Season's beatings

Holiday spending online this year is up 115% this time last year. Still the outlook may not be good for pure-play online merchants.

Although online shopping is booming like never before, with sales up an estimated 80 percent or more from last year, pure-play Internet pioneers are not rejoicing.

Instead, several Internet-only e-tailers will go out of business by the end of January if the holiday season doesn't go well for them and if venture capitalists refuse to put any more money into them, said Sean Kaldor, vice president of e-commerce at NetRatings.

Dozens of high-profile pure plays - including,,,,, and more - bit the dust this year, and analysts said the shakeout is far from over. Some of the hottest Internet retailing sites that claimed to revolutionize the way consumers shop in 1999 are now penny stocks.

Once considered one of the hottest sites for e-commerce, online toyseller eToys saw its stock drop to around 20 cents per share after the company reported holiday sales would fall far below expectations, jeopardizing its survival chances. EToys has hired The Goldman Sachs Group to explore "strategic alternatives," including a possible sale or merger. exceeded the number of items it sold last year by about 55 percent. Still, the unprofitable retailer continues to take a beating in the stock market. Last week, Amazon's stock sunk to around $15 per share on concerns that the company will not be able to meet its sales targets. The company projected sales of $950 million to $1.05 billion during the fourth quarter, up about 50 percent from $676 million during the same period last year.

Meanwhile, Amazon launched an online outlet store to drive customers to its site to make bargain buys. "For the sake of convenience, it made more sense just to put all the bargains in one spot on the site," said Emily Glassman, an Amazon spokeswoman.

Despite problems with pure-play Internet sites, brick-and-mortar retailers are thriving online this holiday season. In 1999, pundits said that many of the retail stores didn't understand the Internet and that they were burdened by their offline ventures.

This year, those burdens turned into blessings., Kmart's,,,,, and others attracted hordes of online shoppers and delivered goods without too many problems. The top 10 online retailers for the week ended December 17 were mostly brick-and-mortar sites, though Amazon led the way with more than 6.4 million visitors, a growth of 33 percent when compared with the same week in 1999, according to Nielsen//NetRatings.

Traditional retailer Toys "R" Us' Web site,, took the No. 2 spot with 1.8 million unique visitors, followed by eToys with 1.7 million visitors. The Web site for Wal-Mart Stores, the No. 1 toy retailer offline, came in fourth, with 1.5 million visitors.

"Brick-and-mortar companies have shined throughout the holiday season. Many pure-play sites have experienced strong growth, but brick-and-mortar companies now account for seven of the top 10 e-tailers," Kaldor said.

Overall, the online holiday shopping season slowed down 7 percent the week ended December 17, to 63.3 million people visiting Web sites, compared with the peak shopping done the week of December 10, when 68.4 million consumers made shopping trips online, according to Nielsen//NatRatings.

"Online holiday shopping peaked a full 14 days before Christmas, mirroring the trend experienced in 1999," Kaldor said.

Still, sales are on track to pass last year's numbers, even though analysts have been offering conflicting sales data for the holiday shopping season, which kicked off on November 1.

Holiday spending hit a total of $7.2 billion from November 5 to December 12, up 115 percent from the $3.3 billion consumers spent online during the same time last year, according to a survey by PC Data and Goldman Sachs.

Total spending for November hit $6.4 billion, according to a National Retail Federation and Forrester Research report.

"Last month, online sales alone exceeded combined sales in November and December 1999 by more than 25 percent, or $1.4 billion," said Scott Silverman, vice president of Internet retailing at the National Retail Federation. "Even if December 2000 is equal [to] or even slightly lower than November, we can still expect online spending in 2000 to more than double last year's performance."

Meanwhile, a U.S. Bancorp Piper Jaffray and Harris Interactive e-commerce report said that U.S. shoppers spent an estimated $4.8 billion online during the month of November - a 41 percent increase from last year.

Online retailers are also seeing a rush of last-minute shoppers, according to, a site that monitors online traffic. On Monday, December 18, shoppers placed more than $254 million in orders, representing a growth of 75 percent compared with the same day last year, when sales topped at $145 million.

"Far from slowing down, the online holiday shopping season has maintained its momentum entering the final week before Christmas," said Seth Geiger, vice president of professional services at BizRate. "Compared to last year, this season has stronger legs."

Unfortunately, it won't be the pure plays that will be walking out of the season in good health. In addition to eToys, analysts predicted that online consumers may also be saying goodbye to pure-play Internet companies in the toy, clothing, sporting goods and specialty gift category.

According to Goldman Sachs, several companies - including,, and - will also run out of money in the next few months, unless they get additional funding.


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