>Austin, Texas, May 23 (Bloomberg) -- Living.com, a Web-based home-furnishings store partly backed by Amazon.com Inc., said it fired 50 employees, or 13 percent of its workforce, to cut costs.
The closely held company said the cuts took place at all levels and will accelerate its push toward profitability. Living.com didn't say when it expects to start reporting earnings.
Visits to Living.com's Web site fell to 357,000 in April from 512,000 in March, according to Media Metrix Inc., an Internet research firm. Rival retailer Furniture.com Inc. had 833,000 visitors in April and 1.08 million in March.
Living.com began business on its own site in July. The company also is paying $145 million over five years to Amazon.com for the right to be the exclusive home-furnishings store on Amazon.com's site.
Living.com said it invested heavily to prepare for the new operation and has seen orders more than double since the Amazon.com store was opened on Friday.
Amazon.com, the largest Internet retailer, owns 18 percent of Living.com and has warrants to purchase more shares. Living.com's other backers include Benchmark Capital, Austin Ventures, Comdisco Ventures, Pivotal Asset Management, GE Capital Corp. and Starbucks Corp.
Furniture.com last month fired 29 workers, or 11 percent of its employees, as it restructured to cut costs and improve prospects for profitability.
Closely held Furniture.com is backed by CMGI Inc.'s @Ventures, which owns a 17.1 percent stake. Furniture.com today said it is considering a number of alternatives to its proposed sale of shares, including the issuing of debt.
The company in January filed to raise as much as $50 million through the sale of stock. Since then share prices for Internet retailers have declined, with the Bloomberg U.S. Internet E- Commerce Index falling by more than half.
>HomeGrocer.com (HOMG)
Jim: Don't buy
Mike: Don't buy
* * *
Mike: Let me start by telling you a little slice-of-life story. In my neighborhood, the local Lucky's was taken over by Albertson's a while back. Well, you've never heard so many complaints about a corporate changeover since Washington Mutual took over its last six banks. You cannot go to a Little League game in my town without hearing somebody in the stands grousing about that supermarket.
Jim: Your point being?
Mike: That one of the upshots of this is that all of a sudden there seem to be more HomeGrocer.com delivery trucks prowling around my neighborhood than cats. People have really taken to this company's service.
Jim: True, they do seem to be everywhere. These are the big trucks that have what looks like a big pear or something on the side. I'm not quite sure what that fruit or vegetable is.
Mike: It's a peach, Jim.
Jim: Oh. You know that for a fact?
Mike: Yes, Jim. One-hundred percent sure. A pear is that thing that's shaped like a pear. A peach is that thing that's peach-colored.
Jim: I wondered what it was.
Mike: Yes, just pick something other than fruit salad to bring to my next potluck, OK?
Jim: Well, the fact is you're right, those trucks seem to be everywhere.
Mike: HomeGrocer.com offers a remarkable service. You can order online from a grocery selection that's certainly competitive in variety with your local supermarket.
Jim: It claims to have 15,000 items available, including lots of fresh stuff like meat and produce.
Mike: Everybody we know who has tried it says the stuff is actually fresh. Its customer service is excellent, and it offers free delivery for sizable orders. Plus, you can specify a delivery window of 90 minutes, which is a great convenience. I mean almost everybody, even "dot-com" executives, gets home for at least 90 minutes a week.
Jim: There are a couple of other interesting aspects about this company, which was launched in mid-'98 and went public just a couple months ago for $12 a share. One of its big investors is Amazon.com, which helps promote HomeGrocer's site, and it recently signed a deal with America Online to be AOL's primary provider of online groceries.
Mike: But now the bad news. This stock went public at $12, and it's now selling for the princely sum of about $4.
Jim: If it drops much lower, it will cost the same as, what, a pear? This is despite the fact that this company came up with a novel idea in terms of online convenience, and seems to execute well. HomeGrocer.com is run by Mary Alice Taylor, who spent 17 years at Federal Express, so she knows what's required for on-time deliveries.
Mike: But pardon my X-ray eyes: I look at this company and I see a supermarket.
Jim: What's wrong with that?
Mike: Simply that if it's going to move from negative profit margins--naturally it's losing money right now--to positive by hitting the big time, that means it will enjoy the same profit margins as big supermarket chains, which happen to be one cent on the dollar.
Jim: Talk about upside potential! Plus, HomeGrocer.com already has lots of competition. There's an online outfit called Webvan Group, whose stock has also plunged in recent months. And if HomeGrocer.com keeps growing, how long do you think it will take for the likes of Albertson's and Kroger Co.'s Ralphs chain and others to offer the same online services?
Mike: So what we have is an expensive way to deliver merchandise in a low-profit business.
Jim: Well, that's offset a little bit because HomeGrocer.com doesn't pay for lots of workers or real estate, like Ralphs does.
Mike: So maybe its profit margin will be 1.5 cents on the dollar. By the way, I want to point out that as we speak I'm looking at a recent report from a securities analyst who says HomeGrocer.com is addressing "an enormous $600-billion opportunity."
Jim: $600 billion?
Mike: I look at this and I say this is on the level of false advertising, and I'm being kind. The fact is, the entire U.S. grocery market today is $465 billion. And the researchers who specialize in online markets say that, over the next four years, maybe online grocery orders will reach $17 billion, or 3% of the total. Where do those guys get off talking about $600 billion? This is just Baloney with a capital B.
Jim: To put all this in perspective, HomeGrocer.com's sales this year are expected to be around $150 million. Now, it also has big expansion plans for places like Dallas, San Francisco and so on, yet it appears it won't get past the next 12 months without needing more cash.
Mike: I'm glad you brought that up. When HomeGrocer.com went public, it brought its cash hoard up to $250 million. Now it's going through it at a rate of $20 million or so a month. Sooner or later, it's going to need more cash from the capital markets.
Jim: And how will that happen with a $4 stock? It could issue debt, but the prime lending rate just went up, so that option is getting more expensive. So I guess there's a lesson here, Mike. We have a leading-edge dot-com company creating this wonderful niche . . . .
Mike: Right, and its stock price shows that, despite everybody's kvelling about "irrational exuberance," investors have turned out to be pretty discriminating |
