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Published in Print: November 1, 2000, as Dot-Com Hopes To Write New Chapter in Book Sales

Dot-Com Hopes To Write New Chapter in Book Sales

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Administrators of Bishop Ireton High School in Alexandria, Va., used to dread the annual back-to-school ritual of ordering textbooks.

Because it's a private school, students and parents are responsible for buying the books. But the school still had to get in touch with publishers and distributors, order the books, and unpack them for the purchasing rush. Then they had to pack up the unneeded books and ship them back, or else maintain a costly inventory.

"It was an inexact science, trying to figure out how many chemistry books we needed and so forth," said Bill Simmons, the director of operations and finance at the 800-student Roman Catholic school in the Washington suburbs. "It was also a major burden. We were laying out a quarter of a million dollars on book inventory."

So the school turned its textbook-sales and -distribution operation over to Varsity Group Inc., a Washington- based company best known for its VarsityBooks.com Web site, which offers college students a discount alternative to the campus bookstore.

The school directed families to a special Bishop Ireton page on VarsityBooks.com, where required reading lists for all classes were posted. Students and their parents simply clicked on the needed books, charged them to a credit card, and waited a few days for delivery by United Parcel Service.

Bishop Ireton no longer has to handle ordering and selling books, and it will receive 5 percent of sales under its agreement making Varsity Group the exclusive provider.

Varsity Group Inc.

Headquarters: Washington
2000 Revenues: 26.1 million (for nine months through Sept. 30)
52-Week Stock Range: 0.486 to $13.125
Oct. 25 Closing Price: $0.625
Principal Businesses:VarsityBooks.com, a Web site for college texbook sales; College Impact, a campus marketing arm; and a partnership program with private secondary schools to sell required textbooks online.

"I thought: Somebody else is going to worry about inventory control, and give me 5 percent of the net revenue?" Mr. Simmons said. "What's not to like about it?"

A Ripe Market

Bishop Ireton is one of 80 private secondary schools that have signed up for the Web company's partnership program, which is a variation of its original business model, launched in 1998, of offering college students discounts on textbooks.

Varsity Group, originally called www.VarsityBooks.com, is still the No. 1 online retailer of college textbooks. But it now has competition from other sites on the World Wide Web, such as Bigwords.com and Textbooks.com, as well as college bookstores, which have fired up their own online efforts.

A much bigger problem for VarsityBooks.com was that profit margins on its college-textbook sales were razor thin. In February, the company had a disappointing initial public offering of stock amid concerns on Wall Street about its ability to become profitable. After an IPO of $10 a share, the company's stock price has slid to below $1 a share.

Last spring, VarsityBooks.com changed its corporate name and announced that it planned to rely less on college-textbook sales and more on efforts to link its business partners with college students. It has a college-marketing subsidiary called College Impact that uses a network of campus representatives to help brands such as Ben & Jerry's ice cream and Palm handheld computers reach college students.

But the partnership program with private high schools also appears promising, company officials say.

"These institutions want to focus on educating students, not running bookstores," said Eric Kuhn, Varsity Group's 30-year-old president and chief executive officer. "It makes an enormous amount of sense for our business, and there are thousands of schools that are ripe for outsourcing their textbook operations."

Most public school systems buy textbooks in bulk and lend them to students. But private schools often require their students to buy their own texts. By taking over a school's book operation, Varsity gets a guaranteed customer base. The model will also work with small colleges and distance- learning programs, company executives say.

The company's new business approaches may be helping to put it on a path to profitability. In the three months ending Sept. 30, Varsity Group had revenues of $11.7 million, compared with $7.2 million during the same period last year. It beat analysts' estimates with a net loss of 38 cents a share, compared with a loss of $1.54 a share for the third quarter of 1999.

"I'm very optimistic," Mr. Kuhn said. "We've dramatically improved the economics of our business."

But Wall Street has adopted a wait-and-see attitude.

Lauren Cook Levitan, an analyst who follows the company for the investment bank Robertson Stephens Inc., said in a report in October that investors "should remain cautious until Varsity can demonstrate evidence that its recent shift in business strategy ... is sustainable and can ultimately reach profitability."

At Bishop Ireton, Mr. Simmons said most parents were pleased with using the VarsityBooks.com Web site this fall, though they discovered a few glitches.

"There were eight to 10 titles they had a hard time coming up with," he said. Varsity could not supply a book titled German Is Fun, but Mr. Simmons also had a hard time finding a distributor that carried it.

For students receiving financial aid whose families may lack Internet access (or credit), schools can set up special accounts that allow them to order books through a school computer.

Some parents came to Bishop Ireton to order books because they had a hard time logging on at home, Mr. Simmons said. But his own son is a junior at the school, and Mr. Simmons said his family had no problems with the service.

"I ordered the books on a Monday, and got them on a Wednesday," he said.


Funding for the Business page is provided in part by the Ford Foundation, which helps underwrite coverage of the changing definition of public schools.

Vol. 20, Issue 9, Page 8

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