Webvan Cuts Dallas Out of Route

Webvan Group Inc.'s milkman image got splattered with a fresh coat of mud yesterday. The online grocer specializing in home delivery said that it was exiting the Dallas market. The move eliminated 220 jobs in the area and followed the Feb. 16 announcement that 70 employees would be eliminated at its nine other locations.

Webvan, Foster City, CA, employs approximately 4,000 people. In addition, company founder Louis Borders, who is the firm's No. 1 shareholder, resigned from the company's board of directors on Feb. 14.

The 2-year-old firm — which has described itself as “the milkman meets the Internet” — entered the Dallas market last September after acquiring the struggling Homegrocer.com and assuming its warehouse facilities.

Webvan spokesman Bud Grebey said Dallas was a learning experience in which his firm was able to revise back-end processes for items such as fruits and vegetables and to make fulfillment in those areas more cost-effective for its other locations.

Grebey said that prior to the Dallas closing, his company had employed workers to pick and pack customized fruit/vegetable orders. He said the firm now has its regional suppliers take online orders, package them and drive them to Webvan fulfillment centers where delivery is carried out.

He said the suppliers were picking and packing the orders for no extra charge — saving his firm considerably on labor costs.

Grebey said the Dallas center was still using Homegrocer.com's warehouse management systems after the acquisition. As a result of the closing, Webvan will not have to retool the center's infrastructure to bring it in line with the company's technology. Grebey said the closing in Dallas was a major step in achieving Webvan's goal of profitability by 2002.

Grebey said local competition in the Dallas-Fort Worth area from Internet rival GroceryWorks.com and large retailers such as Wal-Mart and Kroger's also contributed to the closing. He said competition from the traditional retailers drove prices down well below national rates, tightening profit margins and squeezing his company out of the market. The Dallas fulfillment center, located in the suburb of Carrolton, TX, is up for lease.

Webvan spokeswoman Amy Nobile said the company was delaying plans to enter the New Jersey/New York market in order to preserve capital, though the firm recently completed a $30 million, 348,000-square-foot fulfillment center in North Bergen, NJ. She said the company was not looking to lease the building and still plans to enter the market. However, she would not project a debut date.

Webvan's latest developments followed its partnership with PETsMART Inc. in which they opened a co-branded store earlier this month. The PETsMART.com store replaced Webvan's pet section.

The PETsMART deal came only days after Nasdaq warned Webvan that its stock would be delisted from the tech-heavy index if its share price did not climb above $1 during the next 90 days and remain at that level for 10 consecutive days. Webvan has been quoting at less than $1 since late November.

Webvan recorded a loss of $109.1 million during the fourth quarter of 2000, compared with $56 million in the same period during 1999. Revenue for the fourth quarter was $84.2 million, up from $19.8 million in the year-ago quarter.

While it ended the fourth quarter last year with $212 million in cash, the company admits it may need $40 million to $60 million in extra funding by 2002.

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