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Buy.com on the Rocks

23 Aug, 2001 By: Hive News

Struggling Internet retailer Buy.com may be forced to shut down operations as early as next week, according to an article in Thursday's Los Angeles Times.

Starting Sept. 1, Buy.com may no longer be able to process sales online because its credit card processor plans to stop servicing customer orders. In a government filing Monday, according to the Times, Buy.com said that effectively could wipe out the Aliso Viejo company because credit card transactions account for 90% of its business.

Buy.com could continue operating if it can negotiate an extension or agreement with its current payment processor or find a replacement, said the Times, but that could prove difficult given Buy.com's weak financial position.

In its filing, according to the Times, Buy.com said its current processor had wanted to cut off the relationship in July, but Buy.com won an extension when it agreed to increase the processing fee by 1% and let the company withhold 5% of daily receipts as added security.

Struggling to survive, Buy.com last week initiated another round of layoffs that would eliminate 50 full-time jobs, or 40% of its remaining work force. Earlier layoffs and cutbacks helped the company narrow its loss in the second quarter to $5.7 million, compared with a loss of $33.6 million a year earlier.

But Buy.com's sales in the second quarter fell by almost 50% from the previous year to $95 million. As of June 30, the company had less than $14.5 million in cash on hand, down dramatically from the nearly $56.7 million it logged in December.

Controlled by Softbank Corp. of Japan, Buy.com is in the process of being bought back by its founder, Scott Blum, who owns 37% but has given voting control to a trust. Blum founded the company in the fall of 1997.

Buy.com's shares closed Wednesday at 14 cents in over-the-counter trading, down a penny, and off 79% for the year. The company was delisted from Nasdaq this month.

Buy.com specializes in computer products and electronics, and unlike Amazon.com and some other Internet retailers that operate their own warehouses, Buy.com contracts with companies such as Ingram Micro Inc. to stock and ship orders.

Buy.com made a name early on by offering discounts to reel in customers on the theory that the advertising it sold on its Web site would yield the profit, which never materialized. It later backed away from the deep across-the-board discounts and began relying on loss leaders to attract buyers while pushing higher-margin items. That strategy, along with the economic slowdown has eroded sales, said the Times.

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