ANALYSIS No one at Webvan's San Diego operations saw it coming. In mid-January, four months after acquiring rival HomeGrocer.com, Webvan was set to unite the two most powerful online grocers under one brand and one technology platform. It was a milestone, the first step toward the efficiency the companies had promised Wall Street at the time of the $1.2 billion merger. HomeGrocer's San Diego warehouse would switch over to Webvan's technology, and other facilities would follow.
But the integration didn't go smoothly; some customers were thwarted by technology snafus, others put off by an unfamiliar Web site. In the days after the conversion, San Diego patrons vanished; orders dropped from 700 a day to about 300.
A more cautious company might have paused, but not Webvan. One by one, it converted HomeGrocer sites in Los Angeles and Orange counties and Portland and Seattle to the Webvan platform. It was a risky move, especially since several facilities were close to breaking even; one was already profitable. Indeed, after each conversion, orders dropped 10 percent to 30 percent, according to several senior managers. In Fullerton, Calif., the one profitable operation, the decline was crippling. "That put us back into the red," says Rich Munday, who was senior director of operations at several of the Southern California facilities.
If the top execs at Webvan saw a problem, they didn't show it. On May 24, the day the operations of the two companies were finally integrated, they trumpeted the accomplishment in a press release. Webvan, they said, would be more efficient.
Maybe - but not for long. Last week the most audacious and second-best-financed attempt to rewrite the rules of retailing came to an abrupt end. On Monday, the gates of Webvan's Oakland, Calif., warehouse were shackled with thick chains. A security guard turned away workers and delivery trucks.
CEO Robert Swan blamed a considerable decline in orders and Webvan's inability to raise additional funds as the most immediate reasons for its demise. The drop in orders was due to a number of factors, the company says, including the economic downturn, cutbacks in marketing and bad press surrounding the company. Execs declined to elaborate further for this story.
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