Online retailer Buy.com (Nasdaq: BUYX) might have to close its doors because its credit card processor plans to end their relationship on September 1st, according to Buy.com’s quarterly filing with the U.S. Securities and Exchange Commission (SEC) this week.
“Since over 90 percent of the Company’s revenue is derived from credit card transactions, if the Company is unable to secure a new credit card processing relationship on acceptable terms, it is not likely that it would be able to continue as a going concern,” the filing said.
“Buy.com will probably end up getting a new credit card processor in the 11th hour,” Forrester analyst James Crawford told the E-Commerce Times. “But it will have to pay incredibly high rates, which will hurt its margins even more.”
Buy.com management was unavailable for comment.
Buy.com’s credit card processor originally intended to dissolve relations on July 23rd, according to the SEC filing, but postponed the termination to September 1st, “on the condition that the Processor would increase its processing fee by 1 percent and would withhold 5 percent of the Company’s daily receipts as additional security.”
Crawford said that Buy.com is the victim of a very competitive e-tail market, where there are very few Internet pure plays left. Indeed, even Amazon.com (Nasdaq: AMZN) has been making ties with brick-and-mortar partners, most recently Circuit City.
“Buy.com wasn’t holding any inventory, either, selling direct from Ingram Micro,” said Crawford. “So they offered poor customer service and were losing money on every sale.”
The credit card transaction hurdle is the latest in a series of setbacks for Buy.com, following a 40 percent workforce reduction on August 13th and a Nasdaq delisting on August 14th.
Buy.com is now awaiting stockholder approval of founder Scott Blum’s purchase of the company, deemed by industry observers to be one last attempt at a lifeline. It is unclear if Buy.com’s pressing credit card woes will impact the acquisition.
If the acquisition is approved, Blum, who once served as Buy.com’s chief executive officer, would merge Buy.com with his other property, SB Acquisition, by November. However, Crawford does not hold out hope for Buy.com’s resurrection following the acquisition.
“The buyback will save the company from Chapter 11 (bankruptcy), but not from demise,” the analyst said.
Buy.com has been marred by other hardships, including being sued by shareholders for allegedly working unlawfully with underwriters to drive up the price of its initial public offering (IPO).
The trajectory of the company’s downturn mirrors that of many of its beleaguered peers. During its first day of trading on February 7, 2000, Buy.com’s stock price rose more than 90 percent, for a market capitalization of more than US$3 billion.
As of Wednesday, Buy.com’s securities were quoted on the OTC Bulletin Board at 14 cents per share.
Ironically, Buy.com was honored in July 2001 as “Best E-Commerce Site” by a major technology publication.