Internet retailers in trouble, says study

Posted: Thursday, April 13, 2000

NEW YORK -- Most retailers that operate entirely on the Internet will be out of business by next year, a respected consulting firm is warning.

In a report critical of the battered online shopping industry, Forrester Research Inc. said intense competition and the continuing selloff of dot-com stocks will result in a rapid rise in buyouts and bankruptcies of online retailers in the coming months.

Lawyers and consultants are already being swamped with calls for help from online companies in distress.

''There are just too many companies out there that don't have what it takes to last, and they won't last,'' said Seema Williams, an analyst at Forrester, based in Cambridge, Mass.

When Internet shopping first began gaining momentum a few years ago, many believed cyberspace would be big enough for anyone, from giants like Wal-Mart to the entrepreneur selling jelly out of his kitchen.

But while the online world remains vast in size, the marketplace has become crowded with sites selling similar products and content.

It is quickly becoming clear that the largest and best-known sites are gobbling up customers and sales, and the smaller players have little chance to get noticed. Traditional chains, such as Wal-Mart and Sears, are increasing the pressure by stepping up their presense with recognizable brands online.

''There are 30,000 e-tailers out there, and probably 25,000 will have to go away,'' said Mark Doll, a consultant for startup companies at Ernst & Young. ''But that will end up helping the biggest and best players who can ride the tide and then will fare better because they'll have less competition in their markets.''

The shakeout among the online retailers is just beginning and could become a bloodbath over the next year.

In its report released late Tuesday and based on surveys of 50 leading online retailers, Forrester said most companies won't be able to cope in the coming months as competition intensifies and money evaporates just as merchants need to ramp up marketing for the Christmas season.

Investors have tightened their purse strings, the flood of money from venture capitalists and initial public offerings of stock has dried up, and prices for dot-com stocks have been sinking.

''They don't have the funds available to them 12 to 18 months ago, and now they are trying to decide what to do to stay alive,'' said Ming Tsai, senior vice president at Mainspring Inc., an Internet consulting firm in Cambridge.

''Some will be forced to go out of business completely. Others will merge or be bought up by someone who sees something worthwhile in their assets like the technology that runs its site.''

Already, some cybershops have bottomed out. A few merchants, including cooking site Cook Express, filed for bankruptcy, and dozens of others, such as CDNow and Peapod, are quickly running out of money. Cybershop and Beyond.com got out of retailing entirely and now cater to businesses.

Gloss.com has been fighting for attention in the crowded online beauty space. On Wednesday, it was bought by Estee Lauder Cos. as part of the cosmetics giant's efforts to step up its online presence.

The law firm of Luce, Forward, Hamilton & Scripps said it gets 10 to 15 calls a week, up from one or two just three months ago, from troubled Web retailers as well as vendors, venture capital firms and lenders who want to be represented if these businesses crumble.

Keen Consultants, which helps companies restructure and sell assets, recently helped with the sale of Beautyscene.com to an undisclosed buyer, and is now getting calls from other ailing cybershops.

Forrester may benefit, too. It helped many cybershops plan their online businesses. Now they need help with repairs.

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On the Net:

http://www.forrester.com/ER/Press/Release/0,1769,270,FF.html



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