The Gravy Train Is Over At Buy.com

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“We really are focusing on one thing and one thing only and that is getting to a positive cash position. We’re going to get this thing to cash flow break even and we’re going to do it very aggressively.”
Buy.com Chief Executive Greg Hawkins

Translation into English (a language not used by buy.com’s corporate executives or PR staff):
“%@#%!!! Now we have to make money like everyone else.”

If you need a collection of corporate buzzwords, you can look at the press release. Go here for a translation, but to spare you the verbiage:

  1. Buy.com is laying off 10% of its workforce, and shutting down or selling US operations.
  2. Outside of the technology area, they’ll leave those segments of their business to sink or swim, without ultra-low prices or advertising support.
  3. They will try to increase gross profit margins (i.e., more price increases, fewer coupons).

I’m sure the last interests you most.

Over the past few months, buy.com has been increasing their prices. They now rarely have the lowest price on an item.

Over the past few weeks, they’ve issued very few dollars-off coupons, and only to specific marketing areas. For instance, there was a $30 off a $150 dollar purchase coupon, which apparently was meant only for a select target group.

Initially, anybody could use them, and they did. More recently, to use the coupon, you had to call buy.com, and pretty much get interrogated (“please describe the postcard from which you found out about this”) as to whether or not you were worthy of the discount. I’m not knocking buy.com for doing this, after all, it’s their money.

Much the same is happening with a lot of other places.

If you look at buy.com’s past numbers and future plans, it’s clear that in the past, buy.com has been playing dot.com Robin Hood, taking the costs of running the business (and sometimes even part of the cost of the merchandise) from the shareholders and effectively giving it to the customers. The free ride is over. Buy.com’s prices will in the future have to pay for the costs of the business.

Well, I just won’t buy there

Buy.com expects a lot of that. The question is: how much? Buy.com is guessing that in 2001, they’ll lose over 25% of the business they had in 2000.

The Fatal Errors Of The Dot.coms

The dot.coms were willing, happy and able to pursue what to sane minds was a suicidal pricing strategy simply to get marketshare.

Once they did:

  • All their competitors would die
  • No new ones would ever show up again
  • They could then jack up prices
  • Their zombie slave customers would pay them
  • And everyone would live happily ever after.

    Well, how about it, zombie slave customers? Oh, you’re not? You’re a price slut? Oh, oh.

    Error number two can be expressed in a word: Pricewatch.

    How many places can you check for a price in ten minutes without the Internet? How many can you check with it? Big difference, huh?

    The reason why the Internet is so revolutionary is not because it lets you do things you could never do before; there’s hardly anything new you can do with it.

    It’s revolutionary because it lets you do things much more easily and cheaply than you could before. Price comparison is one of them.

    The Internet inherently gives you a whole world to shop in, not just your little neck of the woods, and the whole world is competing for your money. Not a handful, or a truckload, a worldload. Increased competition has to mean lower prices, just the opposite of what the dot.coms expected.

    It’s true that we’ll probably never see the kind of price competition we’ve seen over the past few years again. It’s true that the amount of competition will drop off a lot over the next year or two as the weak are mercilessly euthanized, and prices will go up, maybe for a few years.

    For buy.com, it’s a race between which happens first, an overall increase in prices which keeps their higher prices competitive, or the shareholders’ money running out. Should be close.

    However, in the long run, the Internet means a much more competitive environment for businesses, which means lower prices than in the pre-Internet Dark Ages.

    Buy.com is abandoning its crazy policies before they become as fatal as they’ve been to many others. Will it survive, or will it in turn be abandoned by its customers? You’ll decide.

    Email Ed


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