May 22, 2001 4:55 PM PDT
Webvan cuts fat to bring home some bacon
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The ailing online grocer has been putting assets up for sale as it scrambles to raise money and fight off delisting. On Tuesday, the company auctioned off the goods from a top-of-the-line $1.3 million kitchen that was never used. The kitchen was going to be used to prepare precooked meals for customers.
Among the items were stainless-steel pasta cookers, 12-pan aluminum bun racks, boilers that can cook up to 100 gallons of soup, blast chillers that instantly freeze cooked food, three-horsepower meat saws--and, of course, some pots and pans.
"How did this happen?" said David Gibson, a consultant for Canadian grocer Thrifty Foods, who attended the auction in the vast 300,000-square-foot Kent, Wash., warehouse that Webvan never opened and therefore sat idle for months.
"This is so tragic to me, the whole thing is such a waste. All this money," Gibson said, adding that the starkness of the silent, shiny conveyor belts and carousels that had never seen so much as a head of lettuce gave him the shivers. "If I was a stockholder, I'd be very upset...seeing the vast size of this warehouse--and not a stick of it will ever be used."
Since Webvan began closing several operations this year, bargain hunters have been finding good deals on former Webvan goods. In addition to the kitchen equipment, Webvan is trying to unload some of its signature delivery trucks in Dallas and to sublease warehouse space in New Jersey--one of several warehouses the company leased but never opened, and which it must continue to pay rent on.
The company has said it has enough money to operate through the end of the year and will need about $25 million to fund operations into the second quarter of 2002. By that time, the company expects to become profitable and self-sufficient.
Gibson, who wound up buying several sinks and a slicing-and-dicing machine, said the prices were less than he was expecting to pay. "I expected bidding to be higher and for more people to show up."
Webvan did not return phone calls seeking comment about the auction.
Once worth $1.2 billion, Webvan signed a $1 billion Bechtel contract to build a string of high-tech warehouses worth about $30 million each. Now, with a new chief executive, steep cuts and a new austerity program, the company is struggling to stay alive.
Until late 2000, Webvan was still growing, with the company acquiring HomeGrocer, one of its leading rivals, last summer in an all-stock deal worth $1.2 billion at the time.
Then the company began closing operations, shuttering a former HomeGrocer distribution center in Dallas in February and postponing the commercial launch of its service in a number of East Coast cities. Webvan laid off more than 1,000 workers this year and saw CEO George Shaheen step down.
Tuesday's auction could fetch the company up to 75 percent of its original investments, said David Charyn, senior vice president of Charyn Auctions, which handled the sale.
"Some of this stuff has never even been tested," he said of the brand-new conveyor belts, refrigerators and ovens. But most items will draw bids closer to the industry average of about 35 percent, Charyn said.
Charyn said he has handled many auctions for dying or dead dot-coms, and he commends the companies that are trying to return value to venture capitalists or shareholders.
"These are tough decisions sometimes, but I see it as a life cycle," Charyn said. "Once a company dies, the more funding that can be extracted from the remains can help create new start-ups."
But some of Webvan's assets are harder to turn around, such as the warehouses themselves, built for about $35 million on leased property. Sources close to the company say Webvan is paying rent on at least two warehouses--in North Bergen, N.J., and Baltimore--that were never opened. Webvan pays an annual rate of $6 per square foot for the 348,000-square-foot warehouse in New Jersey, sources said, or about $2 million a year.