STREAMLINE TO CLOSE, VICTIM OF LOSSES, TIGHT CAPITAL

JON SPRINGER

WESTWOOD, Mass. -- Streamline.com will cease operations this week, a victim of the e-commerce cash crunch and continued operating losses.

Streamline operates Internet-based grocery and services delivery businesses in Northern New Jersey and in Boston. Despite raising $42 million in an initial public offering last June, financing troubles forced the company earlier this year to abandon expansion plans and sell newly launched operations in two markets.

Streamline last week said it would sell its remaining assets and use the proceeds to settle with creditors. It will provide severance pay to 190 employees and retain a small staff to oversee the asset sale. Company shares were halted for trading on Nasdaq. They closed at 16 cents, down from a high of $14.69 about a year ago.

Streamline lost $23.2 million in the first six months of 2000 on sales of $17.3 million. For fiscal 1999, Streamline lost $19.5 million on sales of $15.4 million.

The decision to close shop came as little surprise to observers. Streamline had said as far back as May that it was seeking additional funding or strategic partnerships, and had expressed hope in September that after selling operations in Washington and Chicago, it could show a profit in its core Boston market and thus attract new investors. "Unfortunately, this is an extremely difficult market for raising the capital needed to finance Internet retailing businesses," said Timothy A. DeMello, Streamline's founder and president. "After months of extensive discussions with potential strategic and financial partners, we believe we have exhausted all possible options and must discontinue our service."

Streamline was wiped out only a day before its longtime rival ShopLink, also based in Westwood, said it would close shop. Those two joined dozens of other Internet retailing casualties, many of which aggressively spent IPO and venture-capital money on nascent strategies but were left without a safety net when investor confidence turned in April. Streamline's failure comes in the wake of high-profile dot-com flops such as Pets.com, and Priceline's WebHouse Club, which like Streamline burned through start-up money before reaching profitability.

Streamline's counterparts in the on-line grocery industry, including Peapod and Webvan, have survived the crunch thus far through strategic partnerships or buyouts, while others such as PDQuick, Camarillo, Calif., are currently retrenching in an effort to conserve capital.

Analysts suggested a less aggressive expansion strategy may have ultimately served Streamline better, while others said its failure cast doubts on the viability of pure-play Internet grocers.

"With hindsight being 20/20, the smart thing to do would have been not to expand as quickly as they did and focus instead on building profitability in its core markets," Ellen Baras, a securities analyst at William Blair Co., Chicago, told SN. "For almost all of these dot-coms, it was too much, too fast."

George Dahlman, an analyst for U.S. Bancorp Piper Jaffray, Minneapolis, told SN he felt that Streamline's failure illustrates fundamental problems among many Internet retailers -- a lack of efficient buying power and a resulting over-reliance on the capital markets.

"[Blaming the capital markets] is putting the blame in the wrong place," Dahlman noted. "The capital markets are not a deep-flowing well. I think a lot of dot-coms forgot a basic principle of investing -- that investors expect a return."

Streamline, Dahlman said, struggled in part because it did not have an established retail partner to defray costs of groceries.

"I think central to the survival of all on-line grocers is going to be a close linkage with an established grocery chain," Dahlman said. "Peapod is in better shape now that it has teamed with Ahold, because it needed a way to get its cost of goods down."

Streamline purchased its groceries primarily from Supervalu, Minneapolis.

Founded as phone/fax delivery business serving wealthy communities outside Boston, Streamline sought a niche among what DeMello called "busy suburban families." The company sold its service via a monthly fee and arranged weekly routed deliveries of groceries and services such as dry cleaning, shoe repair and video rental. To facilitate unattended delivery, Streamline in some communities arranged to install automatic garage door openers, shelving and a refrigerator in the garages of its customers. However, the refrigerators were recently being phased out in favor of more economical totes. DeMello argued that Streamline's routed delivery was two to three times less expensive than on-demand delivery schemes of rivals such as Webvan.

"We will serve the most profitable customer who will accept scheduled delivery," DeMello said earlier this year at an investors' conference. "We'll let others serve the rest."

The company attracted partners including the upscale Seattle-based department store chain Nordstrom, which invested $33 million in Streamline in 1998 and partnered with the Internet retailer on certain marketing efforts. However, Nordstrom this year has taken charges against earnings to write off the investment. Other Streamline investors included GE Capital, Reliance Insurance Co. and Intel.

Streamline went public at $10 a share in June 1999, and announced plans to expand into five cities by the end of this year and to 20 of the largest U.S. markets by 2004. Streamline opened operations in Washington, D.C., last fall and early this year acquired Chicago-based Scotty's Home Market in a stock transaction worth a reported $30 million. Adding former Star Markets and Staples executive Edward Albertian as chief executive officer earlier this year, Streamline launched service in Northern New Jersey in June and had plans to open a Minneapolis facility in the current quarter.

Those plans changed drastically after April's Nasdaq crash began the so-called "dot-com shakeout." Streamline, which had been expecting to raise additional funds for expansion, nearly closed shop in early September before raising $13 million by selling its Chicago and Washington operations to rival Peapod. Streamline in the meantime pulled out of its Minneapolis lease, suspended marketing expenditures and postponed plans to occupy a new warehouse and corporate headquarters building in Norwood, Mass.

The new warehouse -- which would replace a smaller facility operating at capacity -- was key to Streamline's profitability target in Boston, Albertian had said.