ONLINE DRUGSTORES: Investors Shift Focus, Wreak Havoc
A recent shift by Wall Street investors on the profitability of online drugstores this spring has put the young industry into financial turmoil, the AP/Nando Times reports. "The market environment has changed rapidly in a year," PlanetRx.com President and CEO Michael Beindorff said, adding, "Before, it was get as big as you can as fast as you can and worry about making money later, and the Street rewarded that. But now the Street is saying it wants to see a clear path to profitability, so everything we try to do now has to have that in mind." To please Wall Street, most online drugstore companies are cutting costs. PlanetRx recently slashed its advertising budget and cut its work force by 15%.
The industry's financial woes have led some experts to question the long term viability of online pharmacies, especially those not associated with a major parent or "bricks and mortar" company, such as PlanetRx and Mothernature.com. Although consumers enjoy the option of buying prescriptions or over-the-counter medications and other health and beauty products online, the skepticism of industry observers "is further proof that a pure-play online drugstore is a losing battle," Claudine Singer of Jupiter Communications said. James Krumpel, a Raymond James Internet health analyst agreed. Citing PlanetRx's financial troubles, he said that PlanetRx was "brash last year in predicting it could thrive without a retail partner." In fact, PlanetRx, like its competitor Drugstore.com, witnessed an 80% drop in stock value this year. But insiders say Drugstore.com is holding up better than PlanetRx because of its deal with Rite Aid. Drugstore.com also has cash from a secondary offering last March and is partially owned by Amazon.com, both of which help make it more financially stable than PlanetRx (Galewitz, 6/25).