Forrester: Most Dot-Coms Will Sink by 2001

Increasing competition, falling stock prices and weak financial performance will combine to kill off most of the companies now doing retail business on the Internet by the end of next year, according to a report from Forrester Research released on Tuesday.

“Online retail’s honeymoon is over,” said Joe Sawyer, who authored the report, “The Demise Of Dot-Com Retailers,” after interviewing executives at 50 Internet firms about their strategic goals for this year. “The tide is turning against dot-coms.”

E-Commerce Trends ‘Unsustainable’

Just 18 percent of the retailers interviewed cited profitability as a top goal for 2000, Sawyer said, while 86 percent said they wanted to grow their business. Nearly half said improving the design of their Web site was a top priority.

“Online retailers are pursuing growth and differentiation at any cost,” Sawyer said. “There are a lot of unsustainable business practices going on.”

Virtual Lemming Run

The report names CDNow — which has been in the headlines recently over cash problems — along with Outpost.com and Buy.com as companies that will have to achieve astronomical sales growth to stay afloat in the face of mounting losses.

At the same time, a host of companies that do not dominate their markets are also likely to go under before Christmas 2000, according to the report. Forrester cites PetPlace.com, ToyTime and ROXY.com as prime candidates.

Recipe for Success

The report says at least one e-commerce heavyweight, Amazon.com, has ensured its future by spreading its reach into a wide-range of consumer markets.

“Among all the online retail pioneers, only Amazon can claim a balanced set of assets that guarantees its leadership,” Sawyer said.

Retailers that leverage a strong catalog or brick-and-mortar customer base, such as Wal-Mart, Kmart, and Toys “R” Us, are also likely to emerge after the shakeout.

Forrester argues that in order to avoid potentially fatal bad customer experiences, online retailers must have a customer base of at least five million users and strong in-house control over warehouses and order fulfillment.

“You can’t grow a business by relying on outsiders — especially manufacturers — to deliver your products,” Sawyer said.

Despite the apparently dire nature of his predictions, Sawyer said the shakeout is a healthy phase in the development of e-commerce. “This isn’t the grim reaper wiping the online retailer off the face of the earth. This is just a rationalization.”

E-Commerce Still Strong

In fact, Forrester remains bullish on e-commerce as a whole. The company says that more than 11 million American households will make their first online purchases this year, with average online spending increasing 17 percent to $1,366 (US$).