UK-PriceWaterhouseCoopers: Majority of Britain's publicly traded Internet companies may run out of cash within 15 months-- 25% of them likely to run dry within six months.

70% of Business to Consumer Internet Business May Fail in Next 2 Years

May 18, 2000 - 03:47 PM

Collapse of Boo.com Portends Shakeout for Internet Sector

By Bruce Stanley The Associated Press

LONDON (AP) - The collapse of British online clothing retailer Boo.com Group Ltd. portends a shakeout among Internet companies that specialize in selling to consumers, industry analysts said Thursday.

Boo.com is the first big European Internet business to go belly up. The High Court on Thursday appointed accountants from KPMG to liquidate its assets after the company failed in a last-ditch effort to raise fresh funds.

Boo.com's demise comes at a time when investors already are losing some of their appetite for the once-sizzling dot-com sector.

However, analysts suggested that plenty of Internet companies should be strong enough to survive the impending upheaval and emerge in a better position to profit.

"Over 70 percent of all business-to-consumer Internet companies will go out of business within the next couple of years. But the ones that survive will make a great deal of money," said Michael Whitaker, chief executive of NewMedia Spark, a venture capital firm.

Boo.com failed just six months after the widely publicized launch of its Web site.

Founded by two Swedes, Ernst Malmsten and former fashion model Kajsa Leander, the company hoped to become a global brand using its advanced Web site, where three-dimensional mannequins showed off the wares.

Malmsten and Leander tapped heavyweight backers such as French entrepreneur Bernard Arnault and Italy's Benetton family for $125 million in startup funds. Boo.com was said to be worth some $400 million at the peak of last year's Internet investment frenzy, and it aimed to issue its first shares to the public later this year.

But technological glitches delayed the Web site's launch, and slack controls on spending - together with the departures of a finance director and other key personnel - contributed to a dangerous drain on the company's cash.

Unable to raise new financing, Boo.com's directors announced late Wednesday they would seek to liquidate the company.

Its failure means more than the loss of 300 jobs.

"I think it's a warning shot across several people's bows," said Ian McEwen, an analyst at Lehman Brothers in London.

Dot-coms that sell to consumers have fallen out of favor with investors, and the wave of initial private offerings by Internet startups has dwindled as a result.

"It's quite tough at the moment to get backing for those types of companies," McEwen said.

The looming shakeout could also extend to dot-coms that sell to businesses, as big players such as General Motors Corp. and Ford Motor Co. cut out online middlemen by forming their own Internet purchasing networks.

A report this week by PricewaterhouseCoopers claimed that the majority of Britain's publicly traded Internet companies could run out of cash within 15 months. It said a quarter of them are likely to run dry within the next six months.

David Kemp of the London brokerage Brewin Dolphin said online retailers selling intangible goods such as plane tickets and financial products stand a better chance of survival than those peddling clothes, which require proper fitting.

Boo.com suffered from a number of problems, and analysts warned against generalizing too much from its experience.

"I think this tarring of the whole segment with the same brush is a mistake," McEwen said.

But he argued that an industry shakeout would be a good thing for investors and consumers alike, since it would leave only the best companies standing.

"So as far as I'm concerned, it's pretty healthy," he said. -- On the Net: http://www.boo.com/

http://ap.tbo.com/ap/breaking/MGIU40WSE8C.html

-- Carl Jenkins (Somewherepress@aol.com), May 18, 2000