Has the e-commerce bubble burst? If recent reports are to be believed, online business-to-consumer (B2C) businesses are in a slump. Stock prices of many leading e-commerce companies fell this spring, and dire predictions about the state of the industry have been in the air ever since.

According to Morningstar.com, the online retail industry has lost more than 60% since Dec. 31, 1999, making it the worst performing industry this year. And while industry analysts hope the holiday season will provide a much-needed boost, long-term improvement is by no means certain.

E-Commerce Times cited figures from statistics firm PC Data, indicating that sales at top online retailers remained "virtually unchanged" from August to September, "marking the second consecutive month of lackluster activity" even as many offline retail companies did better than ever.

Despite the glum news, the Internet remains a powerful business tool some companies can leverage to their advantage -- and profit. Significantly, many of these companies are employing tactics unusual for online businesses.Herbal supplement store AllHerb.com, recently profiled in the Washington Post, is an example of a business managing to succeed despite foul weather.

Owner Ken Hakuta keeps the focus on efficiency. Hakuta saves money by using free envelopes from the post office; his office space doubles as a warehouse, and the company relies on creative, low-cost marketing to spread the word. Hakuta attracted customers to his Web site last holiday season by giving away Pokemon cards with orders.Historically unusual, such tactics may become more common as venture capitalists shift their attentions from companies with flashy Web sites and big-budget marketing to those that can make money. (See NewsFactor Network's article, "The Death of the Pure Dot-Com.")

Frugality? Profitability? Once derided as old-fashioned, brick-and-mortar tactics are gaining favor in the online world. Where once fancy storefronts and marketing campaigns were employed to attract investors, profitability and other more traditional benchmarks are now being used to measure success.

More than just the employment of old-school strategies and values, however, the trend could indicate the emergence of a new business model -- one that incorporates time-tested practices with the best the Web has to offer.Take catalog companies, for example. As reported in eMarketer, "The combination of warehousing, retail outletting, outsourcing, strong customer service, and order-fulfillment infrastructure" has allowed catalog companies with existing brick-and-mortar stores to turn a profit even as their Internet counterparts founder. In fact, a study by the Boston Consulting Group found that nearly 80% of catalog companies had profitable online operations, compared with just 36% of pure-play Internet firms. And in a climate where investors are placing increasing importance on profits, such figures are worth noticing.

And the trend is hardly limited to catalog companies. NewsFactor Network points out that the integration of offline and online business models is also "showing up among the technology companies that enable e-commerce." According to the article, B2B companies Tellme and Xtime are working to offer telephone service along with e-commerce storefronts.

What will this mean for the future of e-commerce? At least one company found its traditional component so successful, it abandoned its online effort altogether.Redherring.com recently featured the reorganization of hypoallergenic product retailer Gazoontite.com. Started as a pure Internet venture, the company opened five "real" stores only to find the brick-and-mortar stores turned a profit while the Web stores foundered. Now the company has been completely restructured as a purely brick-and-mortar business. The store is an extreme example, however. Most analysts predict that the new business models emerging from the spring carnage will serve only to strengthen e-commerce. In any event, it appears the integration of bricks and clicks is here to stay.

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Published on: Oct 25, 2000