Which E-tailers Will Survive The Holiday Test?

Once the holiday sales boom subsides and online spending settles down, e-commerce is likely to shift into the mergers and acquisitions mode. However, predicting who will be left standing once the dust settles is almost impossible.

By many accounts, e-businesses that present a unique selling proposition to the online buyer may have a greater chance for longevity. If, for example, a rare book dealer finds and sells out-of-print titles or antique books, there may still be a place for that business. A small book dealer without such a distinction may simply fade away.

Others may choose to reposition themselves in the marketplace according to consumer demand. For example, an electronics firm that markets both to individual consumers and to businesses may find competition in the consumer marketplace smothering.

However, indications are that business-to-business enterprises have a brighter future, so the same firm may choose to restructure as an online wholesaler.

Let the Acquisitions Begin

Still, there are likely to be a number of businesses that are acquired by tougher competitors. According to Lehman Brothers Holdings, acquisitions are likely to be brisk following the holidays. Managing director Peter Wexler says that some businesses that may otherwise have been viable will fail solely on the basis of fulfillment and delivery challenges.

Referring to Webvan Group, an online grocer that plans to spend $1 billion (US$) to build warehouses nationwide, Wexler said, “I don’t see how they can invest all that money in all that infrastructure and be able to pay off the debt that you incur doing that.”

Financiers May Tighten Belts

Much will depend on financing. If the financiers decide to continue the enterprise, some unlikely Web sites may continue to operate. If, however, the sources of capital decide to cut their losses when they see poor performance among their charges, many sites will go dark when the calendar turns.

Meanwhile, many industry experts are expecting venture capitalists to be the deciding factor among countless e-businesses. Venture capitalists, once known to be prudent investors, have become gamblers of sorts in e-commerce.

Still, the returns will have to justify the output at some point, and with very few startups showing profits, venture capitalists are likely to begin the long process of weeding out the winners from the losers.

The Numbers Tell The Story

If there is anything predictable about e-tailing, it is simply that certain goods lend themselves to online sales and others do not. According to statistics released by Goldman Sachs and PC Data for the week of December 3 – 7, smart marketers of toys, music, computer software, books, videos and DVDs could live well into old age on the Internet.

As for the businesses that will have to work harder to stay alive on the Internet? Those that sell flowers, cards, home and garden supplies, sporting goods, and — in last place — automobiles.