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Webvan shuts down
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July 9, 2001: 12:31 p.m. ET
Struggling online grocer dismisses 2,000 workers, to file Chapter 11
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NEW YORK (CNNfn) - Online grocer Webvan Group Inc. is shutting down its operations and filing for Chapter 11 bankruptcy protection, the company said Monday.
The Foster City, Calif.-based company said it had let about 2,000 of its approximately 2,600 workers go and stopped taking and filling orders, including any orders already placed. Its Web site was inaccessible Monday.
Webvan also said it will not resume operations but will seek to sell its assets, and that it expects its stock to be delisted from the Nasdaq stock market. Usually under Chapter 11 of federal bankruptcy laws, companies are protected from creditors as they seek to reorganize.
Webvan, which began selling groceries over the Internet about two years ago and was never profitable, blamed declining orders in the second quarter and difficulty in raising more cash to stay alive.
"Webvan has weathered numerous challenges, and in a different climate I believe that our business model would prove successful," said CEO Robert Swan said. "At the end of the day, however, the clock has run out on us."
Webvan had $178.5 million in sales in 2000, but that revenue was swamped by $525.4 million in expenses. The company had planned to expand to 26 markets and turn a profit in 2002. Instead, it retrenched to seven markets this year -- San Francisco, San Diego, Los Angeles, Chicago, Seattle, Portland and Orange County, Calif. -- after backing out of Atlanta, Sacramento and Dallas.
In April, Webvan cut its work force by about 900 workers and named Swan its new chief executive as part of a restructuring effort to keep the company afloat. At that point, the company had about 3,500 employees.
Webvan also scrapped plans for a 25-to-1 reverse stock split, which would have been a last-ditch effort to stay alive. Webvan (WBVN: Research, Estimates) shares fell 1 cent to 6 cents Friday.
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Webvan shares were $26 each the day of the company's initial public offering, Nov. 5, 1999, up from an initial offering price of $15. There had been so much hype and news about the IPO in advance of its first trade that the U.S. Securities and Exchange Commission delayed it by a month.
The company, which promised delivery of goods within a 30-minute window specified by customers, could not survive despite a roster of powerful backers including Borders Group Inc. (BGP: Research, Estimates) founder Louis Borders and former Andersen Consulting chief George Shaheen.
Shaheen left Andersen Consulting, now known as Accenture Ltd., in November 1999 to become Webvan's CEO. When he left Webvan in April, the company was required by the terms of its employment agreement with Shaheen to pay him $375,000 a year for the rest of his life.
Calls to Webvan to determine how Shaheen's payments will be treated under the company's bankruptcy reorganization were unreturned.
As recently as May, Webvan said it expected to get $25 million in additional financing this year, money it said it wouldn't need to use in 2001. But the company's 2000 annual report, released in April, painted a darker picture, as its auditor expressed "substantial doubt" about Webvan's ability to make it through 2001.
More successful online grocery businesses -- at least so far -- have been brick-and-click models, such as that run by Britain's No. 1 grocer Tesco and U.S. food retailer Safeway Inc. (SWY: Research, Estimates).
Tesco recently agreed to run Safeway's online grocery business, GroceryWorks, which will operate across the United States and make deliveries from existing stores rather than warehouses. 
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