July 9, 2001, 12:00 AM

Webvan ceases operations; files for protection under Chapter 11

Webvan’s woes continued in the second quarter with a decline in order volume. The online grocer laid off 2,000 today and shut down in all seven markets.

Troubled Webvan Group Inc., which only last month got shareholders to approve a reverse stock split to bump up share value so as to hang onto its Nasdaq listing, today announced it has ceased operations in all markets and will file for protection from creditors under Chapter 11 of the Federal Bankruptcy Code. Webvan has stopped accepting new orders on its web site and has terminated 2,000 workers with today’s announcement. The Internet retailer had served seven regional markets in Chicago, Los Angeles, Orange County (Calif.), Portland, San Francisco, San Diego and Seattle.

Webvan recently had pitched customers in an e-mail campaign to increase their order size, then hovering at an average $114, in an effort to gain profitability. The company also has made changes in its delivery service fee structure to encourage larger order size. But declines in order volume during the second quarter ended June 30, says CEO Robert Swan, further accelerated Webvan’s need for capital. “At the end of the day, the clock ran out on us,” says Swan. “We’ve made the difficult decision to end all operations effective immediately and to wind down the company’s operations and sell our assets in an orderly manner. We took this action rather than continuing to operate with high losses and decreasing cash.”

“It wasn’t unexpected,” says Dan Frahm, CEO of WhyRunout.com, a delivery service that works with retailers including grocers in local markets. “We’ve been believers in the decentralized fulfillment model for years. Large warehouses far from the customers just don`t make sense no matter how much money you raise. Look at what works. Pizza works; you’re making short deliveries from fulfillment centers close to the customers. The idea of traveling long distances with big expensive trucks and creating the overhead of a large distribution center is really what caused the problem for Webvan. You’ve got to have a model that makes money on each delivery.”

Webvan will not implement the 25 to 1 reverse stock split its shareholders approved only two weeks ago. Following the company’s announcement, Nasdaq halted trading of Webvan’s shares this morning at a closing price of 6 cents per share.

 

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