You Can’t Spell Recession Without ‘E’

Suddenly, the word no one would utter is on everyone’s lips — the R-word, that is. Predictions of soft landings have given way to outright claims that a recession is upon us, or at least poised like a tiger to pounce at any moment.

Given the host of factors working against e-commerce, the question is not whether it will be among the sectors hardest hit by a recession.No, the question is whether e-commerce, as we know it today, can survive at all.

E-commerce is still a young, if not nascent, industry. And it has yet to be tested in tough times. E-tailers, who feasted on confident and price-insensitive customers for the past three years, especially must prepare for some kind of famine.

How bad can it get? Well, the big names of e-commerce might give the best roadmap.

Recession-Proof?

eBay has said that it can sustain 50 percent annual growth over the next five years. The peer-to-peer auction market is in fact probably more recession-resistant than pure e-tail in some ways. Bargain hunters may turn to auctions more often during an economic downturn.

But sustaining the growth of the past few years long-term? That seems unrealistic. Remember that eBay is trying to go high-end — they’re making a big deal out of the fact that someone is selling a coin collection for US$5 million on the site this Christmas. That kind of activity doesn’t exactly have sustained growth written all over it.

Amazon is either steering toward profitability or destined to run out of cash, depending upon which analyst you listen to. To me, Amazon’s recent e-tail forays — cell phones, digital cameras and the like — all feel pretty much like discretionary items, not the kind of expenses that go to the top of one’s shopping list during leaner times.

Then there’s Yahoo!, the portal that has taken a whack or two on the stock market trading floor for its already tapering advertising figures. Guess what’s first to go from a corporate budget when the belt-tightening memos start circulating?

That’s right, advertising and marketing. More bad news for Yahoo!.

Go Away Often

Priceline’s woes have been well-documented, with layoffs and executive departures only the tip of the iceberg. Nevertheless, the company has pledged to make next year a breakthrough one — and has even started running teaser ads to get the U.S. excited about the company’s prospects in 2001.

Hmm. Maybe they could have had William Shatner explain in the new ads why people should continue to go on recreational airline flights when the company they work for has just announced a round of layoffs, their stock portfolio is down 50 percent for the year and their mailbox almost collapsed the last time the mailman dropped off a heating bill.

Finally, the fallout from that segment could also rain on America Online’s every-media-under-the-sun parade somewhat, as well.

Cutting Muscle

Revenue drops in bad times. It’s a fact of life. Having acknowledged that, however, it’s time to ask how much more some of these companies can do on the other side of the ledger.

Have e-tailers reduced costs as much as they can? Probably not, though the notion that these companies are built to a sleeker, less management-heavy design means there’s less of a flabby middle to excise.

Whatever happens, e-commerce faces a healthy challenge. The peaks scaled by the industry in the past are going to seem like molehills compared to the mountains e-commerce will face in 2001 and beyond.

Count on one thing: Somewhere in every e-commerce chief financial officer’s desk drawer is a worst-case scenario outline. For years they thought they’d never need to look at it. Now it’s time to crunch those numbers all over again, without the rose-colored glasses.

What do you think? Let’s talk about it.

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Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.


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