E-Tail Derailed, Says Journal

April 7, 2000

E-Tail Derailed, Says Journal

Losses are soaring in the e-tailing sector, with profits still a pipe dream, according to a front-page story in The Wall Street Journal earlier this week.

Some e-tailers are merging while others are slashing workforces, the article says. Venture capital is disappearing and stocks are skidding. EToys, a major online retailer, dropped from $86 per share in October 1999 to $7.56 this week; book and CD e-tailer Amazon.com plummeted from a high of $112 to $64 this week. The article also cited Ashford.com, the luxury goods and jewelry e-tailer: its stock price is off by 80% since its peak in November 1999. While the company earlier projected it could contain losses in 2000 at $37 million, Ashford recently adjusted its anticipated losses to $64 million.

While well-capitalized and established e-tailers such as Amazon will likely survive, a true shake-out is occuring, says the Journal. The reasons are clear:

  • Intense price competition forces e-tailers to keep prices too low, while they're also compelled to offer other goodies, such as free shipping, to compete. Hope is fading that even category-killer brands will be able to raise prices eventually to make a profit. Online shoppers have been trained to wait for deals and discounts.
  • Lavish ad spending, especially in traditional media, is crippling some e-tailers. Yet they're dependent on the ads to quickly establish brands in a crowded marketplace and drive traffic to their sites. The article cited jewelry e-tailer Miadora for its need to print a direct mail paper catalog to help drive sales.
  • Cost advantages are disappearing, as e-tailers acknowledge they need more warehouses and sales clerks than anticipated to fill demand and please customers.

- by Peggy Jo Donahue