February 9, 2001, 12:00 AM

Shakeout & Sensibility

By Kevin Lulmsdon

Executive Editor

My oh my. If you’re not already tossing and turning at night, ruminating over-and over-the items on your To Do list like so many lost sheep, along comes a report from Forrester Research calling your very survival into question. Ever since the holiday wrappings and Y2K noisemakers were swept away, signs of turbulence have been adding up for e-retailers. The list of today’s troubled Net companies reads like a section of yesterday’s honor roll: Value America, Beyond.com, Cybershop, Peapod, CDnow...

Of course, long before this list began assembling, the overcrowding of almost every online category made a shakeout inevitable. Many e-retailers have said so themselves. But the 50 executives interviewed by Forrester seem to think the reversal of fortune will happen to someone else.

With online shopping projected to surpass $30 billion in sales this year and keep right on growing, some Internet merchants stand to reap the benefits, to be sure. The sky is not falling. Still, it’s disturbing that less than 40% of Forrester’s interviewees expect to make a profit this year-and that nearly one-third don’t know, or won’t say, where they’ll get additional funds to pay for their continued growth-mode spending. Yet they’re confident investors will pony up when they come calling for another round of funds?

“Investors are sick of throwing millions of dollars at online retailers,” one executive told Forrester. “They’ll drop the axe on the second-, third-, and fourth-tier merchants. But that will only strengthen the positions of first movers like us.”

But CDnow shows that even first movers can’t escape market forces or the darkening mood of investors. E-retail’s survivors, I’m willing to bet, will achieve that happy designation because they’ve become better marketers, not bigger spenders. They will inspire customer loyalty with superior service and have the sales volume to prove it. They will not continue to blow huge sums on entertaining but obscure television spots in hopes of building a brand. They will not bet the farm on banner ads.

Another study, an ACNielsen poll released as this issue went to press, finds that e-retailers have only one shot to do right by their customers. Where consumers will give a brick-and-mortar retailer a few chances to make them happy, there’s no such luck for dot-coms. One bad experience is all it takes.

That’s why deft handling of the logistics continuum is so important. This issue’s cover story looks at an often-overlooked piece: Returns. Contributing writer Mary Wagner found a lot to be desired. Not only should returns policies be made clearer and less cumbersome to customers, but there’s strong evidence that far too many companies haven’t developed cohesive processes. So they’re scaring off potential customers-and missing opportunities to recoup costs when some merchandise inevitably lands back in their laps. Fortunately, entrepreneurs have jumped ahead of the curve with some creative solutions.

How ever the e-retailing shakeout occurs, you can count on us to continue bringing you sound ideas and giving you a heads up on important trends. And our door remains open to your input and suggestions. Write us and see.

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