Buy joins Amazon in downsize
- 14 February, 2001 10:09
With the bloom off the pure-play e-commerce rose, two big name e-tailers Amazon.com and Buy.com recently announced strategies to achieve profitability sooner, including layoffs and the refocusing of resources on core business.
The two leaders in pure-play e-commerce may be bellwethers of what is to come for others in the troubled online business-to-consumer market, observers said.
"Dot-com retailers will be valued and measured the way traditional retailers are," said Gene Alvarez, program director for electronic business strategies at the Meta Group. "Many of the pure plays are gone now and anyone who is left standing is focused on achieving profitability."
Pure plays lack the advantages of their clicks-and-mortar counterparts, analysts said.
"What has become painfully obvious is that no matter how state-of-the-art your Web platform is, it doesn't replace being close geographically to your customers," said Kneko Burney, a research manager at Cahners In-Stat. "People like to interact with each other." e-tailers are trying a number of strategies to focus their business. To make their numbers, pure plays may resort to layoffs.
"They'll be doing it by downsizing," Alvarez said. "You'll see more layoff announcements."
Amazon.com recently slashed its work force by 15 per cent, laying off 13,000 employees, and announced it would shut down a distribution centre and a customer service centre. Another distribution centre will move to only seasonal operation.
"I don't think it bodes well for the company to have closed its distribution centre in Georgia and its customer service centre in Seattle," said Jack Staff, chief economist at US-based Zona Research.
Staff said Amazon has been hurt by three things: an analyst warning last spring, a modest holiday season with notably slow delivery times, and ongoing issues with distribution. But the jury is still out on whether or not the e-tail giant will be mortally wounded by these issues.
"We just have to wait and see," Staff said.
Buy.com cut its work force by just 25 workers, the company announced in its fourth quarter earnings statement last week. The move was part of a much larger strategy to achieve profitability by the fourth quarter of 2001.
To reach the goal, Buy.com executives said the company would focus on its technology and consumer electronics products, which it considers core to its business model and which yield higher margins than its entertainment store business.
In addition, Buy.com expects to save money by shifting its marketing efforts from traditional channels to online.
Buy.com discontinued its Canadian operation last week and has signed a letter of intent to sell its UK operations. The company has already shut down its Australian operations.
The moves to become profitable sooner may be only the first wave as pure plays feel the pressure of a single channel in a contracting market.
"In April of last year, when the dot-com frenzy changed, that was the first sign of a wake-up call," Cahners In-Stat's Burney said. "Investors and people in the industry stepped back and recognised that just because you add a dot-com to a business model, that business model isn't necessarily a sure thing."