NEW YORK — The big dot-com shakeout is approaching.
“Weak financials, increasing competitive pressures and investor flight will drive most dot-com retailers out of business by 2001,” according to a bleak report issued this week by Forrester Research Inc., a leading Internet research firm.
Count on those Internet retailers that don’t redeploy “extravagant branding investments” to fall by the wayside, Forrester said in the report.
“It’s time to face facts: Online retail’s honeymoon is over,” said Joe Sawyer, senior analyst at Forrester, in a statement. “Financial turbulence and new competition will dry up venture funding and accelerate the dot-com shakeout as the year progresses.”
Forrester also predicts:
Less than 40 percent of dot-com retailers expect to be in the black before 2002; most won’t commit to any target date at all.
Funding requirements rise from $41 million to $43 million to build businesses, on average.
Massive consolidation will be in three waves: First, firms selling commodity products — successful since the Net’s early days — such as books, software and flowers, will consolidate by the fall of 2000 amid slowing annual growth rates.
Second, merchants selling undifferentiated products at razor-thin margins, including pet supplies, toys, and consumer electronics, will collapse before marketing expenditures ramp up for the next holiday season.
Third, online merchants selling heavily branded, high-style products like apparel and furniture will remain stable until 2002. These categories online will enjoy “almost two years of breathing room to build their brands and seek scale.”
To survive, online retailers must throw more assets into fostering higher volumes and lower costs per transaction, and in-house fulfillment capabilities. That means building up the organization.
According to Forrester, online retailers must strike back at brand confusion and product duplication by distinguishing themselves through customer service, manufacturer exclusives and a range of delivery options to build loyal followings, such as next-day or next-hour deliveries in some cases, or delivering prescriptions with groceries, for example.
“Among all the online-retail pioneers, only Amazon can claim a balanced set of assets that guarantees its leadership,” added Sawyer. “Pure plays with few hard assets beyond solid, full-function sites will fall by the wayside, unable to keep up with their multichannel peers.”
For the report, called “The Demise Of Dot Com Retailers,” Forrester surveyed 50 online retailers, both pure plays and clicks-and-mortar, in different product categories. Eighty-six percent of the respondents identified growth as the top priority in 2000, followed by improved site design, increased brand recognition and raised customer satisfaction.