US Online grocer crashes
Webvan joins list of high-profile net flops
By Andrew Edgecliffe-Johnson in New York
Published: July 9 2001 19:56GMT | Last Updated: July 10 2001 05:11GMT
Webvan, the US online grocer once seen as a symbol of the internet’s unlimited potential, filed for bankruptcy protection on Monday, shutting down its operations, laying off 2,000 staff and ending one of the most ambitious attempts to create a viable online retailer.
The Chapter 11 filing marked Webvan as one of the biggest failures in e-commerce, having burned through more than $1bn of funding in less than two years.
Its shares, briefly valued at $8.7bn on the day of its November 1999 initial public offering, are now likely to be delisted from the Nasdaq market. The company has become one of the internet’s most famous casualties.
Numerous efforts to preserve its cash by reining in its expansion plans had reduced operating losses, Robert Swan, chief executive, said on Monday. “At the end of the day, however, the clock has run out on us,” he said.
Mr Swan added “in a different climate I believe that our business model would prove successful”. A sharp fall-off in orders, coupled with a tough climate for raising new funds, meant instead that Webvan had decided to wind down its operations and sell its assets.
Webvan had already withdrawn from the Dallas and Atlanta markets, and had attempted to stave off a Nasdaq delisting. In April, it cut 885 jobs and announced that George Shaheen, the former managing partner of Andersen Consulting, was resigning as chief executive.
Webvan’s failure is a blow to its many powerful backers in silicon valley and Wall Street. Funded initially by venture capital groups such as Softbank Capital Partners and Sequoia Capital, its IPO was underwritten by Goldman Sachs and other leading brokerages.
Other online-only grocers such as Streamline, HomeGrocer and Peapod have already closed, merged or changed strategy, and one consultancy, Jupiter Media Metrix, has halved its 2001 forecast for online grocery sales from $2bn to $1bn in recent months.
Industry executives said, however, that Webvan’s closure did not spell the end of internet grocery sales but reinforced the logic behind traditional retailers’ approaches to the market.
Safeway, the California supermarket chain, last month announced an alliance with Tesco of the UK, and Peapod is now majority owned by Ahold, the Dutch retailer.
Marc van Gelder, chief executive of Peapod, said Monday’s news was confirmation that a “bricks and clicks” strategy was the right one. The combination of Ahold’s stores and Peapod’s technology had already allowed Peapod to report an operating profit in its Chicago market, he said, and other markets would soon be profitable on a stand-alone basis.
Whereas Webvan had attempted to open in 26 markets within three years, Peapod would concentrate for now on large metropolitan areas, he said. “It’s an old world lesson – you first need to be profitable, then you roll it out.”
Mr van Gelder added: “Webvan went from nothing to $260m in sales in two years’ time. It is still quite an accomplishment.”
