The online grocer Webvan closed down

- Last updated on GMT

Related tags: Initial public offering, Venture capital, Grocery store

The American online grocer Webvan that was funded by venture
capitals, is definitely shutting down its activities following many
attempts to reduce operating losses.

Webvan, the US online grocer filed for bankruptcy protection on July 9, shutting down its operations, laying off 2,000 staff and ending one of the most ambitious attempts to create a viable online retailer, reports the Financial Times. 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. Numerous efforts to preserve its cash by reining in its expansion plans had reduced operating losses, Robert Swan, chief executive, said on July 9. "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 Webvan had already withdrawn from the Dallas and Atlanta markets, and had attempted to stave off a Nasdaq delisting. Last 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. Last month, Safeway, the American supermarket chain, announced an alliance with the British retailer Tesco, and Peapod is now majority owned by the Dutch retailer Ahold. According to Marc van Gelder, chief executive of Peapod, the shutting down of Webvan is confirmation that a "bricks and clicks"​ strategy is 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 claimed, 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."

Related topics: Market Trends

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