December 29, 1999 12:45 PM PST
E-tailer Value America cuts staff, loses execs
Value America said today it will fire almost half its staff amid a companywide restructuring that includes the departure of co-founders Craig Winn and Rex Scatena. Moreover, the retailer will drop all of its nontechnology-related product lines to focus exclusively on consumer electronics and computer and office products.
As a result of these actions, Value America warned that its fourth quarter revenues will be approximately 6 percent to 9 percent below expectations, and earnings will be off because of a $5.6 million restructuring charge. The company cited low sales and the implementation of new computer systems as the cause.
Value America shares were down around 12 percent in late afternoon trading.
The e-tailer's predicament is a unique combination of a continuing shakeout among online retailers, industry woes among computer retailers and the company's specific problems as it competes in a sea of similar "dot com" companies, analysts say.
The company did not return calls for comment.
In deciding to concentrate solely on computer products, consumer electronics and office supplies, Value America will be focusing on "categories in which the mix of product selection, product fulfillment, customer service and gross margins are strongest," according to a company statement.
"We are building on Value America's proven strengths and are discarding what doesn't perform," Glenda Dorchak, chief executive of Value America, said in a statement. Dorchak, who has been president of the company since 1998, was appointed chief executive last month.
But in abandoning all nontechnical products, Value America also will be going head-to-head with popular e-tailers such as Buy.com, which competes aggressively on price, a strategy the company has largely eschewed.
"They believe [computers] are where they have had the most success in the past and believe that's where they're going to have the most success. But if you're going to buy on the Internet, Buy.com consistently underprices everyone else out there," said David Goldstein, president of Dallas-based Channel Marketing.
"I don't really perceive any great difference from Value America in terms of product selection or price. They have to offer an advantage to buying online, and price is one of those advantages," he said.
In addition, because of increasing competition and sharply decreasing prices, the computer market is not necessarily the most appealing place to be for a retailer.
CompUSA, for example, has struggled to compete with online sellers. The retailer also has been laying off employees and closing stores. Amid increased online competition, sales for its first quarter dropped to $1.36 billion from $1.39 billion the previous year.
Layoffs, intended to help reduce overhead expenses, are somewhat typical for this time of year for ailing retailers. These companies may use holiday sales to fund restructuring efforts, simultaneously cutting costs by slashing jobs. Value America, however, may have acted a bit early, analysts say, because January is still one of the most important months in terms of sales for electronics sellers.
"For seasonal businesses, it's not unusual to not want to disrupt the organization during the peak season, so you wait until the peak season is over," Goldstein said. "But this is a bit early, because January is still part of the peak season."
It is not clear whether the company will stick to its aggressive offline advertising campaign as it attempts to streamline and cut costs. In a recent survey by Competitive Media Reporting, the retailer had the second-highest advertising costs among online companies, spending $46.5 million over eight months in 1999.
"They have an incredibly high cost of sales in terms of customer acquisition," Goldstein said. "Their customer acquisition costs are equal or more than any bricks-and-mortar retailer."
Still, as recently as last month, analysts were largely positive about Value America's chances for success.
"We believe that Value America offers one of the most complete e-commerce business models, offering scalability not found in most of the other e-commerce models," according to a report from Andrea Williams, managing director of e-commerce and content investment research at E*Offering.