How downsizing is moving Buy.com to profitability

Recent aggressive marketing tactics employed by Buy.com—including free shipment on most products and cutting book prices 10% below that of competitor Amazon.com—follow eight months of downsizing by the company.

When Scott Blum bought back in November 2001 the company he had founded, he discovered the operation he had left nearly two years earlier was bloated and ill-managed, he claims. His first moves were to reduce the size of back-end operations and slash the number of employees. The company had 650 employees when Blum bought it back and he reduced that number to 125.

While much of the reduction came as the result of getting rid of warehouse operations and internal order fulfillment, Blum also cleaned house at the top. “They had 27 vice presidents and 60 directors. That’s too much leadership. Now we have two executives who are both vice presidents,” he says. Additionally, he got rid of some product lines that didn’t fit with the other businesses offered by Buy.com—including jewelry and office supplies.

With the cuts completed, Blum says the firm showed a slight profit for the first time this year. While the firm is private and does not report specific financials, he says his first quarter profit was “a couple hundred thousand” on sales of nearly $90 million a quarter.

When Blum bought the company back, he paid $25 million for it, which he calls “an incredible deal. Most good technology companies are worth 1.8 times sales and even average companies should be worth 1 times sales. Even at 1 times sales, this company should be worth $400 million,” he says. Making the deal look even more like a bargain is that shortly after Blum took the company public in February 2000, the company’s stock shot up to $37.50 a share and he paid 17 cents a share just 21 months later.