PlanetRx.com Lays Off 70 Employees

SAN FRANCISCO (06/13/2000) - Troubled online drugstore PlanetRx.com (PLRX) quietly laid off about 70 employees last week, or about 15 percent of its workforce, hoping to reduce its losses as the company explores alternatives for remaining in business in the long term.

"We felt [the layoffs were] the right decision to continue to give PlanetRx the greatest opportunity of success," says Michael Beindorff, president and CEO of PlanetRx.

Like many online retailers, PlanetRx is in dire need of help. With few attractive options for additional funding, the company is forced to look at strategic partners to dramatically boost its business prospects, or seek a merger.

"We don't have the cash in the bank today that will scale the business to a level that will allow us to reach profitability," Beindorff says. "Clearly, we have to look at strategic alternatives that would allow us to continue to grow our business intelligently."

Several retail sectors, including toys, apparel and pet supplies, have already begun to consolidate, and the layoffs at PlanetRx indicate that online pharmacies might be next. Analysts have suggested that PlanetRx is not likely to survive as a stand-alone company, in part because it lacks a real-world pharmacy partner.

Beindorff admitted that a merger is a possibility but said the company was looking at "all sorts of options."

"It would be unfair to characterize some of the discussions we have, as we are not looking for a buyer necessarily," Beindorff says. "I wouldn't go so far as to say that this company cannot continue to operate as PlanetRx [in the long term]."

Shares of PlanetRx have been among the most severely battered in recent weeks.

The company's stock closed at $2.75 today, well below its 52-week high of $36.50. Its main rival, Amazon.com (AMZN) -backed Drugstore.com, also has suffered significantly, though it is widely seen as the leader in the online drugstore marketplace, where it benefits from a partnership with Rite Aid (RAD) . Drugstore.com shares closed at $8 today, down from a high of $70.

"I think a lot of people on Wall Street would like to see a bricks-and-mortar partnership for PlanetRx," Beindorff says.

The layoffs at PlanetRx took place across divisions and affected employees at both the company's headquarters in South San Francisco and at its distribution center in Memphis, Tenn., which employs about 60 percent of the company's workforce.

Beindorff said PlanetRx's belt-tightening measures are already beginning to pay off. "At the end of the first quarter, we said that we would be very focused in reducing our cash-burn rate," Beindorff says. "We have been successful on that front."

For the first quarter, the company had a net loss of $49.6 million, ending the period with about $76 million in cash.

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