Despite dotcom failures, e-tail's future is bright

There's a Web site with an obscene name that tracks failed Internet companies. It has been a busy place lately. E-companies have been dropping like insecticide-sprayed mosquitoes. This site lists in its archives 968 stories on e-company troubles.

Internet hype has morphed into an Internet shakeout.

Specialized "vulture" companies are feeding off bankrupt e-ventures, buying their assets for dimes on the dollar.

Venture capitalists have become less adventurous in doling out money to the industry.

An index of "e-tail" stocks kept by Redbook of Instinet Corp. in New York has plunged 72 percent over the past 52 weeks.

So is e-commerce dying? Far from it. Experts say sales growth has slowed some, but remains high (see story, page 13).

"People have not sworn off e-commerce because they have had a bad experience," says Geoffrey Ramsey, cofounder of EMarketer, a New York firm that tracks e-commerce.

His firm projects sales by e-tailers will reach $126 billion in 2004. It's about $37 billion this year. Sales next year will be up 30 to 40 percent, not the better-than-100-percent growth seen in the last two or three years, reckons Mr. Ramsey.

Forrester Research Inc. offers more optimistic projections. It estimates e-tail sales at $270 billion in 2005. Moreover, online access for product and other information will influence another $380 billion in sales, the Cambridge, Mass. firm predicts.

Its research also finds that 72 percent of the 50 million American households with current Web access look up products online before buying them in a shop or by phone.

By comparison with bricks-and-mortar retailers, the online growth numbers are glorious. Most store managers think they are doing well if annual sales grow by 4 to 5 percent.

But online retail sales this year will still be only about 5.3 percent of the $2.4 trillion in total retail sales. That's up from 3.5 percent last year.

E-commerce projections hang on assumptions. Ramsey, for instance, says there will be 6 million new Internet buyers this quarter alone. Next year 73.5 million Americans will buy goods online. By 2003 there will be 101.3 million buyers. Average spending online per customer last year was $215. In 2000 it will be $290, he says.

"E-commerce is with us to stay," says Cynthia Latta, an economist with Standard & Poor's DRI, a Lexington, Mass., economic consulting firm. "But it will take a while to find what sells well online and what type of company does well."

Thus today's shakeout among e-retailers.

Pointing to the failure of Streamline.com, an online grocer in Boston, she says: "People like to go to the grocery store, though they complain about it."

Richard Feinberg, a retailing professor at Purdue University in West Lafayette, Ind., notes that today consumers can buy goods in a store, by telephone, through a catalog, or on the Internet with a personal computer or a wireless device.

"The consumer is the winner," Mr. Feinberg says. "They can do business any way they want, any time of day or night. There will always be a spot for all these channels."

When catalogs arrived big on the retailing scene in the 1950s, some predicted the doom of retail stores. It didn't happen, though catalogs are an $80 billion business today.

Feinberg suspects that online sales nowadays are taking business away more from catalog companies than from retail stores.

Seeing the potential of the Internet, some major catalog firms have jumped into e-commerce themselves - Land's End and L.L. Bean, for example.

What is expected to be an even larger online market than e-retailing is the B2B - business-to-business - trade. Firms buy raw materials, parts, and services online, and sell their output to other companies via the Web.

This year, B2B trade amounts to about $400 billion, calculates Forrester Research. By 2004, it will be $2.7 trillion, or 17 percent of all business-to-business sales.

"The opportunity is huge," says Matthew Sanders, a Forrester analyst. "Industries will adapt rapidly." Much business will be conducted on "e-marketplaces" - sites that, as Mr. Sanders puts it, "provide centralized platforms for many buyers and suppliers."

The thousands of B2B sites of today will narrow to perhaps 181 in 13 key industries studied by Forrester, Mr. Sanders says. Business will be more efficient as a result of online commerce. But the net effect will not "completely overtake" face-to-face personal relationships. Sales people will still be needed to persuade and explain the value of their products.

(c) Copyright 2000. The Christian Science Publishing Society