Checkout Time?

  • Share
  • Read Later
To understand how drastically the landscape of the online shopping world has shifted since holiday season 1999, you could do worse than pay a visit to, based in San Francisco. Incongruities abound. Here we are at a converted warehouse (major points for geek chic), but it's in the heart of Fisherman's Wharf, Middle America's greatest open-air tourist trap, miles from the hipster hangouts. Inside are all the signs of an unstuffy start-up--pets roaming the halls, people with green hair. Yet what gets them really jazzed is flipping the switch that signals a virtual blue-light special.

The dotcom world has gone to work for K Mart? It certainly looks that way. Refugees from,, Productopia, PlanetRX and just about every other recent flameout have landed here. Last Christmas, (60% owned by K Mart; other investors include Martha Stewart) was an industry joke. Now it boasts an inventory of 30,000-plus items, more than 1 million unique visitors monthly and a massive, last-minute rollout of 3,600 Internet kiosks in 1,200 K Marts across America. CEO Mark Goldstein is blithely turning away job applicants--unheard of in employee-hungry Silicon Valley--and even considering buying a failing dotcom or two for Christmas. "There's some great stuff out there," he muses. "We can make them profitable, take them under our wing."

Call it the revenge of the real-world retailers. After years of being told they didn't get the Net, sites like and are suddenly the fastest-growing shopping destinations on the Web. Over the past five weeks, visits to "multichannel" dotcoms (a.k.a. clicks-and-mortar, those with a catalog or store behind them) have shot up 67%, compared with a 42% seasonal rise for "pure-play" merchants (which exist only online, like alone is gaining 80% more cybershoppers every week. Incoming CEO Jeanne Jackson raised eyebrows when she closed the site for renovations two months ago. Now the revamp is paying off. "We're just starting to figure out how this functions," she says. "It's barely Round 1 1/2."

Those who want to make it to Round 2 had better hope Santa is good to them. Even before a single retail site burst online, America had too many retail stores. By 2000, it also had too many e-tail stores. Result: shuttered sites, struggling shops and shredded profits across the sector. Poor performance by such companies as the Gap, Nordstrom and J.C. Penney added to the dotcom carnage in the stock market. And new worries that consumer spending is slowing, presaging a recession, have made this Christmas the most critical in years.

So as multichannel dotcoms cheerily dip into bottomless parent-company purses, e-tailers that used to burn cash like a yuletide log have turned into Scrooges--slashing costs, scanning the bottom line and praying fervently for a Christmas Future. Sites such as eToys, whose stock has dropped 94% in a year, openly admit they will need cash transfusions by the end of 2001. "We need one more round of financing to break even," says Toby Lenk, founder of eToys. That's why grabbing an impressive chunk of the estimated $12 billion being spent online this November and December is "absolutely critical," adds Lenk. Trouble is, his top two rivals from last and Toys "R" Us--have since teamed up in a classic clicks-and-mortar partnership.

Even was not immune to role-reversal last week, when embarrassing leaks from its internal website showed the e-commerce poster child taking a harsh, Wal-Mart-like stand against a nascent move to unionize some of its warehouse workers--would-be dotcom millionaires now turned wage slaves. Last year, with employee stock options booming, Jeff Bezos looked like Kris Kringle; this year the market turned him into the Grinch. To keep top execs tethered, Bezos has had to put cash on the table, not paper.

Not that, which clocked a record 54 million visits in November, needs to worry about underperforming. Much more vulnerable is, the second largest pure-play e-tailer, which last week topped a Goldman Sachs list of the most cash-hungry dotcoms, ahead of Cyberian Outpost and CEO Greg Hawkins, who has spent more than a year overcoming the reckless price-cutting legacy of founder Scott Blum, is in a somber wait-and-see mode: "Last week didn't disappoint us, but we didn't walk out saying, 'Yee-hah, this is going to be a great Christmas!'"

To make it as merry as possible, Hawkins has followed what is becoming the classic cost-cutting model for pure-plays: fewer of those annoying TV ads and more online marketing, focused tightly on your base (in's case, 18-to-49-year-old college-educated men earning $80,000 a year). For dotcoms on a budget, it makes more sense to reel in previous customers than to waste time attracting new converts. "We'll never make enough money on the first transaction," says Mike Lannon of Boston-based, which has slashed what it spends acquiring a customer 95% since last year. "Last year was the land grab. This year we have to live off the land."

  1. Previous Page
  2. 1
  3. 2