DRUGSTORE.COM TO CUT 10 PERCENT OF ITS PERSONNEL

Byline: Peter Braunstein

NEW YORK — Online e-tailer Drugstore.com said Friday it would eliminate 60 positions, or approximately 10 percent of its total personnel.
The online commerce and content site for health, beauty, personal care and pharmacy products told its staff of the decision on Friday, just one business day prior to posting its third-quarter earnings, which are slated to be released today.
“We are eliminating certain expenses, and the layoffs are taking place across the board,” Judith McGarry, vice president of strategic partnerships, told WWD. “It’s unfortunate, but we’ve made these decisions from a position of strength. Our Q3 earnings are in line with expectations.”
After launching in February 1999, Drugstore.com forged strategic partnerships with Rite Aid Corp. and General Nutrition Companies Inc., and this past February acquired Beauty.com, a leading online retailer of prestige beauty products.
Drugstore.com has seen its stock price plunge since then, however. When it acquired Beauty.com, it was trading in the low-to-mid-$30 range. Its shares closed Friday at $2.56, unchanged on Nasdaq.
In addition, as report-
ed in WWD in August, Drugstore.com’s reliance on prescription drug plans — it initiated a 10-year alliance with Rite Aid in June 1999 — could spell trouble for the firm, and that could affect its future and that of Beauty.com as well.
In a February filing with the Securities and Exchange Commission, Drugstore.com said it had a heavy reliance on Rite Aid’s relationships with insurance companies and pharmacy benefits manager programs. Those PBM programs provide an ongoing source of revenue for the online drugstore. The alliance lets consumers that are part of an affiliated insurance provider or PBM program fill their prescriptions online and then arrange for mail delivery or pickup at a nearby Rite Aid.
The potential problem for Drugstore.com centers on Rite Aid’s sale in July of its PCS Health System division, which administers prescription drug plans for more than 50 mill-
ion consumers, to Advance Paradigm Inc. Unlike Rite Aid’s exclusive partnership with Drugstore.com, however, Advance has its own e-tail site.
Drugstore.com framed last week’s layoffs as the unfortunate side-effects of its evolving financial stability.
“We’ve raised $63 million in additional financing this past summer,” said McGarry. “In the current market environment, that’s no easy task.”
In a prepared press statement, Drugstore.com president and chief executive officer Peter Neupert said: “We believe these cost-cutting steps are prudent and appropriate actions that are consistent with our stated strategy of achieving sustainable growth, while conserving cash on hand.”

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