Webvan was founded in 1996 and turned into Dot.com Company during 2nd June 1999. Louis H. Borders is the founder of this giant online grocer. The company did very well at the beginning and the business expanded very fast all over the United States. However, Webvan presented a net loss of $217 million and an accumulated deficit of $820 million during year ended 2007. There is no persuasive revival or recovery plan so far that could be found.
There are 4 main causes which contribute to the failure of Webvan:
Lack of planning and experiences
The founder of Webvan does not have any experience on online grocer at the first place. However, the dot.com company decided to expand so quickly into the unfamiliar and uncertain area. Moreover, Webvan ran the online grocer by its own way without depending on experiences of others. The lack of experience has caused poor management decision making and wrong business focus which lead to the failure of Webvan.
Other than that, the poor demand forecast also contributes a lot to the failure of Webvan. Demand forecast of Webvan is too optimistic where the management thought that online grocer has been dominant almost all of the market and people do not want to shop at supermarket anymore. The poor demand forecast causes the revenue of the company fail to cover the huge expenses invested in logistic, delivery and technology.
Lost control on spending
Due to the poor decision making and planning, Webvan tends to invest a very huge amount of money in various parts of the online grocer business.
First, Webvan invested a huge amount of money in technology and it was too expensive for a low volume and low margin products and sales. Secondly, Webvan invested $25 million to $35million per mega warehouses to build its fully automated distribution centers. Thirdly, Webvan withdrew $850 million merely for campaign and advertisement purposes. Last but not least, the take over action on HomeGrocer.com cost Webvan $1.2 billion.
The above-mentioned huge spending leads to an increase in existing debts and drives up the break-even point of the company. These expenses have become a disaster for Webvan when the sales demand was much lower than expected.
Poor quality control
After realizing about the lost control of spending, Webvan tried to solve the problem by cutting down the cost at the expense of their customers. The sales demand dropped again because of the poor quality control which worsened the situation of Webvan.
Loss customer focus
Webvan fails to understand the value chain of online grocery business. It is a vital part for an online grocer company to be more customers-oriented. However, Webvan tends to focus on the efficiency of the work progress while lost its focus to react when there is a change in customer requirement.
In the end, Webvan fails to meet customer requirement and therefore causes sales of the company to drop.
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