>Any idea why DSCM is up about 20% today?
No Tom, but I've been buying it in the high teen's.
This is the last I saw, and this is not good.
Btw
Dscm will not run out of cash. Their pockets are deep. Trust me.
By Andrea Orr
PALO ALTO, Calif., March 2 (Reuters) - It was barely a year ago that investors could not get enough of Internet retail stocks, and new online stores that mimicked Amazon.com <AMZN.O> were appearing on a daily basis.
While few people expected that level of euphoria to last, the industry is, nonetheless, alarmed by how swiftly and severely fortunes have reversed.
"E-tailing" has become something of a dirty word among even the most enthusiastic Internet investors, with many venture capitalists say they will back anything but an Internet store.
Most of the e-tailing stocks that have recently gone public -- like Pets.com Inc. <IPET.O>, Buy.com Inc. <BUYX.O> and VarsityBooks Inc. <VSTY.O> -- are trading near or below their IPO prices. Shares of the online pet supply store Pets.com, for instance, hover around $7 a share -- more than 30 percent below the $11 a share where it debuted less than a month ago.
Internet shoppers spent $5.3 billion on retail goods such as books, CDs and clothing in the fourth quarter of 1999, just a fraction of total U.S. retail sales, the Commerce Department said on Thursday. In its first-ever estimate of "e-commerce," the government said online retail sales represented only 0.6 percent of the $821.2 billion in total U.S. retail sales for the period of October through December.
NO PROFITS
Even more stunning is that some of the e-tailing pioneers -- including Drugstore.com Inc. <DSCM.O>, eToys Inc. <ETYS.O> and the software store Beyond.com Corp.<BYND.O> -- are trading at a fraction of their highs for the year. Some are running out of cash and retooling to focus less on retailing, which increasingly is seen as a questionable business.
For all the double-digit, single-day gains that initially made these Internet retailing stocks famous, it seems that their subsequent drops to the downside were almost as large.
Abhishek Gami, an analyst with William Blair in Chicago, says the 48 e-commerce stocks his firm tracks have risen an average of just 7.8 percent since June of 1996.
"They've way underperformed the overall market," he says.
Bob Walberg, with Briefing.com in Chicago, says "investors are finally beginning to question these business models."
Analysts are hard-pressed to find a single pure-play online retailer has turned a profit to date.
While the famously unprofitable Amazon.com continues to win some support for its strategy of delaying profits in order to build its operation, investors are not so willing to make this leap of faith for lesser online retailers that do not have nearly the customer base or brand recognition of Amazon.
The question now being posed to most e-tailers is not when, but if, they will ever make money.
WHAT WENT WRONG?
How did a business that seemed to define the booming tech-driven economy, find itself in so much trouble?
Many critics now say there was a gross miscalculation built into the assumption that retailers could slash overhead costs merely by doing away with the lumbering "brick-and-mortar" stores and setting up virtual shops online.
"There are a lot of parts you need to build before you can make money online," Gami notes. "Amazon is spending billions of dollars to build out its distribution facilities.
"I still think (Internet retailing) will be huge ... but the key point is that you really don't make a lot more online than offline. E-tailers don't have stores, but they still have to build warehouses and infrastructure, and they still have to hire people to deal with returns."
Not all e-tailers think their expenses will rise as high as they are for their offline counterparts, but most now admit there are costs that were overlooked initially. In an industry packed with like-sounding businesses, hefty spending on advertising has been imperative to building a strong brand.
Even Amazon found it needed to increase advertising spending beyond what was planned for the last holiday season to spread the word that it was no longer just a book retailer. And many smaller online merchants spent upwards of $3 million for a 30-second slot during the Super Bowl in January.
If these companies thought they could build a brand with a few well-placed ads, it now appears aggressive marketing will have to be a big part of their business plans going forward. Aside from Amazon, there are not many strong e-tail brands, industry analysts agree -- except for the online auction site eBay Inc. <EBAY.O> and Priceline.com Inc.<PCLN.O>, which lets consumers set their prices for a range of goods from airline tickets to gasoline.
MASS CONFUSION
Most consumers still do not know the difference between a Cyberian Outpost and a CyberStores.com, or Pets.com and Petstore.com. So now, on top of exorbitant ad spending, many of these stores are trying to attract customers by slashing margins to razor thin or nonexistent levels.
In the midst of so much confusion, one thing that appears to be certain, is the continued growth in overall e-tailing sales. Forrester Research projects online retail sales will grow to $184.5 billion in 2004 from $20.3 billion in 1999.
Yet some retailers appear less willing to bet on even a modest slice of that pie. Online drug store PlanetRx.com Inc <PLRX.O>, for example, recently said it expected to derive 15 percent of its future annual revenues from corporate sponsorships, often with drug companies that will sponsor disease-specific areas on the site.
Newly public VarsityBooks, which last year was touting the profit potential of selling text books to college students, now says it is supplementing that business with other, non-retail, revenue streams. The plan is to use its on-campus presence to do direct marketing for other businesses.
"In contrast to e-tailing," direct marketing "has a significantly higher profit margin, which is an important element of our strategy going forward," says VarsityBooks Vice President Jonathan Kaplan.
17:46 03-02-00 |
