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ValueAmerica.com (VA) was created in the United States by entrepreneur Craig Winn as a B2C company. This company gives customer the chance to buy everything from caviar to computers. VA just as a conduit between the consumer and the manufacturer, this meant that VA would carry no inventory and “free” of overheads.
Winn and his co-founder Rex Scatena each provided $150,000 for the start-up and launch of VA in 1996. In 1997, the Union Labor Life Insurance Company invested $10 million and also provided VA with an introduction to other new investors. At the end of 1998, VA was accumulated deficit of $65.4 million, and in April 1999, floated on the NASDAQ. At that time, Internet stocks were very popular and the sales were a triumph.
The initial public offering (IPO) sold 5.5 million shares and raising $126.5 million before floatation expenses. This gives VA a market capitalization of $3.2 billion in the 1st day. However, just over a year after the stock market floatation, in 2000, valueAmerica.com filed for Chapter 11 bankruptcy. Under American law, companies in Chapter 11 are allowed to continue trading in the hope that they can solve their problems and become profitable as this is deemed to be better for the economy as a whole than the liquidation of the firm.
Lastly, VA was unable to recover and was sold to Merisel, a company specializing in distributing technology product.
There are several points that VA ‘FAIL’:
• VA was simply unable to make sufficient revenues to exceed its costs
• VA could not retain customer loyalty, there were few repeat purchase
• VA's business plan, which relied upon the manufacturer to supply items to the customers. Unfortunately, many of the manufacturers simply did not have the ability to ship items in small numbers to individual purchases, making it difficult for VA to establish a stable client base. Theirs logistics are design to ship large numbers of items to retail outlets. In fact, the incompatibility between customer's requirement and manufacturer's capabilities caused incorrect order, incomplete orders and long time delays b4 consumer received their goods.
• Customer retention- a major campaign was used to publicize the website, which featured more than 1000 brand names. The campaign generated a large number of potential customers to make purchases. However, the firm's computer systems were problems with frequent crashes. As a result, a high number of orders were not filled.
Neither VA was able to generate sufficient sales to become profitable but failed to control the expenditure once it began trading. This failure resulted in serious problems with liquidity and served to rapidly drive VA to bankruptcy.
Reference:
http://www.business.uts.edu.au/finance/research/wpapers/wp113.pdf
Winn and his co-founder Rex Scatena each provided $150,000 for the start-up and launch of VA in 1996. In 1997, the Union Labor Life Insurance Company invested $10 million and also provided VA with an introduction to other new investors. At the end of 1998, VA was accumulated deficit of $65.4 million, and in April 1999, floated on the NASDAQ. At that time, Internet stocks were very popular and the sales were a triumph.
The initial public offering (IPO) sold 5.5 million shares and raising $126.5 million before floatation expenses. This gives VA a market capitalization of $3.2 billion in the 1st day. However, just over a year after the stock market floatation, in 2000, valueAmerica.com filed for Chapter 11 bankruptcy. Under American law, companies in Chapter 11 are allowed to continue trading in the hope that they can solve their problems and become profitable as this is deemed to be better for the economy as a whole than the liquidation of the firm.
Lastly, VA was unable to recover and was sold to Merisel, a company specializing in distributing technology product.
There are several points that VA ‘FAIL’:
• VA was simply unable to make sufficient revenues to exceed its costs
• VA could not retain customer loyalty, there were few repeat purchase
• VA's business plan, which relied upon the manufacturer to supply items to the customers. Unfortunately, many of the manufacturers simply did not have the ability to ship items in small numbers to individual purchases, making it difficult for VA to establish a stable client base. Theirs logistics are design to ship large numbers of items to retail outlets. In fact, the incompatibility between customer's requirement and manufacturer's capabilities caused incorrect order, incomplete orders and long time delays b4 consumer received their goods.
• Customer retention- a major campaign was used to publicize the website, which featured more than 1000 brand names. The campaign generated a large number of potential customers to make purchases. However, the firm's computer systems were problems with frequent crashes. As a result, a high number of orders were not filled.
Neither VA was able to generate sufficient sales to become profitable but failed to control the expenditure once it began trading. This failure resulted in serious problems with liquidity and served to rapidly drive VA to bankruptcy.
Reference:
http://www.business.uts.edu.au/finance/research/wpapers/wp113.pdf
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