January 19, 2001, 12:00 AM

Report: Welcome to the Shakeout

Don Davis

Editor in Chief

A new report from Forrester Research, Cambridge, Mass., forecasts a dire year ahead for Internet retailers, with many shutting down. Based on interviews with 50 e-retailers, the report says executives are more concerned with growth and differentiating themselves in crowded markets than with turning a profit. As a result, Forrester analysts predict a massive shakeout occuring in three waves: The first will crest by this fall, as weaker sites selling commodity goods fail to achieve growth of 50% or more. The second will occur after the holidays, as second-tier sites in growing categories like electronics and toys collapse due to razor-thin margins, while the final wave will wash out the weakest high-margin e-retailers in 2002.

     Retailers should not look to business-to-business expansion for a life raft, the Forrester report says. It bruskly admonishes Lands' End, Beautyjungle and VarsityBooks to "stop aping their more highly valued B2B peers by touting sales to corporate clients as proof of a business model makeover." There's more to it than that, the report adds: "Servicing companies will consume more time, money and energy than these firms anticipate."

     The survivors, according to Forrester, will have three things going for them: profits drawn from a large base of customers and transactions, the ability to generate loyal customers and keep a price premium over burgeoning comparison shopping sites, and quick maneuvering in the face of ongoing industry changes.


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