August 15, 2000 2:30 PM PDT

Has death knell sounded for Living.com?

Amazon.com-backed Living.com today said it has closed its doors, laid off 275 employees, and will file for bankruptcy.

Amid rumors circulating about its future, the online home furnishings store closed its site to incoming orders, saying in a news release that it will file for Chapter 7 bankruptcy.

"The decision to close our store was an extremely difficult one," Shaun Holliday, chief executive of the Austin, Texas-based company, said in a statement. "Despite our employees' tremendous efforts and the loyalty of our customers, the recent downturn in the capital markets has substantially impaired our ability to raise the capital required to achieve profitability. After exhausting all apparent alternatives, we have no choice but to file Chapter 7."

A company undergoing Chapter 7 proceedings is able to continue with operations under the direction of a court trustee until the matter is resolved. This type of filing usually leads to a liquidation, but if a company is able to resolve its problems and settle with its creditors, it may be able to avoid it.

The company encouraged customers to return to the site to find out the status of their pending orders.

"We regret that circumstances beyond our control have forced us to discontinue operations," the company said in a note on its home page. "We are sorry for the inconvenience this may cause you."

Customers who visit Living.com through Amazon's "Home Living" store tab get a similar message.

"We're sorry to tell you that our Home Living store, run by Living.com, is no longer open for business," a note reads. "Rest assured--if you placed an order through the Home Living tab at Amazon.com, you will not be required to pay for any merchandise that Living.com cannot deliver to you."

Living.com representatives, reached by CNET News.com, declined to comment further.

Amazon removed the "Home Living" store tab today, after Living.com shut down its site. Amazon spokeswoman Patty Smith said the company would consider future deals with other furniture companies to re-open its home living store, but declined to say whether the Seattle-based e-tail giant had anything in the works.

Smith declined to say whether Living.com had asked Amazon for more money to continue operations. Althoguh Living.com is the only company Amazon has invested in that has failed, Smith said she did not think shutdown reflected poorly on Amazon.

"We had a good arrangement with Living.com," Smith said. "It's unfortunate that they weren't able to sustain their business."

Smith said she did not know whether Amazon had already renegotiated its marketing deal with Living.com. She declined to say whether Amazon would pursue a claim against Living.com as one of its creditors.

"It's a little too early to speculate on things like that," Smith said.

The online furniture business has already seen its share of troubles, with both Living.com and rival Furniture.com laying off employees in recent months. Furniture.com had more problems today, as its site was down for about 3 hours.

The problems such companies face are legion, said Gomez analyst Jeff Quinn. Few customers are shopping for home furnishings online and Internet pure plays are up against strong offline competitors such as JCPenney and Sears, which already have home delivery networks in place.

On top of that, Quinn said Living.com simply did not make very good business decisions, spending money on pricey advertising deals such as their store tab on Amazon instead of investing in necessary infrastructure. "They created a business around a marketing play," Quinn said.

Living.com's closure comes after a slew of e-tail failures. Value America, for instance, closed its doors on Friday and filed for Chapter 11 bankruptcy protection. In recent months, Toysmart.com, Boo.com and Nickelodeon's Red Rocket have also shut down.

Living.com has been struggling since at least May, when it laid off 50 employees--13 percent of its staff--to cut costs.

Earlier that month, the company had its biggest triumph, launching the store tab on Amazon's home page. But the company paid a big price for the prime presence at Amazon, agreeing to pay the e-tail giant $145 million over five years.

Amazon said in a conference call with investors last month that it expected to have to renegotiate several of its deals with partners such as Living.com.

Amazon announced that it had bought an 18 percent stake in Living.com in February and received warrants for another 9 percent of the company. Starbucks is another investor.

 

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