Value America Ends E-tail Operations

Value America, Inc. (Nasdaq: VUSA), one of e-tailing’s early high fliers, said Friday it has discontinued its retail operations, let go 185 employees and filed for bankruptcy protection so it can develop a business to help other companies sell products online.

The Charlottesville, Virginia-based company said it is seeking to restructure its operations under protection of Chapter 11 of the U.S. Bankruptcy Code. Value America’s Web site was inaccessible Monday morning.

“The decision to shut down our Internet retailing business was difficult,” Chairman and Chief Executive Officer Glenda Dorchak said. “Despite efforts on the part of our employees and the loyalty of our vendors and customers, it has become apparent that the prospect for near-term profitability of a company engaged exclusively in the retail side of the electronic commerce industry is not assured.”

Company Pins Hopes on E-Services

The Chapter 11 filing, said Dorchak, will “protect the interest of our many stakeholders, and should ensure that our electronic services business has an opportunity to develop and move forward.”

Through its electronic services business, Value America links manufacturers, vendors and distributors with consumers, arranging for online order fulfillment, payment and delivery.

The company said it expects to emerge from bankruptcy with a successful business, and has done market research with outside consultants to see how it could help other companies.

Restructuring Draws Interest

“Potential commercial partners” have reviewed the e-services business plan and came back with “favorable feedback,” Value America said.

“After careful consideration, and despite our good-faith efforts, we were unable to establish to our satisfaction that our Internet retailing operation would become profitable within a reasonable time frame,” Dorchak said. “However, we believe the company has one of the most sophisticated and commercially viable technology infrastructure backbones in e-commerce today.”

Early Success Gives Way to Problems

Value America began as an online discount superstore, offering everything from computers to beauty supplies at cut-rate prices. The company went public in 1999 at $23 per share (US$) and the stock soon soared above $74.

Problems soon appeared, however, and the company floundered amid soaring expenses and delivery problems. There were also allegations of mismanagement, with Dorchak taking over from co-founders Craig Winn and Rex Scatena to try to turn things around. The company narrowed its product offerings, hoping a sharper focus would help operations.

Spring Brought Hope

By this spring, things appeared to be looking up. Value America said in May that it had received equity investments totaling $90 million from two investor groups, and that it was on track to reach profitability in 2002. The company also reported higher first-quarter revenue and a narrower loss, saying cost cuts put in place late last year were beginning to take hold.

Value America shares closed Friday at 23/32.

Kozmo Cuts

In related news, food and entertainment delivery service Kozmo.com announced Friday it laid off 275 employees — representing 10 per cent of its work force. According to published reports, a new computer network, installed by Kozmo to streamline the delivery process, eliminated the need for the jobs.