June 25, 2002 12:45 PM PDT

Buy.com vows to undersell Amazon books

Buy.com is broadening its war with Amazon.com, promising to sell its books at 10 percent below Amazon's prices, the company said Tuesday.

Many of the books that Buy.com sells are already marked below those sold by Amazon. But the company will now offer a guarantee, promising to refund the price difference plus 10 percent of Amazon's price to customers who find a book cheaper at Amazon.

Buy.com has decided to undersell Amazon to gain awareness for its books department and to gain market share from Amazon, said company President Robert Price.

The company also took out a full-page ad in The Wall Street Journal, comparing its prices of popular titles with Amazon's prices. "Don't get sold down the Amazon River without a paddle" was one of the lines in the ad.

"Amazon has 25 million customers; we have 5 million. We want to go after a place where we know the customers are," Price said.

Buy.com's move seemed to have an effect on Amazon shares, which were down more than 5 percent, or 91 cents, to $16.60 in early trading. Amazon representatives did not return calls seeking comment.

Noting that Amazon.com dwarfs Buy.com in terms of traffic and overall sales, Safa Rashtchy, a financial analyst who covers Amazon for U.S. Bancorp Piper Jaffray, said Buy.com's move should have little effect on Amazon. Despite Amazon's moves to cut prices in recent months, the company isn't trying to compete on price and won't get into a price war with Buy.com, he said.

"We're not talking about equal players. Buy.com's share is almost negligible," Rashtchy said. "If it was Barnes&Noble.com getting into a price war, it would have more credibility and more impact."

Another analyst saw things differently.

Buy.com's move could have a financial impact on Amazon, said Lanny Baker, a financial analyst with Salomon Smith Barney.

"If lower prices cause less people to shop at Amazon, it would seem it would have an effect on Amazon," he said. "The question you've got to ask yourself is, 'Does Buy.com have the financial staying power to do this?'"

Buy.com has trailed far behind Amazon in terms of site traffic in recent months, according to ComScore Media Metrix. In May, Amazon ranked second among online shopping sites with 30.9 million unique U.S. visitors. In contrast, Buy.com ranked 64th with 2.4 million unique U.S. visitors.

But Buy.com does have a leg up on Amazon in terms of average order size. Buy.com customers bought $177 worth of goods on average from the site each time they placed an order, according to ComScore Media Metrix, while Amazon customers bought about $45 worth of goods on average.

Playing chess with prices
Just last week, Buy.com fired another salvo in its price war with Amazon, offering free shipping on most items in its store, with no minimum purchase required. The move topped Amazon's similar free shipping offer, announced earlier in the week, which required a $49 minimum purchase.

Earlier in the year, Buy.com had matched Amazon's previous offer of free shipping on orders of $99 or more.

Buy.com has a shopping engine that can automatically compare its prices with those on Amazon, said Brent Rusick, Buy.com's chief operating officer. The shopping engine will help Buy.com maintain its 10 percent discount compared with Amazon's prices, he said. No matter what moves Amazon makes, Buy.com's prices will continue to be lower than Amazon's, he said.

"We'll continue to make price moves. Ours will always be 10 percent lower than Amazon," Rusick said.

Although most books at Buy.com are already marked down to about 10 percent less than Amazon's prices, in some cases the company offers deeper discounts. In those cases, Buy.com may actually raise its prices, Rusick said.

Buy.com customers who do find their purchased book at a lower price on Amazon will have 72 hours to make a claim for a credit.

Buy.com made a name for itself during the dot-com boom as being one of the leading low-cost e-tailers. In many cases, the company sold products below cost. Although its aggressive pricing strategy attracted millions of customers, making it one of the biggest e-tailers, the company piled up massive losses.

Although Buy.com is trying to revive its reputation for low prices, it won't be doing it at a loss this time, Rusick said. Buy.com can afford to charge less than Amazon because it doesn't hold any inventory and doesn't have to maintain warehouses, he said. Instead, all of Buy.com's books are drop shipped from distributors such as Ingram Books and Baker & Taylor.

In contrast, Amazon set up a series of warehouses around the world. Although the company drop ships some of its products, it handles most of its own inventory.

"We feel we have fundamentally a better cost structure than they do," Rusick said.

Buy.com's book-discount offer is the latest sign of the company's resurgence under founder Scott Blum. Blum, who founded Buy.com in 1997, bought the company back from shareholders last November.

Once one of the top e-tail sites, Buy.com struggled in the past two years. After seeing its revenue fall and losses rise, the company slashed its staff by 55 percent last February as part of a broader restructuring. But with sales and the company's shares continuing to stumble, Buy.com was delisted by the Nasdaq national market and almost closed shop before Blum made his investment.

Buy.com has been selling books since 1998, when it bought book and video e-tailer SpeedServe. However, the company has been more known for selling technology products.

Buy.com has already seen an upsurge since it announced its new free shipping program last week, Price said. The number of orders on its site is up 30 percent, and the total value of the orders placed on its site is up 20 percent, Price said.

Buy.com has no plans to end the new discount on books, but it could change the offer at any time, Price said.

"We'll have to see what their move is," he said.

 

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