Funding dries up for European e-commerce sites

LONDON -- It's been a bumpy week for Europe's online retailers. On Monday, the British-based health-and-beauty e-commerce site went bust, announcing it would shut down next month, only three months after setting up shop. And on Thursday, the pan-European Internet toy retailer Toycity, which was based in Denmark and had operations in 15 European countries, filed for bankruptcy protection.

In both cases, the reason cited for the shutdowns was lack of funding. Coming on top of international fashion electronic-retailer's collapse in May, the news sent shivers through Europe's struggling business-to-consumer sector.

The week's good news -- or OK-ish news -- was the announcement from British online travel site that it had cut its losses to $13.87 million for the quarter ending June 30, down from $16.46 million for the same period last year. also claimed a 50% increase in registered users -- now exceeding 2 million, of whom almost one-third are outside the U.K. The news left the market distinctly unimpressed:'s shares closed down 2.3% Thursday.

By anyone's standards, is a minnow swimming in a pool of sharks. But it's the U.K.'s best-known and most-hyped Internet start-up -- its IPO in March this year was headline news in London -- and its performance is sometimes seen as a metaphor for the whole of the British business-to-consumer industry. That it's surviving is good news in itself.

The now-defunct Clickmango wasn't a particularly big company either: It employed 20 people and could boast only a reported $150,000 in annualized sales, but it, too, was well-hyped and well-connected. The most repeated story about the company -- which may or may not be apocryphal -- was that its founders raised $4.49 million in eight days to launch it. The fact that they then couldn't raise another $449,000 over the next few months to keep it afloat is therefore all the more telling.

Toby Rowland, a Clickmango founder, who is also the son of one of London's most colorful entrepreneurs of the '70s and '80s, the late "Tiny" Rowland, has said the "white-hot competition" in the online health-and-beauty sector was the major factor in his company's demise. "I don't see anyone surviving [it]", he added.

The electronic-retail shakeout in Europe is "pretty much inevitable and just starting," according to Rebecca Ulph, media analyst at Forrester Research Inc. in London. "The tendency online is to cut prices to create brands. That means losses in the short term, which require deep pockets to fund. Not everybody is going to go out of business, but there's certainly going to be a lot of companies which aren't going to survive until they start making money."

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