Approximately one year after adopting a new business model that focuses on supplying new textbooks to small colleges and private secondary schools, Varsity Group Inc., parent company of Varsity Books, had its first profitable quarter in its three-year history, in the period ended September 30, 2001. In the third quarter, the e-retailer posted net income of $1 million on sales of $9.4 million; a year ago, the company had a net loss of $7 million on revenues of $11.7 million.
The majority of Varsity's sales, $8.7 million, came from the sale of new texts through the company's eduPartners program. Under the program, Varsity creates a customized Web site for individual schools carrying all the new books students will need in the upcoming semester. The school directs students to the site to order the books and then Varsity fills the order through its agreement with Baker & Taylor. Although in many cases Varsity serves as the official bookstore for a school, eduPartners is strictly a Web-based operation and the company does not run any physical stores. "Many smaller educational institutions find it a challenge to operate a bookstore. We relieve that burden," company chairman Eric Kuhn said, adding that some schools continue to run small stores that carry used books and memorabilia. Varsity has agreements with about 90 institutions, compared to six two years ago.
By targeting institutions rather than college students as customers, as it did originally, Varsity has significantly reduced its operating costs, particularly its marketing expenses. Total operating expenses were $8.5 million in the most recent quarter, compared to $18.9 million in last year's third period; marketing costs fell from $6.2 million to approximately $900,000.
As the company cut costs, it dramatically scaled back its operations and now has 15 full-time employees, compared to 97 when the company filed its IPO in late 1999. For the nine-month period, Varsity had revenues of $11.8 million, down from $26 million in the same period in 2000, but its net loss fell to $1.2 million from $32.9 million. "We made some difficult decisions a year ago, but we are excited about the last quarter and more importantly about where we're going," Kuhn told PW.
