Are E-tailers Ignoring The Bottom Line?

In the mad scramble to be the flashiest, biggest, and most dynamic Web site in cyberspace, many retailers are losing sight of the most important prize – the bottom line.

On the surface, things are looking up. Amazon.com, for example, reported that last Friday’s sales were up 150 percent over last year.

Additionally, according to Nielsen/Net Ratings, the top 25 electronic commerce sites saw a 29 percent increase in unique visitors between the Wednesday before Thanksgiving and the Sunday after, and online malls reported a 76 percent jump in traffic over those same days.

With numbers like those, how can it be possible that disaster lurks just beyond the next turn of a calendar page? Quite simply, because the one thing that very few e-tailers seem to be able to show for their success is a healthy profit.

Shopping Frenzy Downside

Many industry analysts are taking a wait-and-see approach, wondering if the holiday shopping frenzy will be the precursor to a great letdown after the first of the year.

According to Internet research firm Jupiter Communications, “Much more important than actual sales generated this holiday season is the impact that those sales will have on online sales in 2000 and beyond.”

Even if consumer spending remains strong, internal spending by the e-tailers themselves appears to be keeping pace.

Amazon.com, for one, spends approximately $20 (US$) to attract every new customer, and it has not gone unnoticed by investors that the company lost $396.7 million over the first nine months of this year.

Losses such as these are being liberally tolerated among investors, and attributed to a new medium getting on its feet and the need to allow businesses to establish themselves. Still, each dollar that is lost is one more reason to cause investors to feel nervous.

Cash Flow Continues

So far, Wall Street still loves cyberspace. Amazon.com shares bolted up almost 35 percent from November 1st to the Friday after Thanksgiving. This week, the price is down slightly, from $93.12 Friday to $85.06 Tuesday.

Many investors seem willing to back online companies despite the uncertainties, or perhaps because of it. E-businesses are the biggest leap that some investors have had the opportunity to make in many years, and without a safety net.

To date, the willingness among investors to keep the cash flow going has much to do with the enormous sales potential of the Internet, not to mention the novelty of the new online culture. Still, as this year winds down, there are indications that Wall Street belts are tightening, at least a notch or two.

The lure of a possible $9 billion in sales over the holidays was widely seductive, but once the take is counted and sorted out, it is anyone’s guess how online companies plan to make money in the new year.