WEB MARKETING: Cutting its ‘Net losses

Sep 01, 1999 9:30 PM  By

Micro Warehouse shuts Savebynet.com’s cyberdoors

Smart companies know when to say when. And in August, $2.2 billion computer marketer Micro Warehouse, faced with high customer acquisition costs and low average orders, knew it was time to fold its Internet subsidiary, Savebynet.com.

Launched in early 1999, Savebynet.com, consisted of the nearly two year-old Webauction.com, an auction Website for refurbished and discontinued computer products, and Computersbynet.com, a discount computer products Website launched in February. (Savebynet.com did not include the firm’s core Website, Warehouse.com, or its corporate extranet Website program, Micro Warehouse Corporate Advantage.)

“We concluded that auctions and discount computer products were not businesses we wanted to get into,” says Peter Godfrey, Micro Warehouse president/CEO. “Sure, we could have waited for better customers, but we felt it wasn’t a good way to run a business.”

The Norwalk, CT-based cataloger will redirect the $1.4 million allocated to these stand-alone businesses to its catalog, outbound sales, and Warehouse.com operations.

When it launched Computersbynet.com, Micro Warehouse stated that taking online orders only would lower its transaction costs and allow the company to sell products at lower gross margins. But it soon found that it couldn’t combat the high cost of advertising required to establish a separate brand identity.

“Pure-Internet companies are losing money trying to establish a brand in the market,” says Neal Johnson, assistant vice president at Atlanta-based investment firm The Robinson-Humphrey Co. “It wasn’t in Micro Warehouse’s best interest to match the ad spending by its peers. It had the option to lose money and not see a return for some time, and it made the right decision to cut its losses early.”

In the second quarter, ended June 30, Savebynet.com sales were $8.7 million. (Webauction.com sales totaled $5.3 million, and Computersbynet.com’s were $3.4 million.) Savebynet.com reported an operating loss of $2.9 million, or $0.05 loss per share, compared to an operating loss of $1.4 million, or $0.02 loss per share, in the second quarter of 1998. Micro Warehouse’s total Web-related sales were $71 million.

“I’m glad Micro Warehouse terminated this effort. The market is saturated with Web auctions and other companies selling computers,” says Michael Rosen, managing director of Garden City, NY-based investment firm Blackford Securities. “Now the company can focus on three areas: Warehouse.com, the catalog, and an outbound sales force – a combination that will ultimately make it a winner in the computer market.”

As for the catalog, during the second quarter, domestic circulation was down 2.7%, and international circulation declined 7.8%. By contrast, the cataloger’s outbound sales force grew from 171 associates at the end of June 1998, to 376 by June of this year. Godfrey says this is all part of the company’s plan to shift from a catalog- and inbound-telemarketing-based business to one that’s based on outbound sales, catalogs, and the Internet. “The catalog will continue to be an important part of the business, alongside the expansion of an outbound sales force,” he says.