Internet Retailers on the Ropes

"The combination of weak financials, increasing competitive pressures, and investor flight will drive most of today's dot-com retailers out of business by 2001," according to a statement issued by the research company.

Forrester is predicting that business-to-consumer electronic-commerce consolidation will come in three waves. First, companies that have been successful selling products such as books and software online for a while will start merging by this fall.

Second, online merchants selling low-margin "undifferentiated products" such as electronics and toys "will collapse before marketing expenditures ramp up for the next holiday season."

Finally, merchants selling heavily branded products such as apparel will be stable until 2002.

"The difficulties that firms like CDnow and Peapod now face will only become more widespread," analyst Joe Sawyer said in the statement. "Financial turbulence and new competition will dry up venture funding and accelerate the dot-com shakeout as the year progresses."

Meanwhile, The Industry Standard reported this week that some law firms, such as Luce, Forward, Hamilton & Scripps in San Diego, are staffing up to handle bankruptcy proceedings--whether they be Chapter 7 liquidations or Chapter 11 reorganizations--for Internet companies. "Dot-coms are seeking our services because they're having a tough time paying lenders," partner Chris Celentino told the magazine.

Bernhard Warner of The Industry Standard contributed to this report.

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Sharon Machlis

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