Webvan delivers its last word: Bankruptcy

The troubled online grocer says it has ceased operations and plans to file for Chapter 11 bankruptcy protection.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
4 min read
Troubled Webvan on Monday said it has ceased operations and plans to file for Chapter 11 bankruptcy protection.

The online grocer, which has been struggling financially for some time, said it has no plans to resume operations in any of its markets and intends to conduct an "orderly" winding down of its operations and sale of its assets and business. Approximately 2,000 employees have been let go as a result of the shutdown.

In a move that was widely anticipated, Webvan is halting deliveries of existing grocery orders and is no longer accepting new orders in any market. Webvan served customers in seven U.S. markets: Chicago, Los Angeles, San Francisco, Orange County, San Diego, Seattle and Portland, Ore. It had already shut down in three other markets since late last year.

Webvan is donating all perishable foods to local food banks, while nonperishable items including some frozen and packaged foods will be returned to the vendors or sold as part of the company's liquidation, Webvan spokesman Bud Grebey said Monday.

"Webvan has weathered numerous challenges, and in a different climate, I believe that our business model would prove successful," CEO Robert Swan said in a statement. "At the end of the day, however, the clock has run out on us."

In a recent filing with the Securities and Exchange Commission, Webvan said it expected to have enough money to operate through the first quarter of 2002. "Our future capital needs will be highly dependent on Webvan's ability to control expenses, manage the restructuring of operations as well as the market's demand for Webvan's services," the filing read.

But executives decided to file for bankruptcy despite reducing the company's cash-burn rate and shutting down operations in several cities, Grebey said. He blamed such recent problems as an unexpected drop-off in orders when the company changed its delivery fees and bad press over former CEO George Shaheen stepping down, a critical auditor's report, and layoffs and shutdowns.

"Some of our customers thought we had gone out of business. Some new customers thought our closure was imminent and guessed it wasn't worth signing up with us," Grebey said Monday.

Webvan had been struggling financially for some time, yet appeared to be rallying behind Swan, who took over after Shaheen stepped down in April.

A little over a week ago, Webvan shareholders voted to implement a 25-to-1 reverse stock split to keep the company's shares listed on the Nasdaq market.

The closely watched Webvan attracted more funding than any e-tailing company other than Amazon.com. It raised $375 million in its initial public offering and had such high-profile backers as Benchmark Capital, Softbank, Sequoia Capital and, through its HomeGrocer acquisition, former Netscape Communications CEO Jim Barksdale of The Barksdale Group.

Once worth $1.2 billion and touting an ambitious 26-city plan, Webvan signed a $1 billion Bechtel contract to build a string of high-tech warehouses worth about $30 million each.

Until late 2000, Webvan was still growing, with the company acquiring HomeGrocer, one of its leading rivals, last summer in an all-stock deal worth $1.2 billion at the time. Then the company began closing operations, shuttering a former HomeGrocer distribution center in Dallas in February and postponing the commercial launch of its service in a number of East Coast cities. Webvan laid off more than 1,000 workers this year.

The company's stock has plummeted since reaching a high of more than $30 during its November 1999 IPO. The shares closed Friday at 6 cents. The company recently won shareholder approval for a 25-to-1 reverse stock split and was fighting to keep its shares listed on the Nasdaq Stock Market.

Early Monday, the Nasdaq halted trading of Webvan's stock. Visitors to Webvan.com were met with a note stating that the company had ceased operations. "To all of our loyal customers, we are grateful for your support and encouragement. It has been our pleasure serving you," the statement read.

The site also notified customers that orders scheduled for anytime after Sunday evening would not be delivered. "You will not be charged," the message read. "If you have any outstanding issues, please send an email to service@webvan.com."

With Monday's announcement, the Foster City, Calif.-based company becomes the latest in a string of online grocery stores to go sour.

Regional efforts including ShopLink.com and Streamline.com also have checked out of the business. All of the Internet supermarkets had been scrambling to attract even a hint of the explosive consumer demand that they had envisioned only a couple of years ago, when they were busily stocking shelves in one of the hottest segments of e-commerce.

But Gartner analyst Whit Andrews, who said he was not surprised by Webvan's abrupt shutdown, said the company's demise does not indicate that the online grocery sector is going downhill. There is still a strong future there, he said--it will just look a lot different.

"Here's a radical thought: The future of the online grocer market belongs to the grocery stores," Andrews said. "They know the business, they can mix (sales) channels, and they can take their time."

Many analysts have said Webvan spread itself to too many locations too quickly.

"One of the hallmarks of the dot-com crush has been the presumption that you needed to get big fast, which worked for Amazon.com and virtually no one else," Andrews said. "The enormous infrastructure that Webvan thought to establish in multiple geographic areas just proved to be too great a cost."

Like the others, Webvan faced a number of challenges in its short existence, including a sharp economic downturn, sluggish consumer spending and investor indifference.

Webvan said that despite its ability to cut operating losses, its order volume declined "considerably" during the quarter ended June 30, leaving it hard-pressed to find additional capital.

Monday's announcement made no mention of severance packages for laid-off employees.