Drugstore.com has available for order more than 17,000 SKUs, excluding pharmacy items, which the company believes to be the largest product selection on the Internet, Drugstore.com says in its preliminary prospectus for an initial public offering filed with the Securities & Exchange Commission May 19.

Explaining the reasoning behind the large selection, Drugstore.com says "consumers value the opportunity to select items from a broad range of products that best fit their needs. However, consumers must often choose from a narrow product selection at traditional store-based retailers. Stores may not carry a full range of products, especially prestige, specialty or regional products, or carry a full assortment of sizes."

Overall, the company notes, "product selection in traditional store-based retailers cannot be tailored to individual needs because it is driven by aggregate demand." On the Web site, however, "a customer can easily search for all aspirin products or for Tylenol for Children" and can do so "without consulting store personnel or searching traditional store shelves."

Along with the large product selection, Drugstore.com offers interactive advisors for cough/cold products, vitamins and supplements and skin care. The company also offers buying guides on condoms, birth control pills, cough and cold medicines, toothpaste, shampoo and sunscreens.

Additionally, consumers can choose the Ask Your Pharmacist feature for questions about OTC and wellness products as well as Rx drugs. The feature allows consumers to ask questions about medications, dosage, delivery systems, common side effects and other information. Initial responses are provided within one business day.

Drugstore.com also offers an Ask Your Beauty Expert, who can be consulted on beauty needs.

Drugstore.com purchases 82% of its non-pharmaceutical products from Walsh Distribution. The Web company carries minimal inventory and says its relies "to a large extent on rapid fulfillment" from its vendors. Non-pharmacy orders received by a certain time are shipped the same day.

The company purchases all its pharmaceutical products from RxAmerica, the pharmacy benefit management and mail-order pharmacy joint venture between American Stores and Longs Drug Stores. American Stores was recently acquired by Albertson's. McKesson is RxAmerica's sole-source wholesaler.

Drugstore.com notes American Stores and Longs are both "potential competitors" and "our agreement with RxAmerica only has a one-year term (ending February 2000)," although it may be renewed.

Drugstore.com says it is considering establishing its own distribution centers to fill orders. "We are in the process of evaluating our long-term distribution strategy," the prospectus says.

"At some point, it is possible that we may need to establish our own distribution centers either to achieve greater control over the distribution process or to ensure adequate supplies of products to our customers."

"As part of our long-term distribution strategy, we may need to develop direct manufacturer relationships to ensure the availability of adequate volumes of products ordered by our customers," Drugstore.com says.

In CVS' recent announcement it will acquire the Internet pharmacy Soma.com, the chain drug store mentioned Soma's fully automated fulfillment center as one of the reasons it chose to partner with the online pharmacy ("The Tan Sheet" May 24, p. 9).

The CVS deal values Soma at less than half the amount Drugstore.com expects to raise through the IPO. CVS will pay $30 mil. in stock for Soma.; Drugstore.com's prospectus estimates the total value of the offering at $67.5 mil., although the company has not disclosed the number or price of the shares to be offered.

The prospectus gives an indication of how much revenue the new online pharmacy industry is bringing in. From Feb. 24, when Drugstore.com was launched, to the end of the quarter on April 4, Drugstore.com had $652,000 in sales. Because of "promotional sales discounts" associated with the launch of the site, the company had negative gross margins for a loss of $20,000 on sales. The company's operating loss for the quarter was $10.2 mil.

Drugstore.com Offers Over 17,000 Non-Pharmacy SKUs - IPO Prospectus

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