B2C sites wreak havoc, leave clues

The carnage among business-to-consumer e-commerce ventures, erstwhile darlings of investors everywhere, signals a pendulum swing back toward traditional retailing dynamics and suggests strength in a diversified channels strategy.

Although toy e-tailers such as Toysmart.com may be the latest casualties in the business-to-consumer (B2C) shakeout, they are by no means the only consumer-driven sites to fall prey to their click-and-mortar competitors.

The consolidation carnage is at the very heart of retail, according to Shawn Willett, an analyst at US-based Current Analysis.

"Only a few players are going to survive - that's the brutal reality of the retail world," he said.

Once the venture capital funding dries up, e-tail sites still face acutely tight margins, Willett observed.

"There's nothing magic about [e-tailers]. They're acting as retailers and distributors, and retail, as everybody knows, is a really tough business," Willett said.

Razor-thin retail margins require huge volumes - numbers that most pure-play sites have trouble generating, said both Willett and Rick Neely, interim CEO, CFO, and senior vice president of former e-tailer Beyond.com.

"To be a successful e-tailer, you have to be quite large. Unless you're a billion-dollar run rate [business] now or higher, you're unlikely to make it," Neely said.

Volume requires branding, but the cost of branding is driving many startups out of business, Neely said.

"What people learned is that it costs a lot more to build a brand from scratch than people thought, and secondly, [building an] e-commerce infrastructure is not as cheap as people thought," Neely said.

Recognising the pure-play branding issues, Beyond.com shifted its strategy away from consumers and into the business-to-business (B2B) space.

"Pure-play e-tailing wasn't going to work," Neely said. So Beyond.com offered its expertise to brick-and-mortar companies.

Beyond.com had the experience driving traffic and the Web infrastructure that brick-and-mortars lacked, and the brick-and-mortars had the branding that Beyond.com craved, so the partnership strategy seemed a natural fit.

Some industry players see the looming shakeout in dot-com retail as natural and good for the development of the Internet economy.

Frank Ingari, founder of Internet marketing application hosting company Wheelhouse, noted that the market dynamics are shifting power back to brick-and-mortar companies and away from pure-play Internet companies.

"By funding so many startups, the power is heading off to the brick-and-mortars because they have the established brands and the power.

"It's ironic that the [venture capitalists] are handing power back to brick-and-mortars," Ingari said.

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