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Furniture, food, and a dotcom revival
They're not big or sexy, but Net firms and ideas are making a smaller smarter comeback.
April 17, 2002: 4:15 PM EDT
By Eric Hellweg, CNN/Money Contributing Columnist

NEW YORK (CNN/Money) - Wanna know a secret? Webvan never really went away. True, the billion-plus dollars invested in the company are gone, its warehouses lie empty, and its stock certificates now fetch good money on eBay as kitschy mementos of Internet-era silliness.

But the concept of online home grocery delivery is still here and growing. And don't look now, but other long-forgotten Net concepts and companies are quietly coming back to the dance, tossing aside their flashy oversize polyester duds, and replacing them with sensible shoes and an understated smile.

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This week, will soft-launch its new public face. The company flamed out spectacularly in November 2000, after it followed the then-common model of spending exorbitant amounts on marketing and warehouse construction. But president Carl Prindle says he has learned from the company's mistakes. Now he's taking a different, smaller and smarter approach.

Rather than trying to change consumer habits -- an endeavor so many Net firms mistakenly rallied around in the late 1990s -- Prindle and company are augmenting an existing offline model. is now the online face of whatever retail furniture partners it can recruit. It is launching with two such partners, Levitz and Seaman Furniture, according to Prindle. doesn't manage inventory. Instead, it simply inserts an order into its partners' existing systems and gets a cut of the transaction. What's more, marketing responsibilities will fall to the partners, who will advertise the URL in their marketing materials and stores.

Will the new model ever boast $80 million in annual sales or reach number 67 out of more than 14,000 furniture retailers in the United States -- as did before it closed? Doubtful. But the company certainly won't rack up the monstrous losses and customer service black marks that it did in 2000, when struggled so mightily against the current of, well, rational business thought.

Webvan was hardly a model of clear thinking, but the concept of online home grocery delivery still has legs, as evidenced by the major retail grocery chains that currently offer some form of online service. Safeway (SWY: up $0.07 to $44.18, Research, Estimates) announced online ordering in March, to be handled behind the scenes by GroceryWorks, a company 50 percent owned by Safeway. Rather than going nationwide with the service immediately (one of Webvan's big mistakes), Safeway is starting small, offering it only in the San Francisco Bay Area; Portland, Ore.; and Vancouver, British Columbia.

Other supermarket chains, such as Albertson's (ABS: down $0.27 to $34.85, Research, Estimates) and Kroger (KR: down $0.19 to $22.17, Research, Estimates), offer similar services to slightly wider audiences. Royal Ahold USA (AHO: up $0.05 to $24.80, Research, Estimates), owner of chains such as Stop and Shop, bought the PeaPod online grocery service and is incorporating it into Royal Ahold stores.

Existing supermarket chains are capitalizing on the fact that they already have warehouses (in the form of neighborhood stores) and therefore don't have to build expensive storage and processing facilities. Forrester Research estimates that a $5 million warehouse must generate 4,000 orders of $120 each, every week, just to break even. Consider, further, that the cost of each of Webvan's warehouses was north of $25 million, and you begin to grasp the absurdity of the challenge.

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Dave Stewart, GroceryWorks's VP for marketing, says his company's approach gives it several advantages over Webvan. "We have a brick-and-mortar company behind us, and the procurement strength of a $32 billion company," he says. "We don't have to try and strike a deal with a Coca-Cola. We don't have to build a brand name. We have one." and GroceryWorks have no delusions of grandeur. Neither thinks it's going to change the world. But each believes that it can thrive in a sustainable niche by managing expenses and growing wisely. Hardly radical thinking, but in the environment from which these companies have sprung, such ambition would once have been labeled heresy.

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