Softbank, Japan's biggest Internet investor, today announced a $15 million investment in Body Shop Digital, which will develop the Internet operations of the popular brick-and-mortar store. The Body Shop will retain 59 percent ownership of the company.
The Web finance company has chosen an unusual time to back what appears to be a straight-up e-commerce play. Investors have fled these companies in droves recently, moving on to the much hotter business-to-business or wireless firms.
In February, well into the slide of business-to-consumer stocks, Softbank plunked down $57 million behind Toysrus.com, which has a long history of bungling on the Web. In September, the company invested $50 million in Kmart's Internet venture, Bluelight.com.
"Softbank is picking through the wreckage and will probably come up with some great companies," said Chris Vroom, an Internet retail analyst at Credit Suisse First Boston.
Investors have grown weary of the losses e-tailers continue to build. Most market segments face shakeouts, and several one-time "category killers" have announced that they need a bailout or face closure.
Yesterday, Drkoop.com said it had only five months of cash left and had renegotiated its deals with Go.com and America Online to save money. In this morning's trading, however, the company's stock today closed up $1.25--or 53 percent--$3.59.
The decline in business-to-consumer stocks runs across the board, in almost every area. Internet bellwether and behemoth retailer Amazon, closing today at $53.50, is down more than 30 percent from last year. Onetime high-flying toy merchant eToys' stock has dropped 71 percent. PlanetRx has lost 77 percent of its value.
But Softbank said it is betting on the big names they are investing in.
"They can swing their weight around," said Patti Purcell, The Body Shop's chief operating officer and a former Softbank executive. "The three components that bind these companies together is that they all are (well-known) brands, own proprietary products and have established infrastructure."
Instead of advertising, Softbank can spend money on building the sites or improving fulfillment and customer service operations, Purcell said. Paying to get their names in front of the public, she said, is why so many online stores have struggled.
She also noted that the companies Softbank is backing can offer savings to customers and still make money, which separates them from a lot of pure-play merchants. In their fury to attract customers, many Net companies have sold goods at a loss.
But brick-and-mortar heavy hitters that have gone online, such as Barnes&Noble, Wal-Mart and the Gap, have found themselves also-rans. Analysts have pointed out that there is a difference between online and offline retailing.
"The downside for Softbank is the same for everybody--that its investments don't pan out," Vroom said. "But the market caps have shrunk so much and it doesn't have to spend too much to drive traffic to their sites, so the risks are lower now than they would have been in the past."