April 12, 2001, 12:00 AM

Kozmo ceases operations

Kozmo shut down its web site today and laid off 1,100. Pressures for profitability brought about the end.

From the start, critics wondered how same-day delivery service Kozmo could make a go of it. Today they found out-it can’t.

New York-based Kozmo, which focused a lot of attention on the same-day delivery model, announced last night that it is closing down. The company blamed the demise on changing market conditions that forced it to pursue profitability sooner than it had expected.

"Given more time and more hospitable market conditions, Kozmo would have succeeded in rounding the corner and would have continued to grow, " Gerry Burdo, president and CEO said. "However, some decisions made early in the company`s development combined with current market conditions prevented Kozmo from overcoming the challenges associated with conquering the last mile."

The company had received another round of funding in January. But one investor who had committed to $6 million pulled out before investing any more money and the others then followed. “That created a domino effect,” says Kevin Noonan, vice president of Internet and media research at the Yankee Group, who followed Kozmo.

Kozmo, which conducted business in nine cities (Atlanta, Boston, Chicago, Los Angeles, New York, Portland, San Francisco, Seattle, and Washington, D.C.), started life as a delivery service but had been growing into an online retailer, selling prepared meals, flowers, groceries and specialty items. The company says that with the expanded product line, the national average order size grew to $25 from $10 in July 2000, with gross margins growing from 12% to 48% in the same period. In December, Kozmo says it turned profits in three of its markets, Boston, New York, and San Francisco.

Kozmo will liquidate the remaining inventory and pay its creditors. It employed 1,100, most of whom were delivery staff or worked at the company`s 16 distribution centers.

Burdo said, "We had a strong commitment from our investors, who funded us as recently as January. Yet after a careful review of all options, the Board felt it was important to preserve our remaining resources while keeping the employees` best interests in mind, including being able to pay them a severance."


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