buy.com. The challenge Gregory J. Hawkins faced in turning around e-tailer buy.com was clear the moment the new CEO walked into his office. On his desk was a pile of angry letters from customers carping about everything from falsely priced products to unanswered e-mail. On his computer screen: links to more than a half-dozen buy.com hate sites. Hawkins' reaction? He invited unhappy consumers to a forum at buy's head office in Aliso Viejo, Calif., all expenses paid. ''It was the best way for me to understand the problems,'' Hawkins says.
University of Washington student Rob Cole accepted--grudgingly. ''I thought it would be a lot of corporate spin,'' says Cole, who built a complaint site after he was charged for a computer monitor that never shipped. Meeting Hawkins softened his skepticism. ''He seemed to be making a decent effort,'' Cole says.
Cole doesn't know the half of it. In the year since buy.com's board brought Hawkins in to replace founder Scott Blum, the new CEO has launched a top-to-bottom cleanup. Not that buy.com--which started out selling computers and later expanded into electronics, books, videos, and more--lacked sales. The company racked up $125 million in revenues in its first year, thanks to a massive ad campaign that branded buy as a low-price leader. Problem was, Blum didn't have the infrastructure to support all the customers, and his rock-bottom pricing left little hope of profits. ''The company was mature at the top line, and immature everywhere else,'' Hawkins says.
Hawkins has focused on buy.com's most prominent feature: prices. The company's original plan had been to charge the lowest prices on the Web and make it up by selling ads. It would keep costs down by outsourcing fulfillment and customer service. Gross margins for 1999 were negative 1.2%--far shy of the 10% to 20% Hawkins felt buy.com needed to stay afloat. So Hawkins began quietly raising prices. He still sells a handful of key products below cost, but hopes customers attracted by the bargains will toss a few higher-priced items into their baskets.
Is it working? The site now has 300 advertisers, up from 100 a year ago. Gross margins soared to 4.3% in the first quarter. Revenues in the quarter grew 92%, to $207.6 million, from a year earlier. Still, buy.com's loss widened by 70%, to $32.8 million, as Hawkins ramped up spending to build the infrastructure the company needs.
At least one customer is giving buy.com a second chance. After meeting with Hawkins, student Cole took down his site. And a few weeks ago he bought a DVD on buy.com. A green dot indicated it would ship in two days. It hasn't arrived. ''Their customer service still needs some work,'' Cole says. Will customers--not to mention investors--hang in there while Hawkins completes his makeover? The site's survival depends on it.