CEO Toby Lenk thought a banner year in 2000 would greatly enhance the company's value. When holiday sales came in at half of projections, the death certificate was all but signed. People close to eToys say it will likely be forced to file for bankruptcy to fend off creditors - and then be picked apart at garage-sale prices. With such staggering debt, shareholders will never see a penny.
Like eToys, Webvan is taking a wait-and-hope approach. The online grocer also has fallen short of projections and is betting that continued operations will boost its fortunes. That's quite a reversal for a Net retailer that raised more money - $1.2 billion - than any other, except Amazon.com (AMZN).
"We're fighting for survival," admits Bud Grebey, Webvan's VP of corporate affairs, who nevertheless insists the company isn't on the block. Instead, Webvan is trying to save cash by scaling back its original ambitions to operate in 26 cities within three years. It has indefinitely postponed the launch of service in Maryland and New Jersey. Last week, it pulled the plug on its Dallas facility. Underscoring the firm's travails, founder Louis Borders left the company's board.
Webvan's more modest goal now is to prove it can make money in one of its facilities - something it desperately needs if it has any hope of raising the $40 million to $60 million it says it will need in 2002. "The investment community has said, 'Show me,'" says Grebey. For that, it not only will need to hold on to its existing customers, but also persuade them to shop online more often.
The situation is equally grim at Buy.com. The retailer got its start selling products below cost, luring a wide audience of bargain hunters and hoping to make money on advertising. Recognizing the folly of that business model, it raised prices in 2000, nudging profit margins into positive territory but losing some of its core customers, the discount shoppers.
Not surprisingly, sales slipped during the holidays, forcing Buy.com to shutter its Canadian and British operations. In addition, the company's board fired CEO Greg Hawkins and CFO Mitch Hill two weeks ago. Its new management declined to comment on the prospects for the future.
So eToys may be dead, but Webvan and Buy.com could find a road to survival. The only other mass-market online merchant with any chance is Amazon.com, and it isn't exactly thriving. Still, e-commerce continues to grow, with traditional retailers coming on strong. Now they have fewer obstacles in their path.
