Forrester Research Report Sees 'Demise of Dot-Com Retailers'

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More knives are out for Internet-only retailers as online economy cheerleader Forrester Research joins the chorus of voices predicting their imminent end.

In a report this week titled "The Demise of Dot-Com Retailers," Forrester said Internet-only retailers are in for a shakeout that will last through 2002. Only the fittest will survive as old-economy bricks-and-mortar retailers emerge as serious online players.

"It is, in fact, good news for traditional retailers," said Joe Sawyer, senior analyst at Cambridge, MA-based Forrester. "It kind of fulfills the promise of this as the year of revenge, and the efforts to redouble their Internet strategies are going to pay off."

According to the report that surveyed a representative sample of 50 leading online retailers, consolidation will take shape in three phases.

First, annual growth will slacken this summer and fall, afflicting Internet-only players in long-established commodity categories, including products such as books, software, flowers, videos and music.

The next wave will take place immediately before or after the holidays. Online merchants in pet supplies, toys, sporting goods and consumer electronics are projected to collapse. Too many competitors, highly duplicated inventory and not enough brand differentiation are their Achilles' heel.

Forrester expects the final round of consolidation by 2002, giving more breathing space to dot-coms in highly branded, lifestyle categories like apparel, household goods, accessories and furniture.

Elaine Rubin, chairwoman of, an industry association for online retailers, wasn't as quick to pronounce Internet-only retailers dead, regardless of the recent stock gyrations on the Nasdaq index. But she acknowledges that multichannel integration for 24-hour, all-round consumer access is essential for retail success.

Traditional retailers need to partner, align, build and acquire capabilities in the offline arena to run stores or remote businesses and deal with returns and high service levels, she said from ekrubin Inc.'s consultancy headquarters in Woodbury, NY.

"There is no such thing as a successful retailer who doesn't have a multichannel approach," Rubin said. "In some way, in some form, not all online retailers are going to build stores, but all will have alliances, media deals and partnerships that bring them offline exposure and credibility."

Still, the implications for single-channel Internet retailers are alarming, more so since this latest dire prognosis comes from an Internet industry stalwart like Forrester.

"Online retail becomes a lot more like regular old retail," Sawyer said. "Retail itself is a competitive, difficult business. It requires constant innovation, and this is going to be a rationalization. This is a natural step in the evolution of the dot-coms to their traditional and multichannel peers."

Forrester predicts that no more than three players in each product category will dominate. This will mimic consolidation in the offline retail world, particularly with buying clubs in the 1980s and department stores in the '90s.

But while Internet-retailers will be winnowed as e-commerce quickly matures, online retail itself is booming.

Online retail spending by consumers in 1999, 2000 and 2001 are estimated at $20.3 billion, $38.8 billion and $64.2 billion, respectively, Forrester said.

"The key point underpinning this research is that online spending continues to grow unabated, and this is the biggest year we've grown in online shopping households -- about 11 million," Sawyer said. "We're not changing our revenue forecasts as a result. This is just a return to rational thinking among the people trying to sell goods online."
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