IN BUSINESS-TO-business DM, Internet “have-nots” are suffering severe stock market erosion, while investors are rewarding Net- savvy-though often unprofitable-companies with high valuations. Indeed, an analysis of the 31 B-to-B catalogers and other direct marketers tracked in Gruppo, Levey & Co.’s Direct Marketing Index reveals the breadth of the disparity, and the growing split of the B-to-B market between computer products marketers and other business DMers.
Six business marketers-CDW Computers, Creative Computers, Multiple Zones, Dell, Gateway and Insight-either own significant interests in e-commerce businesses or generate a measurable and growing proportion of their revenue electronically. That subset averaged a 133% gain in share price for the 12 months ended April 30, compared with a 25% decrease in share price for the other 25 B-to-Bers tracked by the index. The six leaders in the field also accounted for all of the 5.3% year-over-year gain recorded by the business segment.
Of equal note, non-computer product marketers badly lagged the performance of the sector, with an average price decrease of 33% for the year ended April 30. Many of these mainline business marketers have executed consolidation strategies, and while the companies have performed at or near expectations, the market has soured on roll-ups. As a result, while revenue and earnings hikes are holding up, stock prices are not. The decrease in share price is creating a vicious circle for some consolidators, as they can no longer use their stock as currency to pay for acquisitions or cannot structure a transaction that would help to boost earnings.
In addition, the consolidators often are operating in product sectors that have not yet been targeted by electronic commerce specialists. Medical supplies, plumbing fixtures, printed matter and the like may lend themselves to an e-commerce strategy, but lack the sizzle of computer equipment and consumer goods. Moreover, many business marketers have already created lean operating and marketing structures, and e-commerce may not offer B-to-Bers the performance improvements that can be achieved by consumer marketers. As a result, the market has not focused on the inherent value of the customer files owned by non-computer-oriented B-to-Bers in an e-commerce environment where customer acquisition remains the single highest cost.
