aliso Viejo-based Thinkbig Marketing Group, which handles buy.com’s marketing.
Amazon.com Inc. was one of the first online retailers to follow the lead of traditional companies and go with newspaper inserts and catalogs, a “tested and proven way of improving sales,” Duncan said.
The move is a first for Aliso Viejo-based buy.com, which has substantially cut its marketing spending in the past year as founder Scott Blum has returned to try and right the ailing company. Blum last week completed a $23.6 million buyout of buy.com, taking it private again.
In early fall, buy.com turned to TV to get the word out that it still is around, Duncan said. That mission has been accomplished, according to company officials.
So buy.com used the rest of its TV budget to pay for 13 million full-color inserts in major newspapers until Dec. 7. The company also plans to distribute a 40- to 60-page direct-mail catalog starting at the end of February.
Duncan said, “It’s a natural evolution” for dot-coms to follow marketing moves used by brick-and-mortar retailers.
“It shows a little more sophistication and efficiency in spending,” Duncan added.
Catalogs are the most inexpensive form of traditional advertising, according to Duncan.
And these days the dot-com is all about watching dollars, particularly as it looks to boost sales, cut losses and stretch its cash. As of Sept. 30, the company had $5.4 million in cash and equivalents, down from $14.5 million on June 30.
Blum, who left buy.com in 1999 to start other technology ventures, has given the company a $4 million line of credit and up to $5 million more to establish standby letters of credit. He also has covered certain fees buy.com owed its credit-card processors, which the company eventually must repay.
“I’m happy to get a second opportunity to run the company,” said Blum, who has referred to the company as his “baby.”
But Blum’s child is a sickly one.
Buy.com has cut staff, moved to cheaper office space and trimmed expenses in the past year in its bid to stay alive.
The dot-com has been battling declining sales. Buy.com’s revenue was $75.5 million for the three months ended Sept. 30, down from $190 million a year earlier and $94.9 million in the prior quarter.
The company posted a third-quarter operating loss of $10.5 million, up from $7.4 million in the second quarter. But that was less than half the $27.3 million loss posted in the third quarter of 2000.
Analysts have all but written the company off for dead. Blum bought the company back for 17 cents a share, a far cry from buy.com’s 2000 debut at around 20.
Still, Blum said he is confident buy.com can make it without more financial help from its founder: “No additional financing will be needed.”
Blum and other buy.com executives are optimistic about the holiday season but insist it won’t be make-or-break.
Brent Rusick, vice president of sales and operations, said buy.com has seen a 50% increase in traffic and sales since Thanksgiving.
“We’re excited by the pace,” Rusick said. “We’ve seen an earlier start this year to online buying than we have in the past couple of years.”
“I’d rather not go out and say we’re going to be profitable,” Rusick said. “But I’m not concerned that this (holiday season) is going to make or break the company by any means.”
Analysts’ predictions for online retailers’ prospects this month vary widely, ranging from a 10% increase from 2000 to a 43% jump. Los Angeles-based Bizrate.com, a business-to-consumer marketplace and comparison shopping service that has 2,000 online merchants on its site, including buy.com, forecasts a 31% jump in holiday sales from last year.
“In a bumpy economy, consumers look for more deals and special offers,” said Chuck Davis, president and chief executive officer at Bizrate. “It’s easier to comparison shop from site to site than going from mall to mall.”
But online retailers themselves are being more cautious.
Amazon is predicting flat to 10% annual growth this holiday season, which is below historical norms. EBay Inc. has forecast sequential growth of 5% to 10% for the fourth quarter.
There are some bright spots for online sellers, according to analysts. The percentage of people buying online is about 45%, up from 20% three years ago. And the average consumer reportedly is spending more.
Plus, online retailers have become more efficient. Botched and backlogged holiday orders have become a thing of the past, according to Davis.
Online sellers know their Web sites must be integrated with the fulfillment center, inventory and customer support, he said. Buy.com scored well in those areas in ratings by 500,000 Bizrate customers, according to Davis.
“We’re seeing smarter cross-channel marketing as retailers branch out among retail, online and catalogs to maximize the number of touches they have with the consumer,” Davis said.
To that end, Buy.com brought back its toll-free number for customers who want to speak with someone when buying products from its catalog.
While no one knows for sure what the holiday season will bring, Davis said it’s not a matter of online vs. brick-and-mortar.
“Online is another distribution channel for many retailers,” Davis said. “For those stores that have offline and online their holiday will be much richer than those who don’t.”
