“First, do no harm” is a cornerstone of the Hippocratic oath taken by physicians. But when Moore Medical Corp. decided to withdraw from the wholesale drug distribution business in 1997, some thought the move was akin to inflicting a lethal wound — or at the very least shooting itself in the foot. After all, wholesale drugs accounted for 60% of the company’s $288.5 million in net sales for ’97.
But the New Britain, CT-based cataloger has confounded those vendors, competitors, and analysts who were ready to play taps for the company. The liquidation of its drug unit allowed Moore to devote all its resources to its more profitable medical and surgical supplies business.
For fiscal 2001, Moore Medical still posted a net loss — $1.6 million on $132.8 million in sales. But that’s significantly less than the $2.9 million that Moore lost in fiscal 1997, and a whopping 180% improvement from the $4.5 million net loss posted in 2000.
What’s more, some of the company’s losses for the past few years can be blamed on its investments in its Websites, which are now ramped up.
“In 2000, we had to make enormous investments,” says president/CEO Linda Autore. “We had incurred all of the expense but none of the benefit.” Also hurting the bottom line was a $5.2 million settlement Moore had to pay to the U.S. government resulting from pricing errors dating back to 1991.
Indeed, an indication that Moore is on the road to recovery was seen in the quarter ended Dec. 29, when the cataloger turned its first profit in nearly two years, earning $317,000 on $33.2 million in net sales.
Just say no
Moore Medical was born out of the back office of Axelrod Pharmacy in New Britain in 1947. It started as a purveyor of brand-name pharmaceuticals to other pharmacies and didn’t even enter the medical and surgical supplies market until the 1970s.
But by 1997, it was clear that top-line growth in the wholesale drug business wasn’t translating into bottom-line growth.
“Our wholesale drug business was much bigger in revenue but much smaller in profits” than the rest of the business, says Autore, who joined the company in October 1998 as senior vice president of sales and marketing. “We felt there was a much better growth opportunity because there was better margin in our fledgling business of selling medical and surgical supplies to physicians.”
No one was willing to give exact percentages regarding the profit margins of pharmaceuticals vs. supplies. But catalog consultant Tom Shinick, a former senior executive with medical and dental supplies marketer Darby Group, agrees with Autore that “the problem with the wholesale drug business was that margins were very competitive. Drugstores bought generics from Moore when Moore sold them at lower prices. But as generics got to be a bigger part of the marketplace and Moore’s larger competitors began to sell them, Moore could no longer compete on price.”
At the time Moore had only 1% of the $11.5 billion pharmaceuticals market. “The large distributors to drugstores are not catalogs,” John Murray, then Moore’s business development director, told Catalog Age in 1998. “It’s generally not how the stores do business. They buy from sales reps, and most of our competitors were selling one- to two-year contracts, effectively keeping us out of the picture.”
Picking its markets
Although medical and surgical supplies offer better margins than pharmaceuticals, the $35 billion market is just as competitive. It also includes several Goliath-like competitors, including $2.56 billion Henry Schein.
So rather than take on the medical and surgical field at large, Moore opted to put much of its efforts in marketing to several niches. The company eventually decided that in addition to selling to general practitioners, ob-gyns, and pediatricians, it would explore opportunities among emergency response professionals and medical professionals in correctional facilities.
As well as its core general catalog, which offers more than 10,000 products, Moore mails EMS/Fire, which sells rescue gear and medical equipment to emergency medical technicians. And just this past January, Moore launched a spin-off catalog selling only podiatric products.
More Moore channels
To complicate matters, around the time that Moore began reengineering its marketing strategies and merchandise mix, it was experiencing a shakeup in the executive suite. In December 1998, president/CEO Mark Karp stepped down. In June 1999, the board of directors formed a three-person office of the president. That August, one of those three persons, Autore, was named chief executive.
As Autore was settling in, Moore was adding SKUs to its product line and prospecting more heavily to family practitioners, corrections facilities, and the like. It also began exploring the potential of the Internet.
Moore spent $1.5 million on its Websites in 2000, then another $500,000 last year.
“Our first Website was not intuitive and wasn’t as efficient as it could have been when taking the customer through the transaction,” Autore says. The redesigned site, which debuted in October, features cross-selling and upselling capabilities. It also offers LiveChat (from LivePerson, which Lands’ End also uses) and allows customer service reps to electronically “push” catalog pages to customers, rather than faxing them. Autore says that customers are 60% more likely to purchase a product after using LiveChat.
The company has already recouped its investment in the Web, says chief financial officer Jim Simpson. About 5% of last year’s $132.8 million in sales came from the Web. Moore is projecting that the Internet will account for 10% of its sales this year.
Moore is also using the Web to become an online source that doctors, specialists, and physician’s assistants can visit for news — the theory being that when they come to the site to read a particular article, they’ll also stock up on supplies.
To go along with its two specialty catalogs, Moore has two specialty Websites, both of which launched in 2000. Merginet targets emergency response professionals, offering a bimonthly “e-zine,” links to more than 2,000 resources, and an events calendar as well as merchandise. Podiatry Online provides similar features for podiatrists.
And the company is working hard to strike partnerships with medical organizations. In August 2001, it inked a deal with San Francisco-based Medem, a network of 80,000 physicians who use the Internet as a means of building their practice and better communicating with patients. The Medem home page links directly to the Moore Website.
“Moore’s position as an Internet-based supplier provides an advantage to Medem’s network of physicians,” says Medem CEO Dr. Edward Fotsch. “Now practice administrators and office staff have a single source for managing their practice on a daily basis, including the ordering of medical supplies.”
In addition to using the Medem Website to drive traffic, Moore is mailing catalogs to Medem members. In September, it overlaid the Medem file with its own database and sent catalogs (with a Medem wrapper and a cover letter from Dr. Fotsch) to the 50,000 members who best resembled the core Moore customer.
“It’s a way to give us reach and visibility,” Autore says. “This was a more targeted way to reach our audience than to just blindly drop catalogs to prospective customers.”
Moore made a similar deal this past September with Corrections.com, a Web portal for corrections facilities professionals. The company mailed catalogs to about 2,000 healthcare professionals working in correctional facilities nationwide. “Rather than just dropping catalogs from the sky,” notes Simpson, “we can pick segments of the medical population that we want to serve.”
Stable vital signs
So is Moore on the right track? “I think it’s on the only track,” says Phil Putnam, managing director of St. Louis-based Flagstone Securities, which is following the company on a research basis. “In the past, Moore was obviously in a highly competitive world. But the Internet has created a new mechanism for efficient distribution. That doesn’t come without a cost. Moore had to move into the modern world, which it did. We believe its operating losses are behind it.”
But there are still other challenges down the road, namely competing with larger catalogers such as Henry Schein and Darby Group. “It’s folly to think Moore can compete on margin,” Putnam says. “But where it can compete is service. Once companies get to a certain size they tend to lose a service element.”
And Putnam’s particularly bullish on the partnerships Moore has signed. “Targeted niche marketing is a very logical way for them to go. It’s absolutely a way of attacking the market.”