Pure-play e-tailers retrench

With the bloom off the pure-play e-commerce rose, two big name e-tailers Amazon.com Inc. and Buy.com Inc. last week announced strategies to achieve profitability sooner, including layoffs and the refocusing of resources on core business.

The two leaders in pure-play e-commerce may be bellwethers of what is to come for others in the troubled online business-to-consumer market, observers said.

"Dot-com retailers will be valued and measured the way traditional retailers are," said Gene Alvarez, program director for electronic business strategies at the Meta Group Inc., in Stamford, Conn. "Many of the pure plays are gone now and anyone who is left standing is focused on achieving profitability."

Pure plays lack the advantages of their click-and-mortar counterparts, analysts said.

"What has become painfully obvious is that no matter how state-of-the-art your Web platform is, it doesn't replace being close geographically to your customers," said Kneko Burney, a research manager at Cahners In-Stat Group, a Scottsdale, Ariz.-based think tank. "People like to interact with each other."

E-tailers are trying a number of strategies to focus their business To make their numbers, pure plays may resort to layoffs.

"They'll be doing it by downsizing," Alvarez said. "You'll see more layoff announcements."

Amazon.com last week slashed its work force by 15 percent, laying off 13,000 employees, and announced it would shut down a distribution center and a customer service center. Another distribution center will move to only seasonal operation.

"I don't think it bodes well for the company to have closed its distribution center in Georgia and its customer service center in Seattle," said Jack Staff, chief economist at Zona Research Inc., in Redwood City, Calif.

Staff said Amazon has been hurt by three things: an analyst warning last spring, a modest holiday season with notably slow delivery times, and ongoing issues with distribution. But the jury is still out on whether or not the e-tail giant will be mortally wounded by these issues.

"We just have to wait and see," Staff said.

Buy.com cut its work force by just 25 workers, the company announced in its fourth quarter earnings statement last week. The move was part of a much larger strategy to achieve profitability by the fourth quarter of 2001.

To reach the goal, Buy.com executives said the company would focus on its technology and consumer electronics products, which it considers core to its business model and which yield higher margins than its entertainment store business.

In addition, Buy.com expects to save money by shifting its marketing efforts from traditional channels to online.

Buy.com plans to discontinue its Canadian operation on Feb. 2, and has signed a letter of intent to sell its U.K. operations. The company has already shut down its Australian operations.

The moves to become profitable sooner may be only the first wave as pure plays feel the pressure of a single channel in a contracting market.

"In April of last year, when the dot-com frenzy changed, that was the first sign of a wake-up call," Cahners In-Stat's Burney said. "Investors and people in the industry stepped back and recognized that just because you add a dot-com to a business model, that business model isn't necessarily a sure thing."

E-commerce sales tax is no sure thing this yearAlthough many are struggling for financial viability, e-commerce companies this year may sidestep a major Internet tax blow.

State government groups recently scaled back efforts to standardize sales tax collection across states with such a tax. That effort could have paved the way for lawmakers to begin demanding that Internet vendors collect sales tax owed.

States by 2003 could lose more than US$23 billion in uncollected sales tax on Internet purchases, according to estimates prepared by the Center for Business and Economic Research at the University of Tennessee.

To prompt more e-businesses to voluntarily collect sales tax on remote purchases -- which consumers owe but rarely submit on their own -- the National Conference of State Legislatures (NCSL) spearheaded an effort to make this collection easier. But Washington-based NCSL's efforts don't stretch beyond the administrative, proposing only such things as outlining a standardized mechanism that companies could use to remit sales tax on remote purchases.

Taken off the table were more controversial items such as a set of "uniform definitions." These common definitions would have dictated which food items, for example, are taxable -- just one area where states vary widely. "We would have met with a great deal of opposition," said Neal Osten, an NCSL committee director.

Lacking widescale uniformity, NCSL's Streamlined Sales Tax Project (SSTP) will likely be used to coax more collection, but won't become a tool to convince Congress to mandate collection on e-commerce sales, most agree.

"For [NCSL] to say to Congress, 'Look at SSTP, we've simplified,' is going to be a much harder sell [without uniform definitions]," said Washington-based Stan Sokul, who represents the Direct Marketing Association.

New directions

Retailers are taking different approaches to adjust to a tough market.

* Pure plays cut costs to achieve profitability* Amazon.com cut 1,300 jobs, closed distribution and service centers, and expects to see fourth-quarter profitability* Click-and-mortars install Web kiosks* Staples.com, among others, plans to stem lost sales with Web kiosks in stores* Dot-coms purchase competitors to help consolidate strengths* CarsDirect.com gets a partnership with Amazon.com through its acquisition of Greenlight.com

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