The death knell of Webvan and the silent demise of wherever.net (wnet, Park'n view look down!)...
Webvan's Cupboard Is Bare
By Miguel Helft
Jul 09 2001 10:48 AM PDT
Despite big dreams and deep pockets, the online grocer closes and files Chapter 11. Even so, the business of Net grocery deliveries is still expected to flourish.
The boldest, most ambitious and second-best financed effort to rewrite the rules of retailing came to an abrupt end Monday when Internet retailer Webvan ceased operations, filed for Chapter 11 bankruptcy protection and laid off most of its remaining 2,000 workers.
Webvan said that it has no plans to resume operations and that it intends to liquidate its remaining assets.
The end of the road for Webvan marks the most significant defeat for those who thought they could use the Internet to upstage the giants of the retailing world.
After raising about $1.2 billion in financing – more than any online retailer other than Amazon.com – Webvan tried to build a revolutionary online grocery business as a launching pad for a vast retailing and distribution operation that could deliver anything to anyone, anywhere. It was that grand vision that Webvan founder Louis Borders, who also founded the Borders bookstore chain, sold to a group of Silicon Valley investors in 1998. Yet despite futuristic warehouses with miles of conveyor belts, cutting-edge inventory technology and a massive fleet of vans, Webvan's efforts fell far short.
After launching in the summer of 1999, Webvan saw a rapid surge in demand for its service, which essentially financed the high costs of grocery deliveries for consumers. The company implemented a $1 billion plan to build 26 massive warehouses in major markets nationwide. But once the Internet bubble began to deflate, the company no longer had access to the capital required to fund its money-losing operations and was forced to adapt. As it began charging for deliveries and trimmed marketing expenses, demand stalled and Webvan began retrenching dramatically.
During the past year, the Foster City, Calif.-based company has been fighting to stay alive. Webvan CEO George Shaheen, formerly the chief of Andersen Consulting, resigned earlier this year, and one-by-one, operations in Dallas, Atlanta and Sacramento, Calif., were closed in a desperate attempt to stem losses and conserve cash. But even in its remaining markets, Webvan wasn't able to keep up demand.
"Our order volume declined considerably during the second quarter, accelerating our need for capital," Webvan CEO Robert Swan said in a statement. "In light of the tough climate for raising new funds and our second-quarter order volume, we have made the difficult decision to end all operations effective immediately."
The death of Webvan will mean a return to the grocery store for some 750,000 remaining customers in the Chicago, Los Angeles and Orange (Calif.) counties, Portland, San Diego, San Francisco and Seattle markets.
The failure of Webvan is also a bruising defeat for some of Silicon Valley's savviest investors. Webvan, along with rival HomeGrocer.com, which it acquired in June 2000, counted VC firms Benchmark Capital; Kleiner, Perkins, Caufield & Byers; and Sequoia Capital, as well as Goldman Sachs, former Netscape chief Jim Barksdale and Amazon, among its investors.
Despite Webvan's demise, online grocery deliveries are expected to flourish – albeit on a more modest scale than that envisioned by Webvan and its investors. Just two weeks ago, British supermarket chain Tesco teamed up with Safeway to launch an online grocery business in which employees fill orders from existing stores rather than through a network of warehouses. The service already has proven successful and profitable in the U.K. Similarly, online grocery pioneer Peapod, which last year was rescued from the brink of bankruptcy by Dutch retailing giant Royal Ahold, is filling orders from a warehouse in Chicago and from Ahold-owned stores in various East Coast locations. The company, which already has turned an operating profit in Chicago, is on track to turn an operating profit at some of its other facilities.
Ironically, Webvan realized earlier this year that small-scale delivery services worked better than its costly distribution network. Its first and only market to turn an operating profit was Orange County, where the company operated out of one of HomeGrocer's facilities, which were about a third the size of the massive warehouses that Louis Borders had devised.
Webvan went public in November 1999, and its shares reached a high of $34 shortly thereafter. They closed at 6 cents Friday. Just last week, the company's board had approved a 25-for-1 reverse stock split to avoid being delisted from the Nasdaq. That plan has been halted.
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