Easy Dot Com, Easy Dot Go
A financial earthquake shakes the confidence of the Internet class
But probe further and one finds a renewed sense of mortality. "On a personal level, it's pretty scary," Kodner says. "I just bought a house with my fiancee." Already, bankruptcy attorneys are gearing up for a spike in business. Chris Celentino, a partner at Luce, Forward, Hamilton & Scripps in San Diego, says he has hired six new associates this year and, for the past two months, has been fielding 10 to 15 calls a week from unpaid dot-com creditors. "The novelty [of the E-commerce revolution] has worn off," he says--and it has been a bit of an education. "When we walk into one of these companies on behalf of creditors and demand to be paid, the management is surprised we won't accept the notion that sales will rebound," he explains. "Most companies with a pack of angry creditors at the door give you a plan about how they're going to cut costs and tell you when they think they can come up with the money. These guys say, 'It's just a blip in the marketplace. Consumer confidence will come back, and they'll buy again.' " What's particularly irksome is that some of the dot coms he has visited boast the fanciest office furnishings he has ever seen. "Let's just say there's a lot of mahogany," Celentino says.
The list of dot-com failures, forced sales, and those heading for trouble seems to grow larger by the day. TheStreet.com, the popular financial Web site, has hired an investment banker and is widely believed to be pondering a sale. Investors think CDNow, the music site; Drkoop.com, the health information site; and E-tailer Value America are running out of money. Two weeks ago, a cash crunch forced Peapod, the online grocery store, to sell itself to the Dutch grocery chain that owns Stop&Shop. On April 12, lack of financing led Healthshop.com to shutter its doors and lay off most of its roughly 70 employees. The online health-food store had gained attention for its hangover-fighting Y2K morning-after kits. "A year ago, it was all so exciting," says Maria DiGrande, 37, who just lost her job as Healthshop.com's vice president of merchandising. "Now things are starting to come to a head, and there's a lot more fallout than people expected."
Low on cash. Just last week InsWeb, a five-year-old company that sells insurance over the Internet, signaled that it was in deep trouble. InsWeb said State Farm--its largest customer, accounting for about 30 percent of revenues--would stop selling insurance on its site. Other companies that investors and analysts believe may not be long for the world include: iVillage, the women's site; MotherNature.com, another online health-food store; VitaminShoppe.com; and eToys. They, too, appear to be running low on cash, and it's entirely unclear where they are going to get more.
The beneficiaries of all this carnage, ironically enough, are likely to be the big, old-fashioned companies that just months ago were dismissed as old-economy relics. "A year ago, we all laughed and said the online companies were going to buy up all the offline companies. Now it looks like the reverse is going to happen," says Paul Joachim, a principal at Broadview International. Estee Lauder, the cosmetics giant, has just bought Gloss.com, a San Francisco-based E-tailer. Megaretailers Toys "R" Us and Wal-Mart are now in position to snap up ailing online toy retailers like eToys, if they so choose. Many believe Cisco Systems and Intel will resume their acquisitions tear.
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