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Buy.com Starts Price War With Amazon

June 26, 2002|DAVID COLKER | TIMES STAFF WRITER

Humbled mightily by the tech downturn, the once highflying retailer Buy.com is attempting a comeback.

The company, the fourth-largest online retailer before its stock price plummeted to pocket change, announced Tuesday it plans to challenge Amazon.com Inc. by undercutting the industry giant's book prices by 10%.

"We are gunning for them," said Buy.com's chief operating officer, Brent Rusick.

Buy.com had announced it would not charge shipping fees for small items, such as books.

Amazon officials said they had no immediate plans to match the prices. "We focus on the customer, not the competition," said Amazon spokeswoman Patti Smith. "Price, selection and convenience is what we offer--price is just one factor."

The Amazon site gets 30.9 million visitors a month, according to ComScore Media Metrix ratings. Buy.com gets 2.4 million.

Analyst Jeetil Patel of Deutsche Bank Securities said he was wary of an online company that offers deep discounts. "The years 1999 to 2000 are littered with bankruptcies of companies that sold just above, just below or at cost," Patel said. "It's not sustainable."

Indeed, drastic price cuts played a role in the decline of Buy.com, which in 2000 billed itself as having the "lowest prices on Earth." When the company later raised prices to help cover operating expenses, customers were alienated.

Buy.com President Robert Price said that this time around, discounts can be sustained because of the company's streamlined operation. With about 650 employees at its height in 2000, the company now has 100.

It once was housed in a 50,000-square-foot building. "It was a Class-A facility, but after we lost people [to layoffs] it got uncomfortable," Price said. "It was like being at a party where the room was too big." The new facility is about 20,000 square feet.

Patel said that even if Buy.com's discounts can be sustained, Amazon's strong brand and customer service record might shield it from major effect.

"There is always a risk factor out there," Patel said, "but we have to see how well Buy.com does in terms of fulfillment, the customer experience."

On a down day for Wall Street overall, Amazon.com shares sank $2.17, or 12%, to $15.34 on Nasdaq.

Buy.com, which went private in 2001 after declining to such dire straits that it almost lost its ability to process credit card sales, has a history of customer service problems.

Executives said those problems have been greatly curbed, but Tuesday there were already some snags with the new pricing policy. Although the discounts were supposed to be in effect on the site immediately, numerous titles were still priced at or above the Amazon.com price.

Price said it would take at least a few more days to adjust the pricing of all titles. In the meantime, he said buyers had 72 hours after a purchase to request a refund to put the price in line with the new policy.

One thing that Buy.com, now a private company, does not have to worry about anymore is keeping stockholders happy. But the company, bought at 17 cents a share by founder Scott Blum in November, retains the sophisticated technology infrastructure and other facilities that the stockholder investment funded.

"There was no plan to do that, it just worked out that way. It's just a blessing," said Blum, who paid $23.6 million for Buy.com.

Also with private company status comes confidentiality. Blum said he expects Buy.com's revenue to be about $400 million this year. But apart from the Internal Revenue Service, he does not have to disclose the results. "The only reason to go public is to raise money to grow the business," Blum said.

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