Ho ho, oh no! If you're a holiday shopper with visions of wide-open virtual retail spaces, and deep discounts by e-tail upstarts giving it all away to land you as a customer, snap out of it. That is so 1999.
The new economy is now playing by old economy rules. This year's dot-com correction has done more than pound a few tech-heavy portfolios. So, maybe you didn't lose your shirt as an eToys(Nasdaq: ETYS) investor -- don't worry, you'll pay. The online shakeout will get you, dearie, and that little sock puppet, too.
Head out to some of your earlier haunts and you'll see what I mean. Toysmart.com? Game over. Pets.com(Nasdaq: IPET)? Put to sleep. Furniture.com? Recliner city, baby. These duked-out URLs are a product of a stock market that is no longer into subsidizing e-commerce losses. Fancy that. They're gone because you wanted great deals. They're gone because they didn't wean you off that notion in time. Error 404: Profits not found.
Online commerce is not dead. No way. Many of the familiar sites are still out there. It's just that their names have been changed to protect the incompetent. Rewind your browser history to give popular online video store Reel.com a close-up. The movie site might look the same at first, but try to make a purchase and you are suddenly beamed over to the Buy.com(Nasdaq: BUYX) storefront. Type in the Toys "R" Us(NYSE: TOY)website URL and -- abracadabra -- you're staring magically at the Amazon.com(Nasdaq: AMZN) logo.
Are you an unhappy online shopper now? Do you wonder why Red Rocket never took off or why Garden.com got weeded out? Blame it on the froth. Blame it on the Nasdaq. Blame it on the herd mentality that was willing to throw billions of dollars at companies whose business plans consisted of building traffic first with profits a distant second.
Yes, it seems outrageous today, but there was a time when companies like Pets.com and Buy.com were selling merchandise below their own costs to get the product out to you. Wall Street stood by that. Mounting losses were applauded as notches on a lipstick case. Eyeballs mattered -- as long as nobody poked an eye out.
So, where does that leave you today? You came here to shop, not rummage through financial statements. Unfortunately, one explains the other. Take Amazon.com(Nasdaq: AMZN), for instance. During the 1999 holiday season, the online titan reported quarterly gross margins of just 13%. That was how much consumers paid over Amazon's merchandise costs. In the most recent quarter, the gross margins -- the markup levels -- had doubled to 26.2%.
With fewer competitors to do battle with, those who remain now have greater pricing flexibility. The incentive to prop up prices in the name of profits is now greater than the incentive to drop prices in the name of sales growth.
So, when you check out the recent e-tail launch or relaunch of bricks-and-mortar powerhouses like Wal-Mart(NYSE: WMT), Best Buy(NYSE: BBY), or Kmart's(NYSE: KM)BlueLight.com, don't scratch your head wondering why the Internet ventures are charging as much online as they are at the actual stores. Don't be left wondering why that site featuring prices that were too good to be true was, in fact, too good to remain true. As a shopper, you are left with three holiday shopping choices:
1. Log off and try your luck at the nearest mall.
2. Accept the Internet for what retailers once envisioned it to be: a tool of shopping convenience, not a global swap shop.
3. Read on. There are still deals to be had even in this e-commerce minefield. Believe it. You didn't think I'd take you this far without showing you the promised land, did you?
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