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January 1, 2000

Cyber Seasonal Dreams

By Stephen Lacey

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  • Cyber Seasonal Dreams

Aflood of IPOs for Internet retailers is likely this year following their success at securing late-stage financing in 1999.

The challenge for these e-tailers though, is grabbing enough market share from their brick-and mortar counterparts. This past holiday season was of critical importance. Analysts predicted that most of the over $4 billion spent on gift giving by consumers would go to established retailers.

"If you missed this season you pretty much have to wait for the next season," cautioned Jonathan Goldstein, a principal at Boston-based TA Associates, highlighting the importance of fourth quarter results.

To be sure, Internet retailers weren't the only ones banking on a green holiday season. Venture capitalists poured an estimated $5.3 billion into 162 Internet retailers, according to Venture Economics, a research and information firm. Each Internet retailer received more than $15 million.

But unlike the last holiday season, when retailers such as Amazon.com Inc. (Nasdaq:AMZN), CDNow (Nasdaq:CDNW) and Preview Travel (Nasdaq:PTVL) were seen as category leaders, the latest season had more competition within all categories.

Newcomer categories included furniture and home furnishings, pet supplies, sporting goods, jewelry, cosmetics and consumer electronics. Search engines, comparative shopping sites and gift registries are other types of companies also expected to benefit from increased traffic.

"What's happening is that venture financing is getting nichier," Goldstein said.

Nowhere is the heightened competition more apparent than in the wars brewing between brick-and-mortar retailers and their online counterparts in the furniture and home furnishings and toys markets.

Retail giants Wal-Mart Stores Inc. (NYSE:WMT), J.C. Penney Co. Inc. (NYSE:JCP) and Sears Roebuck & Co. (NYSE:S) have all launched online initiatives to secure a share of the $192 billion home furnishings market. In addition to campaigns by specialty retailers Williams Sonoma Inc. (NYSE:WSM), Eddie Bauer Inc. and Crate & Barrel, there are perhaps as many as a dozen privately held Internet retailers vying for consumer attention. Furniture.com Inc., which took in $35 million in a June, Amerindo Investment Advisors-led placement, and Furniturefind.com appear on target for early 2000 IPOs. Although neither firm would confirm the speculation, both have long since surpassed the $1 million per month sales plateau.

After passing the threshold in May and June, respectively, analysts point to exponential growth for the industry. "People are becoming more accustomed to buying large-ticket items online," said Jeff Quinn, senior analyst at Gomez Advisors. "Personally I'm not sure how far that level of comfort is going to extend."

While online furniture and home accessory sales are expected to total just $132 million in 1999, Gomez predicts the Internet component will climb to $295.4 million in 2000, $776 million in 2001, $1.35 billion in 2002 and $2.4 billion in 2003.

Although even the most bullish estimates place the online component at less than one percent of overall sales in the home furnishings category, there appears to be plenty of room for the industry's newest entrants.

"The space is collectively over $150 billion. That's a lot bigger than most categories," noted Seema Williams, senior analyst at Boston-based Forrester Research. "It's not that surprising. This is a very fragmented industry for both retailers and manufacturers."