Healthshop.com Lays Off Workers, Halts Sales

SAN FRANCISCO (04/19/2000) - Travis Ortiz returned to San Francisco last week from a 10-day vacation in the Yucatan peninsula to find that he had no job. His employer, Healthshop.com, laid off most of its staff after failing to receive third-round funding.

"Before I left I told a couple of people on the content team, I said, 'Hopefully I'll have a job to come back to,' and I was really joking, but I guess I was right," says Ortiz, who did design and Web programming for Healthshop.com for just over a year. "It was very strange. I guess that's the reason why I didn't check my e-mail in Mexico."

Despite the timing, the layoffs can't be blamed solely on the market turmoil; there had been rumors circulating around the office that there could be a big company announcement any time. When the announcement came April 10, employees were told they were laid off as of that day, and given reasonable severance packages - Ortiz got four weeks' pay. Now the workers are being courted by the online drugstore More.com. "I'm sending them my resume," Ortiz says.

The offices were nearly empty of workers today. One employee who was there confirmed that the company was closing, and a message on the company's main telephone number said Healthshop.com had "temporarily closed its business."

But CEO Glenn Zweig, who founded the company in July 1998, maintains that the e-commerce company is not closing, only closing its shopping business. "The people that were directly involved in the commerce part of the business were let go.

Outside of those people there's just a thinning throughout the organization," he said, declining to say how many of his approximately 70 employees were let go or how many are left. Zweig says he could either change the firm's business model, or more likely, merge with another company or get acquired. Beyond the online sales, the Web site touts itself as a destination site with articles, interactive personalized programs and a community area.

Zweig attributed the company's troubles to a collapse in the business-to-consumer segment, though he said the recent stock market plunges "definitely had an impact." "This is more a reaction to what's happening in the b-to-c sector overall, and especially what's happening in our category," he said. "We've certainly had a lot of capital, but when it gets to the point where markets are no longer interested in nor rewarding these types of plays, it means we have to refocus." The company was riding high last September after receiving $25 million in second-round funding led by health-care giant Warner-Lambert Co. and venture capital firms VantagePoint Venture Partners and Delphi Ventures. Earlier, Baccharis Capital Inc. had contributed about $5 million in an initial VC round.

For a while, Healthshop could boast that it was the top health e-commerce site, according to PC Data Online and Media Metrix traffic figures for certain months in the second half of last year. Between September and December, Zweig says, Media Metrix found that the site averaged 1.1 million to 1.3 million unique visitors each month. "It felt like we were on the fast track to go public," Ortiz said. But Healthshop may be just the first casualty since the investment focus has shifted from consumer e-commerce to business-to-business companies late last year and at the beginning of this year. The stock of Healthshop's main rival, MotherNature.com, has dropped from $10 on Dec. 10, when it hit the market, to just under $3.50 when the recent turmoil began, to $1.625 today.

Other health-related sites have also been hit. Healtheon's stock went from $70 in late January to just over $19 today, and Drkoop.com has dropped from $18 in December to just under $2.50. Pets, music, videos, software, they're all taking a hit, Zweig says. "What's happening is the market is collapsing across the board," he says. "In light of the market realities, in addition to just pure economics, we felt the smartest thing to do would be to close down that part of our business."

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