The cost of the Living.com dead

Don't click here! The "home" tab to the right of "health & beauty" has disappeared

High-profile investors like coffee retailer Starbucks and e-tailing giant Amazon are counting the costs after the bankruptcy of US online furniture and home products retailer Living.com.

Just four months ago the web site had been praised as "the best online furniture store" by e-commerce analysts Gomez.com. Now the site shows features only a terse statement, announcing that it will file for bankruptcy and sack 275 employees.

The recent downturn in the capital markets has substantially impaired our ability to raise the capital required to achieve profitability

Shaun Holliday, Living.com chief executive

Shaun Holliday, Living.com's chief executive, is quoted as saying that "the decision to close our store was an extremely difficult one", and concedes that the firm was no longer able "to raise the capital required to achieve profitability" as investors turn away from internet stocks.

The firm's collapse came as a nasty surprise to Amazon, which was both an investor and partner of living.com

Amazon was forced to remove the "home" tab on its top navigation, the entry point to a co-branded website of Amazon and Living.com. The home tab was added just three months ago.

'Trusted partners'

Amazon has expanded through a number of alliances with web retailers, describing them to customers as 'trusted partners'.

All that's left from the Living.com shopping site

Most recently the firm linked up with the struggling web venture of toy retailing giant Toys R Us.

Other partnerships include auctioneer Sotheby's, health and beauty retailer Drugstore.com and jewellery shop Ashford.com.

Amazon spokesperson Patty Smith said: "We work to support our partners to enhance their likelihood of success. Many partners within the network are doing quite well."

The failure of Living.com will likely prompt some additional observations that e-commerce is not proving to be all some had hoped it would be

Henry Blodget, Merrill Lynch

In Amazon's most recent set of results, the firm acknowledged that its investments in web companies like Living.com were costing it more than $100m a quarter.

The latest web collapse will put Amazon even more in the spotlight. In recent weeks, a number of analysts have publicly doubted whether the Seattle-based company will ever be able to turn in a profit.

Henry Blodget, a much-watched Merrill Lynch analyst specialising in internet stocks, said: "It does reduce the overall addressable market opportunity and makes us less comfortable with Amazon's other investments and dot-com partner companies."

The company says it has plenty of cash to see it through to profitability. Investors, though, are wondering whether this forecast is correct.

Since the start of the year, Amazon's stock has fallen steadily from a $113 peak to about $38, with little sign of recovery.

Starbucks spill

Premium coffee retailer Starbucks, meanwhile, warned investors that it would have to write off a $20.6m investment.

That represents Starbucks' entire stake in Living.com, and the coffee shop chain warned that more dot.com failures could result in further writedowns.

Starbucks has investments in kitchen supply web site Cooking.com, online convenience store Kozmo.com and online community site TalkCity.

Chapter 7

Living.com is to file for bankruptcy under "Chapter 7" of the bankruptcy code, which spells the immediate end for a company.

As dot.coms burn through their cash, their assets and operating income rarely are substantial enough to allow an extensive reorganisation and restructuring under the protection of "Chapter 11".

A bankruptcy under Chapter 11 gives a business protection from creditors, and has helped many top firms through a particularly rough patch of their trading history.

Dot.coms, however, rarely have the business strength to achieve such a turnaround.

A rare exception is Value America, one of the larger and longer-living e-tailers in the United States.

The firm filed for Chapter 11 bankruptcy a week ago.