September 22, 2004, 12:00 AM

Drugstore.com appoints Charles Schwab vice chair as CEO

Drugstore.com has named Dawn G. Lepore, vice chair of technology, operations and administration at The Charles Schwab Corp., as its new CEO, the retailer said today. Lepore, a board member of Wal-Mart and eBay, succeeds Kal Raman, who resigned in June.

 

Drugstore.com Inc. has named Dawn G. Lepore, vice chair of technology, operations and administration at financial services firm The Charles Schwab Corp., as its new CEO and board chairman. Lepore, who is also a board member of Wal-Mart Stores Inc. and eBay Inc., succeeds Kal Raman, who resigned in June.

Lepore, who assumes her new position at Drugstore on Oct. 11, is recognized by industry analysts as a high-profile e-commerce executive with a forte in technology systems. In 21 years at Schwab, where she is a former CIO, she’s been credited with playing a central role in building the financial services firm’s e-commerce business.

Analysts say Lapore’s experience with e-commerce systems and her high-level connections in the retail world should enable her to bring Drugstore.com what it sorely needs: a more clearly defined strategy to help it turn around mounting financial losses. Earlier this week, Drugstore revised its third-quarter financial guidance to project a GAAP net loss that had widened from an earlier guidance, to a net loss range of $5.4-$6.4 million from a range of $4.5-$5.4 million. It revised its Q3 revenue projection to $83-$85 million, down from the earlier guidance of $85-$88 million, which represented a 40% year-over-year increase.

“Getting Lapore is a pretty significant move,” says Peter Spear, an analyst who follows Internet and technology companies for Seattle-based investment firm Delafield Hambrecht Inc. “I wasn’t expecting Drugstore to get someone of her caliber. It’s a signal to investors that Drugstore is willing to bring someone in who can define a strategy.”

Spear, who doesn’t hold shares in Drugstore and whose firm doesn’t have a investment banking relationship with it, says one of the issues for Lapore will be to define a better customer-focused strategy for VisionDirect, its contact lens unit. “Their whole process of ordering lenses online hasn’t been worked out,” Spear says, adding that Drugstore faces stiff competition from both contact lens retailers and more general merchandisers. “They’re far behind 1-800-Contacts and they need a clearer strategy of how to compete against other retailers like Amazon and Wal-Mart.”

Although Lapore doesn’t bring Drugstore direct experience in mail-order operations or in pharmaceutical and general drugstore product retailing, she brings valuable experience in building Schwab’s online customer base as well as her inside connections at Wal-Mart and eBay, Spear says. “Even though she’s from financial services retailing, she’s a successful, seasoned executive, and brings a lot to the table in online retailing,” he says.

Lapore says she’ll concentrate on improving Drugstore’s profit margins while focusing on a business model of offering low prices, a broad selection of products and home delivery services. “By offering some of the lowest prices on prescription drugs, a broad selection of OTC products, and the convenience and privacy of home delivery, I believe the company is well positioned to drive long-term growth and create sustainable profitability,” she says.

Raman resigned in June after three years as its CEO, during a period when revenue grew 70% to $246 million. Raman is now at Amazon, where he was recently named to the new position of senior vice president for the global hardlines business.

 

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