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800.com Closes, Sells Key Assets To Circuit City

3/11/2002 02:00:00 AM Eastern

800.com, the four-year-old CE e-tailing pioneer, has ceased operations and sold off key assets to Circuit City for an undisclosed sum.

Citing the "harsh economic climate," the privately held pure-play shut down on Feb. 28, and all traffic to the site is being redirected to CircuitCity.com.

As part of the deal, the No. 2 CE chain acquired 800's 2.6 million-name customer database, several URLs, its call center phone number (800-ELECTRO), and various other marketing elements, according to a Circuit City spokesman.

The site itself, which includes 800's award-winning content, is currently being shopped.

Founded in Nov. 1997 by president/ CEO Greg Drew and launched in Oct. 1998, 800.com quickly became a leading online-only CE specialist thanks to its wide support by the manufacturing community and its commitment to customer service. Indeed, the site helped pave the way for online authorizations, and had amassed a roster of more than 80 authorized brands by the time of its demise, including Sony, Panasonic, Toshiba, Pioneer, JVC, Kenwood and Nikon.

The company's strong vendor relations were attributed in large part to Silo and Sun TV veteran Frank Sadowski, who left his post in November as 800's chief merchant to assume the top CE slot at Amazon.com.

The site's wide selection and consumer-friendly interface also earned it an E-tailer of the Year award from TWICE, "Best of the Web" citations from Forbes, Yahoo! Internet Life and Resource Marketing, and a Circle of Excellence award from BizRate.com for two consecutive years.

800's revenues hit the $46 million mark in 2000, earning it 89th place on TWICE's Top 100 CE Retail Registry. It gained added sales ground with last year's acquisition of Roxy Satellite and Wireless, and recently consummated an online pact with No. 2 movie rental chain Hollywood Video.

Although 800 was ahead of plan as recently as Aug. 31, and was on track to reach profitability this month, Drew said the business was destabilized by Sept. 11 and its economic aftermath.

"Our business came to a screeching halt," Drew related during TWICE's annual Retail Roundtable in January. "It was immediate and it was dramatic. We saw a 60- to 70-percent drop in sales for the 10 days after. Not to mention that all of the product that was on its way to consumers was stuck in airplanes somewhere.

"Then you sprinkle a little Anthrax in there and it's just not a good formula for folks who are in a direct-to-consumer business, where fulfillment via these carriers is critical to success.

Drew said the downturn continued into October, which proved "incredibly bad" for the site and forced it to further tighten inventory controls. Although sales rebounded sharply in December, the sudden shift in demand whipsawed the business and placed an added strain on company coffers.

"The last-minute consumer enthusiasm was deadly for companies that don't have a lot of cash," he told TWICE.

But Forrester Research analyst Carrie Johnson lays the blame for 800's demise —as well as its initial success — on Circuit City and Best Buy. "800 got enough customers early on because Best Buy and Circuit City dragged their feet so long," she argued. "Then last year, they not only got their e-commerce acts together, but got ahead of the curve with features like in-store pick-ups. Ultimately, 800 couldn't compete with their marketing muscle and huge customer base."

In a statement, Drew noted that "Over the past four years, 800.com earned its position as a top 100 consumer electronics retailer with a reputation for award-winning customer service. Given the harsh economic climate, continuing to operate independently is no longer viable. We feel that the sale of significant elements of 800.com to a recognized industry leader such as Circuit City is the best possible outcome for our loyal customers and prospects."

Circuit City spokesman Bill Cimino said that 800's database will provide the chain with the names of 2.6 million customers who, like its own shoppers, are "interested in a high-level of customer service," and for whom there has been little overlap between the two e-commerce sites.

Cimino cited Nielsen/NetRatings for December, which showed that 21 percent of 800.com customers had also shopped the Circuit City site, and that only 7 percent of CircuitCity.com customers had also made purchases at 800.com that month.

He added that the acquisitions will also extend CircuitCity.com's reach to new regional markets where 800 was particularly strong.

In a statement, Circuit City CEO Alan McCollough noted that "Over the years, 800.com has delivered outstanding customer service over the Internet and established a large customer base that appreciates and expects that level of service. At Circuit City, we are committed to that same high level of service. We look forward to extending such features as our in-store pick-up option to 800.com's loyal customers."

After March 1, visitors to www.800.com are being whisked to Circuit City's e-commerce site, where a pop-up window provides answers to continuity questions. Issues addressed include order status (now tracked by Circuit City); 800.com gift certificates (exchangeable for Circuit City gift cards); 800.com gift checks (not honored by Circuit City); plus Circuit City's pledge to continue to safeguard the privacy of all names within 800's database.

Drew told TWICE that little inventory remains on hand as the company "had always kept lean," and that it will work with manufacturers to dispose the goods in an orderly manner. He said the company will shut its doors by mid-April, and that after finding a buyer for the site he intends to "find a nice place to go skiing for two weeks."

Looking ahead, Drew said he would consider remaining within the CE industry or return to the technology sector.