E-BUSINESS SPECIAL REPORT
Multichannel Players: The E-Tail Shakeout Survivors

Amazon.com (Nasdaq: AMZN) has finally turned the corner on the road to profitability, eBay (Nasdaq: EBAY) set earnings records in the second quarter, and brick-and-mortar chains are buying into the e-commerce channel in droves.

Does this mean the e-tail shakeout is finally over? That depends on whom you ask. Analysts have differing positions about whether or not we have seen the last of the dot-com dropouts.

But industry watchers do agree on one thing: Multichannel retailing is the future of e-commerce.

Debate the Dot-Coms

Pets.com and Webvan are two of the most-recognized fallen dot-coms. But for all the highly publicized, pure-play failures, hundreds more quietly shut their doors.

"Most of the dot-com shakeout has occurred already, Nielsen//NetRatings (Nasdaq: NTRT) analyst Dawn Brozek told the E-Commerce Times. "But some small players are still going under."

Conversely, Gartner (NYSE: IT) analyst Geri Spieler said the e-tail model will likely continue to evolve too much to declare an official end to the shakeout.

"Is the e-tail shakeout over?" Spieler asked sarcastically. "The answer is a big, fat, bold 'no.' There is still a long way to go -- and for reasons from A to Z."

Reasons A to Z

Analysts said that aside from financial issues there are three key challenges for e-tailers: gaining the trust of consumers, finding the right merchandise mix and enhancing services across the board.

True, new users are jumping on the e-commerce bandwagon every day. But it takes time to convert e-mailers and online game players into confident Internet shoppers.

For the most part, say analysts, it was the product mix that sabotaged many early e-tailers. Selling furniture online, for example, is as impractical as shipping heavy bags of pet food.

"The types of products that tend to sell well online are either inexpensive -- meaning they are low-risk -- or they are cheap to distribute," said Brozek, noting that books, music, airline tickets and flowers are still leading the way.

Service Issues

But perhaps the biggest challenge -- and the greatest untapped opportunity for corporate cost savings -- lies with service issues.

Beauty shops and automobile service providers, for example, could let customers schedule appointments online. Then customers could synch their personal digital assistants with their e-mail clients and receive a reminder several days before the appointment.

These self-serve capabilities will be vital in the coming years as technology becomes even more pervasive.

"Service online has yet to be fully explored," said Spieler. "The next wave of e-tail is combining e-commerce with a service component."

Multichannel Experience

Brick-and-mortar players are better positioned, with deeper pockets, to provide the type of services Spieler described. Familiar offline brands also have something else that pure-play e-tailers do not yet have: established consumer trust.

"When we look at the major e-commerce categories, most are dominated by the trusted offline brand names," said Brozek.

According to analysts, this shift toward multichannel retailing -- and the beginning of the end of the e-tail shakeout -- started in late 2000.

"The dot-com shakeout might continue, but it's primarily among the very small players," said Brozek. "I can't see eBay or Amazon folding at this point."