Holidays Will Deliver Little Cheer To E-tailers

Last year’s holiday shopping season was preceded by predictions of record
online sales and guarded optimism among many e-tailers and their investors
that a strong Q4 might act as a springboard toward eventual profitability.

As this year’s holiday season approaches, two recent studies by prominent research firms forecast more than $10 billion in online
spending, at least double the amount from 1999’s fourth quarter.

But don’t expect any premature outbursts of euphoria from investors, many of
whom were burned last year when the vast majority of e-tailers failed to
translate record traffic and revenues into profits or higher share prices.

With Q4 coming up fast, e-tailers continue to face the same problems that
have contributed to this year’s sector-wide bloodbath: Brutal pricing
pressures, inadequate customer-service infrastructure and low levels of
customer loyalty.

Even the most bullish Internet investors know this, and thus will refuse to
be drawn in by the predictable holiday hype. Which means e-tail shares will
continue to trade near all-time lows as their issuing companies drift
steadily toward oblivion.

How close to oblivion are we talking about? Let’s compare some numbers from
one year ago. Back then, six of the 30 e-tail stocks followed in
internet.com’s Internet StockTracker, or 20%, had market capitalizations of
less than $100 million. And the company with the lowest market cap was
fashionmall.com , valued at $45.9 million.

Through Friday’s trading, more than half of the e-tailers listed – 22 of
41 – had market caps of below $100 million. And 16 of those are valued below
fashionmall.com’s year-ago market cap (including FASH itself, now at $17.3
million).

So rather than being able to gear up for the holiday season, many cash- and
resource-strapped e-tailers merely will be trying to survive through Q4,
hoping for a holiday miracle. Not exactly the ingredients for a sector
run-up.

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