Drugstore.com finally is profitable




Internet Retailer is reporting that Drugstore.com showed a profit of $156,000 on $118 million in sales. Of course, that is a pretty modest net income percentage (.1%), but it is a step in the right direction. For the year, Drugstore.com lost $9 million on $445 million in sales.

I love looking at these kinds of numbers. There are a few interesting takeaways that I see:

1) Slow growth. Drugstore only grew 7% in 2007 and they are projecting a modest 12% increase in revenue during 2008. This growth rate is far below the 20% that online sales are expected to grow across the board.

2) Online phamacy sales dropped. I am not sure what to make of this but pharmacy online sales are not doing well. In the case of Drugstore, they lost 26% of that business last year. I heard a presentation from Drugstore several months ago, and they indicated that over-the-counter health products are their future because of higher margins and less competition.

3) Repeat customers represented 80% of Drugstore’s business last year. Now, that might sound healthy, but I would not be encouraged by that number. Yes, it means that Drugstore is doing some things right in customer service, but it also means they are having problems growing market share.

4) In-store pickup pharmacy sales increased 18%. This bears out a trend that I have been noticing where online stores that also have a brick and mortar presence have a big advantage. For some reason, customers want to buy online and then go pick up the product at a physical location.

I want to mention one other thing that should be sobering to online retailers that are more fiscally conservative. Drugstore.com has lost millions of dollars for years, but they are now in a pretty good position. Is it really feasible for a small player that is unable or not willing to risk millions of dollars to compete with the big guys?

The answer is yes, but it is highly unlikely. How can you improve your chances? I will cover that in a future post.

  • http://www.slightlyshadyseo.com SlightlyShadySEO

    I think their doomed long term. Or at least will not be making very much money for a long, long time. The problem is any of the keywords they would profit from, they have a complete inability to rank for(for obvious reasons)…their best bet may be to get the pharmaceutical companies to link to them from their own websites, hopefully boosting them upwards, and getting targeted traffic.
    I’m afraid there just might not be room for a legitimate pharmacy right now online. Type in traffic is great, but probably not enough to sustain them.

  • http://www.dogbehavioronline.com Ty Brown

    I don’t know that .1% is a step in the right direction. How can this company still be in business? Who is funding them?

  • http://www.vitabase.com Greg Howlett

    SlightlyShadySEO,

    I could not disagree more. Good companies should not build their business around SEO. A strong brand will eventually solve any SEO woes as well as keep a company from being dependent on SEs. Does Amazon really need SEO?

    Actually Ty, .1% is a great step for a company that has lost money up until now. Amazon lost money for years but you would not know it now.

  • http://www.newhomessection.com Jayson

    I’d like to know who funds them as well.

    I think it’s feasible for the small guys to play with the big boys in certain industries especially if the product/service recognizably has more value.

    SlightlyShadySEO brought up the fact that it would be hard for drugstore.com to rank organically for major search phrases which only leaves advertising or word of mouth (but who says I buy these drugs here?) and a need for a large budget. If this was the case, it would be hard to compete with the big boys.

  • http://www.greghowlett.com Greg Howlett

    The problem for the small players are the tight margins. It is hard for them to get products to sell at a reasonable price.

  • http://www.nutritionaltree.com Greg Howlett

    To answer the question though, I do not know about their funding.

  • http://www.jaankanellis.com Jaan Kanellis

    The main reason for the lack of growth is that everyone newscast out there has beaten into our brains that buying any prescrips online is “dangerous”.

  • http://www.mrcheapstuff.com Dean

    It looks like the online market might be maturing and the cause of their slow growth. Drugstore.com has also been coming out with new products such as toys, food and baby products to expand their market.

    Other brick and mortar site like Walmart and Walgreen have a huge advantage in that they can tap into their already large customer base.

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