The E-Commerce Buzz

What will happen when investors get over their giddiness?

As I write this column, Internet-based retailers are reporting record sales that exceed everyone's expectations. Investors are responding to e-commerce's sudden prosperity by madly buying up Internet stocks. At the moment, this stock market trend is good for technology-oriented companies, but I'm concerned about the potential hangover from this buying bender.

The E Spree
The supposedly amazing e-Christmas of 1998 fueled investors' excitement., an industry group of e-commerce firms, commissioned the Boston Consulting Group (BCG) to study Internet sales during the 1998 Christmas season. The resulting report proclaims that e-commerce is growing exponentially, at a rate of more than 200 percent per year. Similarly, SkyMall, the company that puts together those catalogs that airlines tuck into seat backs, reported a 600 percent increase in Internet sales from the 1997 Christmas season to the 1998 Christmas season.

The dollar sum for Internet sales is increasing by large percentages. But where are the reports of exactly how much money companies are making online? News organizations vary in their estimates of the 1998 e-Christmas total, but most estimates hover at just over $3 billion. How much is $3 billion in sales? Well, Wal-Mart does that much business in about 6 days. US retail sales each year total about $3 trillion. E-commerce's huge increase in revenues in late 1998 didn't even bring Internet sales onto the radar screen of American retail. Nevertheless, Wall Street goes nuts every time a firm with the word net in its name announces record-breaking sales figures, and investors expect that company's explosive sales growth to continue. Whether e-commerce's record-breaking growth will continue remains to be seen.

The Broader Picture
How can you step back from the statistics that sum up online retail's short life and predict e-commerce's importance to the economy over the long run? Look at the United States' two previous buy-while-sitting-on-your-butt retail crazes.

Back in the late nineteenth century, Sears, Roebuck & Company became the first large-scale mail-order retail operation. The company began as a watch dealer, but in the early 1890s its catalog began to include an assortment of other items. By 1893, Sears, Roebuck & Company was bringing in $400,000 worth of business. Two years later, the company's mail-order sales topped $750,000; revenues were almost 200 percent of 1893 sales. Ex-po-nential! But have mail-order outlets replaced storefronts? Of course not. Catalog sales are still solid, but they account for only about 1 percent of total US retail sales.

The nation's other new-technology shopping boom, sales via television, has also profited without injuring traditional stores. When The Home Shopping Network launched more than two decades ago, retailers feared that the network's sales would put them out of business. The Home Shopping Network is doing well; it grosses $1 billion annually. And QVC, another cable television-based retailer, makes $2 billion in sales every year. However, the two networks' combined sales are a drop in the bucket compared with the nation's roughly $3 trillion total retail sales. Very few stores have closed their doors because of television shopping.

A quick look behind Wall Street's e-hype can show you why your town's shops aren't failing in droves as a result of the Internet's recent popularity. Many products just don't make sense (and might never make sense) for Web retail. CDs, PCs, software, and investments are good candidates for Internet shopping. But I can't imagine buying a car on the Web, much less groceries or gasoline.

Wall Street will eventually realize that the Web is a good new sales medium but not a great new sales medium. I just hope that this realization doesn't poison the well for technology stocks in general.

TAGS: Windows 8
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.