Is An E-Commerce Shakeout Imminent?

Retail analyst Lehman Brothers Holdings is predicting that holiday season failures will cause online merchants to fold or go up for sale at a rapid rate in the new year.

The fact of the matter is that, despite a tripling of e-commerce spending this year, many online merchants will find themselves falling far short of the shopping season they needed to keep their virtual storefronts open.

Consequently, those businesses should expect a cool reception when they approach venture capitalists and stockholders to finance them through 2000.

Shakeout Is Coming

While it has certainly been easy to get caught up in the frenzy of optimism surrounding this year’s e-commerce holiday season, it is about time for e-tailers to face some rather unpleasant facts.

Research data released last week by Jupiter Communications shows that online shoppers are actually spending only 10 percent of their holiday budgets online.

Apparently, fears that online merchants will run out of the best products — or deliver the items too late for the holiday — are putting a damper on point-and-click purchasing.

In fact, Jupiter discovered in November that 51 percent of the more than 1,300 U.S. shoppers surveyed planned to buy very little online.

“We expect that consumers are going to spend around $6 billion (US$) this holiday season, representing significant growth over previous years, but we need to put this in perspective,” said Fiona Swerdlow, a senior analyst with Jupiter. “The amount is still only a small percentage of what they expected to spend over the holiday season. Consumers are risk-adverse to gambling with the success of their holiday season.”

Established Online Merchants Could Be Hurt

Jupiter’s report also finds that established e-tailers could end up losing the holiday battle.

“Their greatest challenge is living up to the expectations that consumers have toward their brands,” explained Den Cassar, a Jupiter analyst.

The report concludes that online merchants that continue to base their Web sites on price-driven discounts, deals and free offers could find themselves in big trouble.

Instead, according to Jupiter, e-tailers must focus on guarantees, dependability and security.

E-Success Not A Given

Ultimately, while dot-com companies continue to launch new offerings daily, it seems that many consumers are leery at best.

Frankly, I don’t blame them. The dot-com hype that I have been exposed to during this holiday season has caused me to hunker down and purchase from e-tailers that offer name brands, reliable service and guaranteed delivery.

It seems like a simple success formula, but it is one that many e-tailers will not learn until they are gobbled up next year.

What do you think? Let’s talk about it.