September 30, 2002, 12:00 AM

Buy.com’s Blum Takes on Goliath

Nearly a year after buying back Buy.com from its public investors, founder Scott Blum is undertaking an ambitious and aggressive plan to make the online retailer a contender—including starting up Buy.com TV.

There are any number of classical allusions that can characterize Buy.com: David vs. Goliath, the phoenix rising from the ashes, some would even say Icarus flying too close to the sun and falling to earth. But whether Buy’s David falls to Amazon’s Goliath or Buy’s wings fall off because it tried to soar too high, no one can say Buy.com didn’t try when it had the chance or that it didn’t cause a stir as it attempted its resurrection.

Once on its deathbed, Buy.com has strode boldly back onto the national retailing stage with the planned debut of a TV shopping channel, a catalog disguised as a magazine, well publicized free shipping in an effort to undercut Amazon’s free shipping with a minimum order, and low prices. While it’s far too early to tell if Buy.com’s strategy will succeed, its goal is nothing less than to redeem its reputation as a failed dot-com and regain part of the market share that it ceded to Amazon and others.

And in the process, it may show that operating and marketing enhancements, financial discipline, a focus on profitable merchandise and a dash of multi-channel retailing, in short, the same ingredients that make up any successful retailing strategy, can still be applied in the dot-com world to create a thriving company. “Our vision is to demonstrate a powerful model for the future,” asserts Scott A. Blum, founder and once-again CEO of Buy.com.

A TV star

Among Buy.com’s most notable moves was the announcement this summer that it would sell books at 10% below the prices of the company that wrote the book on online book sales-Amazon.com-and would beat Amazon’s delivery offer of free shipments on orders over $49, which Amazon subsequently lowered to $25. Buy.com will ship free regardless of purchase size. And, reflecting Blum’s pugnacious approach to winning back market share, Buy.com didn’t just quietly cut its prices or even take out a few small ads. It boldly challenged Amazon with a full-page ad in the Wall Street Journal that among other things proclaimed “Don’t get sold down the Amazon River without a paddle.”

But if its pricing moves took many in the Internet retailing industry by surprise, a more recent plan to sell its products via television, through the creation of Buy.com TV, comes as an even bigger shock. Buy.com is expected to announce the venture in mid-October.

The mastermind behind the aggressive strategy is Blum, a college dropout who also owns a holding company that invests in technology start-ups. Having started Buy.com in 1996, Blum left management of it in February 2000 after he took it public, selling 16.1 million shares at $27 each, and continued to own about 40% of the company’s shares. While he remained on the board of directors, Blum watched in dismay as the firm he founded expanded into product lines that he didn’t think made sense and grew an infrastructure too large to be supported by the company’s sales.

Then a year ago, Blum bought the company back at what many believe was a fire sale price. While the firm’s stock hit a high of $37.50 a share in the spring of 2000, Blum paid 17 cents a share just 21 months later, buying back the company that had had a market capitalization as high as $4 billion for $23.5 million.

After Blum bought back his company, he quickly began dismantling it. Then this summer, with the cuts in place and a new strategy in hand, he began rebuilding it.

25% sales jump

The first such moves were the free shipping offer and the aggressive pricing strategy. By announcing it is pricing books 10% below Amazon, Buy.com let consumers know it wanted to be a low-cost provider. And already there appears to be some long-term payback. Book sales skyrocketed by 800% during the first week after the price announcement. After the first month, book sales were still up 500% while total company sales were up 25%, from $1 million a day in the month before the cuts to between $1.2 million and $1.3 million a day in July. Publicity from the book sales spurred sales of electronics and other items, Blum claims.

But free shipping and the price cuts were just the beginning. Even more aggressive-and riskier-is Buy.com’s foray into television. It follows a move earlier this year to become a multi-channel retailer by publishing a “magazine” which functions more as a catalog that customers use to view products and then call in orders.

With television, Buy.com is taking a bigger risk than with the magazine-certainly undertaking a more costly venture. The company is negotiating to produce television programming that will combine talk-show-like interviews of artists, authors and movie stars with product demonstrations and sales pitches. “We’re trying to blend the Home Shopping Network with the Tonight Show,” Blum says. The programming will run most likely on cable networks.

The first shows are expected to air in the fourth quarter. Blum expects to purchase time on cable networks that cater to Buy.com’s prime audience-young men fascinated by technology. Channels that Blum says he is looking at include E! Entertainment, MTV, and Tech TV. Sources say Blum is planning to spend $12 million-mostly his own money-to get Buy.com TV off the ground. Blum won’t confirm that figure.

But Blum wants his television sales to do more than just bring in a few extra dollars. He is confident that it will help Buy.com become more than a pure Internet player. “If all goes right, only about 25% of our sales will come from the Internet within three years,” Blum says. The remainder will come from mail order and television. Today, about 95% of sales are Internet-based with only about 5% coming from mail order.

Blum’s TV plans are part of a belief now common in the retail world that Internet-only players can’t cut it. “Any single-channel retailer faces great challenges,” says Duif Calvin, vice president of retail practice for Scient Inc., a New York-based consulting firm. “They just can’t get enough volume to get the best discounts from the distributors.”

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