Streamline.com Calls It Quits as E-Commerce News Gets Worse

The future looks increasingly bleak for a once-hot sector.
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Streamline.com (SLNE) became the latest consumer e-commerce company to fail Monday, announcing it would discontinue its online grocery delivery and errand service later this month.

The Westwood, Mass.-based company, best known for leasing refrigerators for its customers, issued an announcement that should be very familiar to anyone who followed last week's

demise of

Pets.com

(IPET)

. In fact, the two ought to team up on a template for all the other e-tailers that will still need to write their own farewell press releases:

Streamlined
E-commerce firm's shares approaching zero

First, announce that the company is "winding down," which sounds much better than "going belly-up." Then, devote a few words to the exhaustive -- but fruitless -- search for strategic alternatives, including the quest for more money, partnerships or a buyer. Blame the capital markets and their hatred of business-to-consumer Internet companies. Talk about selling off assets, if there are any. Toss in a quote from the CEO again blaming the capital markets. Thank customers. Say goodnight.

Same Old Same Old

The similarities between the two companies go beyond phraseology and timing. Like Pets.com, Streamline went public at a time when money was easy to come by for consumer e-commerce companies. But in April of this year, investors started to get nervous about the ability of these businesses to actually make money, and the

Nasdaq

began a plunge that continues today.

Streamline's shares, priced at $10 at its June 1999 IPO, hit a high of $14.69 and then slid to 16 cents before Monday's news. Not only did this put the kibosh on online grocers' plans to expand nationwide, but the precipitous decline in the markets meant that the funding necessary just to keep going was hard to come by. No potential for IPOs. No venture capitalists eager to put up more dough. And no capital. No exit!

Also, like Pets.com, Streamline operated in a tight business niche. The grocery business is notoriously difficult, with high fixed costs and low product margins, and that made it even harder for online companies like

Peapod

(PPOD)

,

Homegrocer

and

Webvan

(WBVN)

-- not to mention Priceline WebHouse Club -- to make money.

These unfortunate circumstances caused some wheeling and dealing in the online grocery business: Webvan bought Homegrocer to get its customers and cash. Peapod sold a majority stake to

Royal Ahold

(AHO)

and in September bought some of Streamline's operations for $12 million. Streamline said it would narrow its focus to a smaller number of local markets. Everyone has scaled back on market expansion. But still, no one is making money. Webvan is still struggling to break even on a cash flow basis at its Bay area distribution center. It was supposed to do so last quarter; it failed.

No Upside

That's one other thing Pets.com and Streamline have in common: Their former competitors are still trying to make a go of it. Unfortunately, the "winding down" of a rival does not necessarily mean good things for the ones still standing. Petopia may get some business from Pets.com customers, but it still needs capital, and it still isn't profitable, so it's not going to get an IPO out of it. Webvan doesn't directly compete with Streamline in any markets, so it's not going to pick up any new customers from its demise.

No wonder Webvan shares -- which still, incidentally, trade at more than three times sales -- fell 13 cents, or 11%, to $1.03, after Streamline's announcement. All those niggling doubts about whether the industry can succeed online were just reinforced.

And guess what? Think that groceries and pet supplies are the only industries whose economics simply don't support massive e-commerce operations? Judging by the performance of the entire e-tailing sector, that's not a bet investors are willing to take.