Kozmo.com lays off 10%

Doug Henwood dhenwood at panix.com
Mon Aug 14 13:41:48 PDT 2000

[The geniuses at Kozmo.com told me I didn't return a video I'd dropped into one of their boxes. When I called to complain, they accepted my explanation without question. A couple of days later, I got an email offering me a free rental - not for my suffering, but just for being a "valued customer." I've rented all of four videos from them. For that, I've gotten a t-shirt, a Zagat's restaurant guide, and two free rentals. Their venture capitalist, Jerry Colonna of Flatiron Partners, told me they've got a viable business model.]

* Kozmo.com Lays Off 275

Another 275 employees have been given pink slips at Kozmo.com as the Alley-based instant delivery company shut the doors at two distribution centers in Los Angeles. The cutbacks represent about 10 percent of Kozmo's staff.

With its IPO on hold, the latest move is seen as another attempt by the start-up to prove to would-be investors that it is not just a cash-burning machine.

In confirming the layoffs this morning, Kozmo spokesman Matt Higgins said the latest restructuring move was necessary to "improve our efficiency".

Higgins said half of the 275 canned were from Kozmo's New York operations but made it clear that the daily delivery services will not be affected. The latest layoffs comes just a few weeks after company founder and former CEO Joseph Parks stepped down.

"We're always looking to identify ways to improve our efficiency and I want to make it clear that our customers won't be affected. We are no scaling back our delivery services," Higgins said, adding that the layoffs affected drivers and warehouse personnel at locations on both coasts.

Four months ago, 24 employees from Kozmo's New York headquarters were sent packing in the name of streamlining operations.

Higgins said the latest cutbacks will not affect the company's plans to go public, noting that no date was set for the IPO. "Our S-1 is still on file," he said, referring to the SEC document which must be filed when a company announces plans for an IPO.

In Los Angeles, two distribution centers have been closed but Higgins said plans for a new center in San Diego will not be affected. "We just opened a new state-of-the-art facility in New York and we're opening up soon in San Diego. Our service area is not changing," Higgins added.

Higgins declined to comment on the company's financial situation. In March this year, Kozmo filed for a $150 million IPO underwritten by Credit Suisse First Boston, Salomon Smith Barney and U.S. Bancorp Piper Jaffray.

Back then, the company's registration statement showed massive spending and scant revenue typical of fast-growth Internet companies. In 1999, Kozmo took in $3.5 million but recorded net losses of more than $26 million. All told, it has accumulated a deficit of $27.3 million and the SEC filing basically admitted that the losses will get wider as Kozmo expands its operations to more cities.

Kozmo.com is headquartered in New York City and currently services New York, Boston, San Francisco, Los Angeles, Seattle, Chicago, Atlanta, Washington, D.C., Portland and Houston.

The company is backed by Flatiron Partners, Oak Investment Partners Chase Capital Partners, J.W. Seligman & Co, Inc. and the Hambrecht & Quist Group. Online retail giant Amazon.com also has a stake in Kozmo.

Kozmo is also stuck with a massive pay-for-space deal it was counting on IPO proceeds to pay for. In February, the company agreed to pay coffee retailer Starbucks $150 million over the next five years for prominent place around the country.

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