April 17, 2000
E-commerce Balloon About to Burst, Says Research Firm
Jewelers who believe e-commerce can never duplicate the feel of slipping on an expensive necklace may be vindicated
Intense competition combined with an ongoing sell-off in dot-com stocks will result in a rapid rise in buyouts and bankruptcies, says Forrester Research, Cambridge, MA. Forrester's report "The Demise of Dot Com Retailers," released last week, predicted most retailers operating entirely on the Internet will be out of business by next year.
"It's time to face facts: online retail's honeymoon is over," Joe Sawyer, a senior analyst at based Forrester tells the Associated Press. "Pure plays with few hard assets beyond solid, full-function sites will fall by the wayside, unable to keep up with their multichannel peers."
Firms likely to vanish, the report suggests, include those whose executives named "growth" as their top priority and didn't "lose sleep" over profitability. Of the 50 executives interviewed for the report, 86% fell into this group.
When Internet shopping first began to gain momentum a few years ago, many believed cyberspace would be big enough for anyone to do business, whether you were Wal-Mart or an entrepreneur selling jelly from your kitchen.
While the online world remains vast in size, the report concludes the marketplace has gotten too crowded. There are too many sites selling everything from pet supplies to toys to books to software with similar products and content. In addition, the largest and best-known sites including Amazon.com are outpacing the pack in terms of growth in customers and sales, and the smaller players have little chance of getting noticed.
There are also new threats from traditional chains, such as Wal-Mart and Sears, which are stepping up their online presence by touting recognizable brand names.
"The ability to synchronize online and offline sales is pretty powerful," says Forrester analyst Seema Williams. Brick-and-mortar retailers have an overwhelming advantage, Williams says, when it comes to brand-name power and product-return convenience.
The report paints a picture of business-to-consumer companies in deep denial. Although the companies acknowledge some business-to-consumer firms are in trouble and the venture capital community is growing weary of the sector as a whole, the online retailers' overwhelming refrain was "It won't affect us."
In the report's interviews, published anonymously, one dot-com representative's quote stands out: "We could be profitable this year, but it would mean slowing growth. We're not ready to stop spending money on things like TV commercials and portal deals. So instead we're shooting for profits in 2002."
Forrester says most companies won't be able to cope in the coming months as competition intensifies and money evaporates at the same time merchants need to ramp up marketing for the Christmas season. Already, some cyber shops have bottomed out. A few merchants, including cooking site Cook Express, filed for bankruptcy, while dozens of others, such as CDNow and Peapod, are quickly running out of money. Some, including Cybershop and Beyond.com, got out of retailing entirely and now cater to businesses.
- by Mark E. Dixon