Competition Makes for Tough Business on the Web

Ethan Allen is among many bricks-and-mortar companies that are coming onto the Web with their guns blazing.
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If you want to know what may really be ailing the dot-com world of stocks, look no further than what is happening at Ethan Allen (ETH) - Get Report.

Less than a quarter ago on

CNBC

, I interviewed Farooq Kathwari, the head man at Ethan Allen, about whether the furniture company was going to pursue an aggressive online strategy. On camera, he went through the motions, but off camera, he was nonchalant about the Web. He seemed to doubt the viability of selling furniture on the Web entirely. I expected a halfhearted Web initiative from this quintessential bricks-and-mortar fellow.

Now we discover in this morning's

Journal

that Ethan Allen is ramping up its Web biz, getting a wake-up call from

Furniture.com

and a bunch of other Net furniture retailers. He's coming into this market with guns blazing. No more complacency.

And there's the problem. Bricks-and-mortar firms are no longer in the denial stage in any industry. Now the bricks-and-mortar people are getting smarter. They are thinking creatively about the Web. They will not let themselves be

Amazoned

(AMZN) - Get Report

as they would have even six months ago.

Ethan Allen's initiative is even more interesting because Kathwari -- a brilliant exec, I might add -- is working to win over his own store owners to the Web. That's a big leap. Most of the time, the initiatives by bricks-and-mortar people are done by someone specifically in charge of the Web with no juice among the cash cows within the company. That's one of those dirty little Web secrets: You put some moron in charge of the Web and tell him not to bother you. Ethan Allen's template is to have the guy in charge leading the Web. That would be like putting David Komansky at

Merrill

(MER)

in charge of the Web. (Merrill would be at 100 right now had it done this.)

Ethan Allen isn't alone. I was very impressed when

The New York Times

bought

Abuzz

, a company that can really help people interact better and more efficiently with one another. I have also been excited by the evolution of the

Washington Post.com

section, which is becoming more and more functional, like a terrific guide, instead of just a digital

Post

.

All over the country, bricks-and-mortar companies are devoting resources, hard dollars, to the Web. At the same time, the Web companies are well financed by the capital markets. But those dollars have to go toward competing against intelligent bricks-and-mortar invasions into their turf.

Competition breeds price wars, price-cutting and lower or pushed-out profitability as market share comes under attack. That doesn't sound like the Net. That's no adventure; that's no

Bezos

conference-call-skit lovefest. That just sounds like business. Business isn't fun. It is tough, competitive, cutthroat. It is low P/E. It sends stocks lower, not higher.

And that seems to be what's happening.

Random musings:

Premarket action -- this

Glaxo

(GLX)

sounds terrible but may be in the stock down here at 51. ...

Compaq

(CPQ)

bored us, clearly getting better but could take forever. That

Digital Equipment

acquisition was just plain stupid, I guess. We are long it with no conviction, though. ... I am taking Friday and Monday off to be with my family. My kids don't want me to write those days; they want to play. They are right. I will do my rewrite, but otherwise I will be spare if not totally absent. ... Speaking of kids, we took in

Inspector Gadget

last night, and the girls loved it. Good fun. ... Great news, there is justice on the

Big Board

. Last November, I picked a big fight with the Big Board by saying that the specialist who handles

Safeway

(SWY)

should be disciplined for his actions involving that stock's addition to the

S&P

. I thought it had fallen on deaf ears, and I know I upset a lot of people with my accusations. But justice has been done! The specialist got in big trouble and hit with a big fine, according to this morning's

WSJ

. Yep, you have to speak up in this world. Score one for

TheStreet.com's

power to change the bad old ways of the Street!

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Merrill Lynch and Compaq. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.