Virgin on Business: R.I.P., Drugstore.com

An Icon of the dot-com boom proves loss leaders can’t last forever.
| FROM THE PRINT EDITION |
 
 
 
Eighteen years isn’t much of a business lifespan, especially in a region that has companies from the Klondike gold rush still operating.  But the dot-com boom and bust might as well date from the Paleozoic Era for all the notice and influence those events command today. In the internet sector alone, too much history in the intervening years and too many companies compiling much fatter résumés allow little time for reflection on the first generation of dot-coms.
 
Every now and then, though, a news item surfaces to provide a refresher course on what it was that drove the formation of those dot-coms. Walgreens announced earlier in July it would shut down its Drugstore.com and Beauty.com websites by the end of September. The company says it wants to put more emphasis on its own online retailing site.
 
In one sense, Bellevue-based Drugstore.com was very much of its time. It favored a lowercase first letter, random capitalization being a typographical trend of the era. Incorporated in 1998, it went public just a year later at the height of dot-com froth, at $65 per share. That was a price driven not by its track record — it had little at that point — but by a mania for any internet-related investment, especially if it involved online retailing.
 
As internet retailing ventures go, Drugstore.com made more sense than most. Health-and-beauty items tend to be small, light and easy to ship. Returns aren’t the problem that they are with apparel. And shopping at a drugstore is not one of life’s rewarding experiences; no one browses to check out the latest in toothpaste.
 
That the idea had some merit is validated by the fact that Drugstore.com did not meet the same early demise of its contemporaries. It endured as an independent until 2011, but it was hardly a flourishing existence. It was propped up with capital infusions from investors like Amazon. To quote from its 10-K in 2011: “We have had only four profitable quarters, and we may never achieve profitability on a full-year or consistent basis.” Walgreens picked it up that year for $429 million, or $3.80 a share — more than twice its trading price at the time. 
 
 
So why didn’t it work? The S-1 filing for the initial public offering provides fascinating insights. While Drugstore.com was banking on attributes like selection, convenience and pricing, it acknowledged such risks as shipping charges, delivery delays and price competition.
 
Retailing is a thin-margin business to start with, but those margins really get squeezed with high-volume, low-priced commodity items typical of a health-and-beauty store. Brick-and-mortar stores are an expensive feature of retailing, but they’re not the only cost. You still have to build infrastructure to move product, and if you’re taking over the last-mile job from the consumer, there’s another layer of expense. It’s a lot more efficient to ship some cartons of disposable razors to a store than to ship individual packages to customers. 
 
It’s a service and a layer of expense that, by the way, customers may not be willing to pay for. Getting consumers to pay for the privilege of shopping with you is a trick only a few, like Costco or Amazon, can pull off. 
 
That Drugstore.com never quite made the formula work is of cold comfort to the physical retailers who have had their own struggles in making online retailing compensate for the business they’ve lost to the internet. Walgreens buys Drugstore.com; Walmart buys this week’s Amazon-wannabe, Jet, in its ongoing effort to catch up with you-know-who; department stores offer online ordering with in-store pickup.
 
Even the online folks aren’t sure of the formula. Seattle-based online jewelry retailer Blue Nile has been opening physical showrooms on the East and West coasts. You-know-who is opening actual bookstores. 
 
They’re interesting experiments, but so were all the online retailing ventures now found on the scrap heap. Not that people are going to stop trying to make it work. It always looks as if it ought to.  
   
Monthly columnist Bill Virgin is the founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.

Final Analysis: Would You Go to Work for Donald Trump?

Final Analysis: Would You Go to Work for Donald Trump?

Or would you rather end up on his enemies list?
 
 

Imagine getting a call inviting you to work for your country.

Now imagine your new boss is Donald J. Trump.

Would you move to Washington, D.C., to work for the president of the United States? For this president of the United States?

From what we know through simple observation, Donald Trump suffers from chronic narcissism, he doesn’t read much, he rarely smiles, he has a vindictive streak, he treats women badly, he has the argumentative skills of a bruised tangerine, he fears foreigners almost as much as he fears the truth and he spends his waking hours attached to marionette strings being manipulated by Steve “I Shave on Alternate Thursdays” Bannon.

Sure, you’ve probably suffered under bad bosses. But this guy takes the plagiarized inauguration cake. He thinks it’s OK to assault women. He made fun of a journalist’s disability. He said a judge couldn’t be impartial because of his ethnic heritage. He doesn’t pay people who have done work for him. He has been a plaintiff in nearly 2,000 lawsuits.

We have to assume that Sally Yates, the acting attorney general who got herself fired in January for standing up to President Trump’s ban on accepting immigrants from predominantly Muslim countries, has probably updated her résumé by now. No doubt she proudly included a mention that she torched the president whose approval rating after one week in office had dropped faster than it had for anchovy-swirl ice cream.

If I worked for Trump, it would most likely be a challenging assignment. I try to be gracious and diplomatic with supervisors and coworkers, but I draw the line with people who lie to me. Or lie to others and put me in an awkward position. With them, I’m not so gracious, and I don’t hold my tongue. Which would probably get me early induction into the Sally Yates Hall of Flame.

Or maybe on the president’s enemies list. None other than Trump’s reality-TV pal, Omarosa Manigault, has revealed that the president possesses a long memory — longer, even, than his neckties — and that his people are “keeping a list” of those who don’t like him.

I know I should give my president the benefit of the doubt, but I’m happy to make an exception in this case. I don’t like Donald Trump. And I would be honored to be on his enemies list. Not since I played pickup baseball in grade school have I had such an urge to scream, “Pick me! Pick me!” Being added to a Presidential Enemies List would be such a treat, a career topper, really. Better than submitting to a colonoscopy without anesthesia. Or watching reruns of Celebrity Apprentice. Without anesthesia.

If selected, I would pledge to save my best words for the president and I would only use them in the bigliest way.

Of course, making the enemies list means I might never get the call to join the new administration. I might never get to engage in locker-room banter with POTUS. I might never get to untangle the marionette strings. I might never get to buy razors for Steve Bannon.

It is a sobering realization. But we must serve where we are best suited.

John Levesque is the managing editor of Seattle Business magazine. Reach him at john.levesque@tigeroak.com.