On Main Street, old-line retailers such as Marshall Field's bucked tradition and jumped online. E-tail pioneers such as Amazon.com began to look more like traditional merchants, teaming with brick-and-mortar companies and building giant distribution centers.
By year's end, in a sign of e-commerce's growing clout, Amazon chief executive Jeff Bezos joined the likes of Dwight Eisenhower and Mahatma Ghandi as a Time magazine "Person of the Year"--an honor that surprised many, including the firm's billionaire founder.
On Wall Street, investors' interest in e-tail surged, making many of the stocks Wall Street darlings. But the interest began to wane by year's end, sending stocks such as CDnow and eToys tumbling to near 52-week lows. Despite Amazon's newfound fame, it continues to lose money.
Despite the slumping stock prices, e-commerce still shows huge potential. Forrester Research projects that online retail spending will grow from about $8 billion last year to $20 billion this year. Forrester estimates that in 2004, e-tail spending will hit $184 billion, or about 7 percent of total retail spending.
A recent Jupiter Communications study indicated that about 94 percent of the money consumers spent online was coming at the expense of dollars they would have spent at offline merchants.
To guard against future losses, a slew of merchants including Banana Republic, Circuit City and Williams-Sonoma set up Web stores for the first time. Perhaps taking a cue from Barnes & Noble, many of the new players jumped onto the Web game before their online competition could establish itself and become entrenched.
Meanwhile, traditional players such as Target and Walgreen's relaunched their online stores and expanded their selection. Nordstrom, for example, launched a new online shoe store, offering thousands of sizes and styles.
But some traditional retailers found that setting up shop online was a struggle. Wal-Mart, Best Buy and Home Depot all largely missed out on the holiday shopping fervor online by delaying the launch or relaunch of their Web sites until after the new year.
Toys "R" Us saw its ballyhooed partnership with Benchmark Capital fall apart, and its Web strategy floundered. As the holidays approached, the toy giant's Web site became jammed with users following an ad blitz, locking out many customers for about two weeks.
Toys "R" Us' stock took a hit, but other retailers didn't suffer much from stalled Net efforts. Despite their cautious march online, Wal-Mart and Home Depot ended the year up nearly 60 percent. By contrast, former high-flier Starbucks saw its shares plummet after it announced that its Internet efforts would depress its earnings, ending the year down nearly 10 percent.
Citing the difficulties inherent in creating online businesses from scratch, brick-and-mortar players such as KB Toys, Petco and pharmacy giant CVS teamed up with or bought lesser-known e-tailers such as BrainPlay.com, Petopia and Soma.com to jump-start their own Web stores.
E-commerce companies began looking more like their offline brethren, with eBay buying auction stalwart Butterfield & Butterfield and car auctioneer Kruse International. Amazon boosted its new home improvement and toy stores by snapping up catalog companies Tool Crib of the North and Back to Basics, respectively.
Once content with being called "Earth's biggest bookstore," Amazon's year was marked by a huge expansion in its offerings. It added software, electronics, auctions--even gardening--and opened five new distribution centers to stock all the new items.
Amazon's plan to open warehouses seemed to mark a new trend. Online grocer Webvan, for example, placed a $1 billion order with engineering and construction giant Bechtel to build two dozen distribution centers nationally.
HomeGrocer said it would use cash from its planned public offering to open more than 20 new warehouses nationwide. Pets.com and eToys announced plans to build their infrastructures, too.