Case | HBS Case Collection | September 1999 (Revised April 2000)

drugstore.com

by Richard L. Nolan

Abstract

On a clear day in August 1999 in the new headquarters of drugstore.com, against a backdrop of the Blue Angels flying in formation over Lake Washington practicing for their hydroplane Seafare Cup performance, Peter Neupert was pleased with his company's IPO performance. Just last month, on July 28, 1999, drugstore.com had burst to life as a public company. Shares priced at $18 had soared as high as $69 on the first day of trading, providing a total valuation for drugstore.com of more than $2.9 billion--and a record: drugstore.com was the fastest company ever to reach a valuation of $1 billion. The team had built a virtual drugstore on the Web. During the first six months of its existence more than 160,000 customers had come to shop for more than 17,000 drugstore products and prescription drugs. Customer orders were electronically sent to distribution centers run by Walsh Distribution and RxAmerica, both located in Texas. Drugstore.com had entered into outsourcing agreements/partnerships for fulfilling the orders with these two firms. For six months ending July 4, 1999, drugstore.com sold products to approximately 168,000 customers, and had net sales of $4.2 million with an operating loss of $30 million. In June of 1999, drugstore.com had 980,000 unique visits to its Web site compared to 560,000 unique visits of its competitor PlanetRx.

Keywords: Business Growth and Maturation; Internet; Problems and Challenges; Business Startups; Retail Industry;

Citation:

Nolan, Richard L. "drugstore.com." Harvard Business School Case 300-036, September 1999. (Revised April 2000.)