The Luckiest Dot Com

Despite cooling investor interest, letsbuyit got its IPO

The Luckiest Dot Com

Martin Coles's timing couldn't have been worse. Just weeks after the 44-year-old Welshman left a top job at Nike Inc. in February to become CEO of London-based e-tailer, the love affair with dot-coms cooled. Coles tried twice to float shares on the Neuer Markt, Germany's high-tech stock exchange, and twice failed. But living up to the Nike slogan, "Just Do It," Coles decided to give it one more try.

On July 21, he succeeded. Letsbuyit was listed on the Neuer Markt for an issue price of about $3.30 per share. That was less than half the price expected from the aborted May initial public offering. But the stock is now up more than 14%. With operations in 14 European countries, letsbuyit's plan is to get individuals bargain-basement prices by pooling consumers together online to buy from manufacturers for as much as 30% below average retail prices.

Letsbuyit's struggles underscore the challenges Europe's Internet companies face today in going public. "We've no idea how letsbuyit did it, considering the huge backlog of IPOs right now," says Heidi Fitzpatrick, European Internet analyst at Lehman Brothers in London. The company's investment banker, San Francisco-based Robertson Stephens Inc., says it placed the entire offering, though it was a slog. "We sold more than 90% of the shares to institutional investors who knew and understood the company and who were perhaps braver than the average retail buyer," says Rory O'Sullivan, a London-based Robertson Stephens banker. Robertson is the only firm providing analyst coverage of the company.

Coles is happy with the $56 million he raised. "We were at an important phase in our business where we needed to be out in the public eye and taken seriously by investors," he says. But Coles's work has only just begun, especially if he wants to achieve his lofty goals: $734 million in sales by 2003, up astronomically from $2.7 million in 1999. That seems hugely ambitious--and leaves plenty of room for disappointing the market. Needless to say, the company is losing money: $21 million as of last Dec. 31.

GETTING TOUGH. At least Coles is imposing some discipline. On his first day on the job he found himself traveling to a beach resort in Phuket, Thailand, where letsbuyit's senior management had decided to hold a strategy session. Coles was shocked at the money being spent. "At the time, the company had raised about $66 million, and I was looking at a marketing [budget] that exceeded revenues by a factor of 10," he recalls. "At Nike, cost control and profit were the name of the game."

Coles is now applying Nike-type controls. He has already reduced marketing expenditures from $8 million a month to $6 million, and wants to go further by shifting to ads in cheaper online spots. He's determined to stand apart from other business-to-consumer dot-coms in Europe, such as fashion Web site, that exuberantly spent themselves to death. But he's still frustrated that investors seem unable to distinguish between different types of Net business models. "Boo fails, and I get questioned about the reason why every 10 minutes," he gripes.

Founded in Stockholm in February, 1999, and later shifted to London, letsbuyit has attracted big-name backers such as Germany's ProSieben Media and French retailer Pinault Printemps-Redoute. Its bulk purchasing strategy is valued in Europe, where discount chain stores are scarce. So far, 17% of letsbuyit's 790,000 members are active buyers. Coles hopes even more will start buying when he widens letsbuyit's offerings from white goods and electronics to cars.

However, building strong relations with manufacturers isn't an easy undertaking, says Coles. When he arrived at the company, most of the merchandise came from wholesalers, who drove up prices with middleman fees. Now, wholesalers account for 40% of Coles's supply, and he's buying the rest directly from manufacturers such as Sony, Microsoft, and Kitchen Aid. Sounds good. But Coles had better skip the strategy sessions in Phuket and just make it happen.