Forget Jacuzzis folks -
E-Tailers Seen Going Out of Business in Droves
April 12, 2000 3:53 pm EST
NEW YORK (Reuters) - The combination of weak financial structure, mounting competitive pressures and investor flight will drive most Web retailers out of business by 2001, a leading Internet research firm said in a report.
Even so, cocksure Web retailers are brushing off predictions of their impending doom, insisting that it is only a matter of time before the tide that has already washed out a handful of them starts to turn in their favor again, said the report issued by Forrester Research Inc.
(FORR.O).
After interviewing 50 electronic-commerce players, Internet analyst Joe Sawyer and his colleagues at the Cambridge, Mass.-based Forrester, concluded a drastic shakeout is coming soon.
The latest evidence that dot-com retailers are struggling to stay afloat came earlier this month when auditors for Web grocer Peapod Inc. (PPOD.O), online health firm drkoop.com Inc. (KOOP.O) and Web music retailer CDNow Inc. (CDNW.O) questioned each company's ability to continue as a going concern.
"Online retail's honeymoon is over," Sawyer said. "In the past three months, familiar names like Beyond.com (Corp.(BYND.O)) and CyberShop closed their doors to consumers, Amazon.com (Inc. (AMZN.O)) and Boo.com laid off employees and Wall Street hammered the stock prices of dot-com leaders."
"This isn't temporary turbulence," he said.
He said Internet retailers are being squeezed as their profit margins on sales fall and their expenses rise. Competition will also intensify, as traditional retailers such as Wal-Mart Stores Inc. (WMT.N) and Toys R Us Inc. (TOY.N) get their second wind and pursue major Internet initiatives, while financial support will flounder as investors and venture capitalists lose interest, he predicted.
"Online merchants that smugly insist their brands and site design translate into financial assets will only fan the flames of investor scorn when profits don't materialize," he said.
In addition, Forrester predicted consolidation among product
categories in three stages: the "critical" stage, which includes books, music and software; the "intensive care" stage, which includes pets, toys and consumer electronics; and the "stable" stage, which harbors apparel furniture and shoes.
"Retail has endured consolidation before," Sawyer said. "These battles produced no more than three dominant victors -- enough players to keep their industries competitive yet still profitable."
Still, few of the retailers interviewed said they were concerned with profitability, as less than 40 percent said they expected to be out of the red before 2002. Many of them are convinced that to focus on profitability would cloud their ability to establish leadership in the market.
So where exactly do these companies expect to get the funds to keep their businesses afloat? Sawyer said money from independent and institutional investors is thinning out, as are funds from venture capitalists.
"Dot-com entrepreneurs tapped eager investors for millions, planted flags in new categories from pets to perfume, and blew their budgets on marketing chatter," Sawyer said. "Wall Street loved it...But the tide is turning against dot-coms."
And more than one-third of the companies interviewed did not know where they were going to get additional funding. |
