Hobbled by technical problems and a backlog of orders, online retailer Value America Inc. said yesterday that it will cut its 600-employee staff almost in half.
The Charlottesville-based consumer products seller said it would take a $5.6 million restructuring charge in the fourth quarter as it lays off employees and revamps its sales operations. The company said it will fall short of Wall Street's revenue estimates for the quarter by 6 percent to 9 percent.
Company officials also said yesterday that its founders, chairman of the executive committee Craig Winn and vice chairman Rex Scatena, will relinquish their managerial duties within the company, but stay on the board. Winn was chairman until November, when Rubbermaid Inc. executive Wolf Schmidt was named to the post. Winn still owns about one-third of the company.
The resignation of the founders was "a decision reached by the board of directors for the strategic direction of the company," said David Kuo, spokesman for Value America.
Value America, whose shares soared past $74 the day of its $23-a-share initial stock offering in April, has struggled to keep up with roaring online sales. Value America's stock plunge in recent months has run counter to Nasdaq's upward climb above 4000, driven largely by Internet-related stocks.
Value America shares closed yesterday down 84 3/8 cents at $6.03 1/8.
"Certainly, I think that we're expecting a lot of consolidation in this market, and is this an indication of that? Certainly, yes," said Lauren Cooks Levitan, an e-commerce analyst for investment firm BancBoston Robertson Stephens in San Francisco. Value America will probably look to pair up with another e-tailing outfit, while it scales back marketing and human resources expenses and focuses on selling its most successful products, she said.
The company said it had appointed a special committee of the board to "explore strategic opportunities for Value America."
While Value America's reorganization isn't the beginning of the end game for Internet companies, it does signal the slowing down of the "free flow of capital" into exorbitant offline sales and marketing efforts, she said. "Like so many other companies, they've tried a lot of different things," and are starting to figure out a strategy that works for them, she said.
Value America's marketing has been one of the most aggressive in the online marketplace, focused primarily in offline venues such as television and newspapers. In the future, the company will redirect its marketing online, Kuo said.
Value America, like many Internet companies, has not yet turned a profit. "Investors are looking for a clear path to profitability, and that's been murky," and will remain so for at least a few quarters while the company restructures, Levitan said.
Analysts surveyed by First Call/Thomson Financial were expecting a $1.03-per-share loss for the quarter, and a $3.71 loss for 1999.
Value America will consolidate its 13 office facilities in Charlottesville into eight offices there. The company, which currently sells a wide variety of goods on its Web site, including jewelry, toys, housewares and pharmaceuticals, will focus on selling computers and other office equipment and supplies, primarily to business and government customers.
Spokesman Kuo said the company will focus on five categories of goods that together have accounted for 95 percent of the company's revenue. He declined to discuss the company's specific comeback strategy for "competitive reasons."