The entire e-tail staff of Reel.com will be laid off as Hollywood Entertainment confirmed Monday that it will shut down e-commerce operations at the site.
In a press release on its Web site, Hollywood said that it has struck a first-of-its-kind deal with Aliso Viejo-based Buy.com to pick up customer orders for video sales.
Hollywood said it would be laying off “substantially all of the Reel.com employees” with the move. It is unclear how many employees would be affected. No one at Hollywood or Reel.com returned calls for comment.
Hollywood, the nation’s second-largest video retailer, acquired Reel.com two years ago. The company said it expects to take a $25 million after-tax loss, which will include write-downs of goodwill associated with Reel.com and of assets to their net realizable value, as well as employees’ severance and benefits costs.
Hollywood stock closed Monday at $7.25 per share, down 9¢.
Hollywood will work with Buy.com to fulfill future customer orders placed at Reel.com.
The agreement calls for Buy.com to pay Reel.com a set fee each time a Reel.com customer makes a purchase with Buy.com for the first time, according to Greg Hawkins, prexy and CEO of Buy.com.
“Obviously, our objective will be to get as many of those customers to become loyal Buy.com customers as possible,” Hawkins said. “This will allow us to acquire customers at a lower cost than our existing marketing spend.”
The details of how visitors to Reel will be bounced to Buy.com for possible transactions are still being hammered out.
“The goal is to have the experience be as familiar to the customer as possible, so that when customers actually got to the transaction portion (on Reel), you would be on the Buy.com,” Hawkins said.
Drain on exchequer
Hollywood was forced to burn through some $3 million (down from a high of $5 million) a month to keep the e-tailer afloat. Though Hollywood’s bricks-and-mortar operation turned a $31.3 million profit, Reel last year lost $82.6 million, dragging the parent’s bottom line $51.3 million into the red.
And in this year’s first quarter ended March 31, Hollywood Entertainment lost $12.1 million on $335.3 million in revenues, due largely to Reel’s $23.6 million loss for the period.
The deal is a boon for Buy.com, which, along with the rest of the e-commerce sector, is facing increasing pressure to distinguish its site from those of its competitors.
Buy.com reported a 92% jump in revenues to $207.6 million in the second quarter ending March 31 over the same period last year, but the company still reported a sizable loss: $32.8 million.