Online warehouse club-style retailer Boxed to close

After struggling to shore up financing, online bulk-products retailer Boxed Inc. has filed for Chapter 11 bankruptcy protection and plans to sell its Spresso technology arm and shut its retail business.

New York-based Boxed announced Sunday night that it has initiated Chapter 11 proceedings to execute a sale of its Spresso software business to its first-lien secured lenders. In addition, the company said it has begun an “an efficient and orderly wind-down of its remaining retail business” as it streamlines operations.

Citing a “challenging business environment,” Boxed noted that it made the “difficult-yet-necessary decision to wind down its retail e-commerce operations” during the next few weeks. The company said its board of directors unanimously voted to proceed with Chapter 11 protection as “the most appropriate path forward.”

In mid-March, Boxed—impacted in part by the Silicon Valley Bank failure—had disclosed it was mulling a potential bankruptcy filing. In an 8-K report with the Securities and Exchange Commission (SEC), Boxed stated that it was “actively soliciting proposals for the sale of all or substantially all of its assets, as well as other material transactions that would improve its liquidity position.” The e-tailer also said it tapped investment banks Solomon Partners and TD Cowen as financial advisers to help assess strategic options. A forbearance agreement that Boxed held with lenders expired on March 19, and Boxed had been in negotiations to meet its terms.

“This was an incredibly difficult decision, and one that we reached only after carefully evaluating and exhausting all available options. Although this outcome is not what we worked so hard for, we are thankful to everyone, including our customers, who have supported us along the way,” Boxed co-founder and CEO Chieh Huang said in a statement late Sunday. “Looking to the future, we are incredibly excited to watch the Spresso business continue under new ownership.”

In a January interview with WGB, Boxed co-founder and CEO Chieh Wang noted declining sentiment on technology- and e-commerce-driving companies. / Photo: FMI-The Food Industry Association

Plans call for Boxed to fund its near-term operations and cover administrative costs as the retail business winds down amid the Chapter 11 process and the Spresso software unit transitions to a new separate legal entity.

In a prospectus supplement filed with the SEC on Monday, Boxed reported that, on March 30, it started winding down its remaining retail business and entered into a purchase order for the remaining inventory in its Dallas and Las Vegas fulfillment centers.

“The company began the process of liquidating the remainder of its inventory in Dallas and Las Vegas and expects to fully cease its operations and fulfillment of customer orders by no later than April 3, 2023, for those facilities,” Boxed stated in the prospectus filing. “The company continues to accept orders through its Union, New Jersey, fulfillment center for its remaining inventory.”

Boxed said it doesn’t expect Spresso customers to encounter any service disruptions during the sale process. Customary motions to ensure a smooth transition of operations have been filed with the bankruptcy court and are slated to be approved within a few days.

“I am immensely grateful for each and every team member throughout the past decade who has contributed to the journey of Boxed,” Huang added. “Through their hard work and dedication, they made a lasting impact on the e-commerce consumables industry.”  

Pioneering e-tail business

For investors, Boxed offered a robust B2C and B2B retail business and an end-to-end e-commerce platform through a software-as-a-service model. Founded in 2013, the company provides warehouse club-style shopping—including groceries, pantry items, household staples, health and beauty aids, office supplies, private label, and organic and green products—through its website and mobile app. Consumers and businesses can buy club-sized packages with free two-day delivery in the continental U.S. on purchases of over $49 (or $79, depending on location), without the membership fees of traditional warehouse clubs. Members of the Boxed Up loyalty program get free shipping for a $19.98 order minimum.

Boxed also offers Boxed Express, an on-demand delivery service for perishables, and in late 2021 entered the rapid grocery delivery arena via its first acquisition: New York City e-grocer MaxDelivery. That service was rebranded as Boxed Market in the 2022 second quarter.

And the retail business was growing. For the third quarter ended Sept. 30, its most recently completed reporting period, Boxed said retail net revenue rose 8.9% year over year, and retail segment gross profit surged 88.8%. The retail unit, too, tallied strong gains in retail net revenue per active customer, average order value and gross merchandise value.

Boxed's retail business had generated strong growth in its most recently completed quarter. / Photo: Boxed Inc.

Technology business held high growth potential

A linchpin of Boxed’s growth strategy was its high-margin software and services business, renamed as Spresso in the fiscal 2022 second quarter. The advanced e-commerce platform, leveraging artificial intelligence technology, offers retailers and other businesses a full software stack for storefront, marketplace, B2B, advertising and fulfillment functionality. More recently, those capabilities became available as modules, including the pricing optimization tool that Boxed uses itself.

For the Spresso unit, a key focus was building up a steadier pipeline of business to drive margin growth and bring more stability for investors. With the software and services arm, Boxed could report revenue only in quarters when deployments and implementation work were performed, which led to such variations as less than $0.1 million in net revenue for Q3 and Q2 but over $2.2 million for Q1.

Boxed in June 2021 unveiled plans to go public through a merger with special purpose acquisition company (SPAC) Seven Oaks Acquisition Corp. The new company, Boxed Inc., started trading on the NYSE effective Dec. 9, 2021. Huang remained as CEO of the company, with Seven Oaks Chairman and CEO Gary Matthews as chairman. A key draw for investors was Boxed’s move to license its technology to other businesses, a strategy seen as offering high growth potential.

Boxed's automated fulfillment center in Union, New Jersey. / Photo: Boxed Inc.

Tech market sours, financing tightens up  

Financially pressed Boxed had announced in early January that it was exploring a potential sale of the company, among other strategic alternatives. A few months earlier, the e-tailer had received delisting warnings from the New York Stock Exchange as its stock price and market capitalization fell below required levels. To address the situation, Boxed said at the time that it would evaluate various options, including a reverse stock split.

Then later in January, Boxed reported that it had arranged up to $20 million in new funding, and the company reiterated that it was continuing to seek a possible buyer.

In a January interview with WGB, after Boxed announced a possible sale of the company, Huang said the business has been squeezed by a tough market for technology-driven companies, as evidenced by Wall Street souring on the sector and ongoing layoffs among large, tech-focused players.

“We’re in a world where technology companies are certainly not being rewarded with the multiples that we saw in years past,” Huang said in the interview. “And there has been a lower sentiment than in years past on e-commerce companies as well.”