Boo.Com, the Failure

INTERNATIONAL BUSINESS; Boo. com, Online Fashion Retailer, Goes Out of Business By ANDREW ROSS SORKIN Published: May 19, 2000 It was supposed to follow the dot-com fairy tale script. Two young entrepreneurs devise an idea for the next big e-commerce Web site, raise enormous sums of cash, spend lavishly on advertising, lose money on every sale, take the company public and make every employee a billionaire. Today, Boo. com, a European fashion e-tailer backed by the French luxury goods magnate Bernard Arnault, the Benetton family, Goldman, Sachs & Company and J. P.

Morgan, among others, is insolvent and has been forced to call the liquidators, six months after its Internet debut. The concept for Boo. com seemed plausible enough. Ernst Malmsten and Kajsa Leander, two 29-year-old Swedes, founded Boo. com here in 1998, planning to create an online fashion retailer that would provide global service in seven languages and multiple currencies. And, of course, the site would use the most advanced technology. Boo. com bragged of its ability to let users view products in three dimensions from 360 degrees, giving them a true sense of how a garment looked.

Investors were so taken with the idea and its two founders — Ms. Leander had been an Elite model and both had started an online bookstore called Bokus. com — that Boo. com was able raise $125 million almost immediately from an elite roster of the extremely wealthy. Before even starting Boo. com, the founders promoted the site in trade journals and glossy fashion magazines. But it was also clear that the founders were excessively ambitious. The company established its headquarters on swanky Carnaby Street in London, with satellite offices in New York, Paris, Stockholm, Amsterdam and Munich.

The staff expanded from 40 initially to more than 400. Employees routinely flew first class and stayed in five-star hotels, according to a former staff member. Many were given laptops and Palm Pilots for home use, according to this person, and the company used Federal Express to send regular mail. ”They had very little spending restraint, to put it mildly,” said Noah Yasskin, an analyst at the London office of Jupiter Communications, an Internet research firm. The site itself was also plagued by technical problems and delays, and took twice as long as anticipated to evelop. Once up and running, it became clear that users without fast connections to the Internet could not use the site, a point Boo. com boasted about. That e-snobbery alienated customers with more modest modem speeds, which happened to be most of Europe and the United States, Boo. com’s two most important markets. ”Ninety-nine percent of European and 98 percent of U. S. homes lack the bandwidth needed to easily access such animation,” Therese Torris, an analyst at Forrester Research in Amsterdam, wrote in a report.

And anyone with a Macintosh computer could not use the site. While Boo. com later adjusted itself to allow users with slower connections and Macs to gain access, the changes came too late. Sales for the first three months of the site’s operation were $680,000, while the company was blowing through more than $1 million a month. The end came as Boo. com’s founders, with only $500,000 left, struggled in vain to find backers to plow more money into the site. ‘We are deeply disappointed that it has been necessary to ask KPMG to become liquidators of the company,” the co-founders and investors said in a joint statement. ”The senior management of Boo. com has made strenuous efforts over the last few weeks to raise the additional funds which would have allowed the company to go forward with a clear plan. ” Over the last several weeks, Mr. Malmsten and Ms. Leander, who together own about 40 percent of the company, had been pleading with investors to ante up more. According to a spokesman for Mr.

Arnault: ”He didn’t want to take the risk. He would have been willing to stay involved if he could have had more control. ” In fact, in an interview in Paris several weeks ago about his Internet holdings, Mr. Arnault refused to discuss Boo. com. Whether Boo. com’s failure presages further problems for clothing e-tailers is unclear. But some Internet analysts said Boo. com’s rise and fall reflect a problem that goes beyond just selling clothes. . ”The market has woken up to the fact that the amount of business e-tailers like Boo. om generate is a lot lower than we anticipated,” said Tony Shiret, an analyst at Credit Suisse First Boston in London. ”A key turning point was what happened in the U. S. over Christmas,” he added, referring to many online retailers that reported missed sales projections. ”It’s been disappointing. ” On Wednesday, PricewaterhouseCoopers released a report predicting that 25 percent of all Internet companies in Britain could exhaust their cash within six months. Still, the problems at Boo. com problems were somewhat self-inflicted, Mr.

Yasskin said. ”They tried to do too much,” he said. ”Opening up in multiple countries simultaneously is impossible. ” One major stumbling block for Boo. com may simply have been the type of merchandise it was trying to sell. ”If you look at successful sites, they are driven by price,” Mr. Shiret said. ”It is very hard to sell clothing at a cost base that makes sense without the scale. ” Indeed, Boo. com never competed on price like most other retailers; it hoped to woo customers with its interactive services and convenience.

Nonetheless, Boo. com might be worth something, even if it is only a fraction of the $400 million value its founders once ascribed to the company. KPMG, which is managing the liquidation process, said today that it had received more than 30 inquiries. In an interview with The Sunday Telegraph earlier this month, Mr. Malmsten admitted he might have made missteps. ”We have made some mistakes and we were late with our launch, yes,” he said. ”But people are welcome to come ’round here into our offices and see what is going on now. ”