The Failure of Pets.com
Pets.com is one among many other online retailers that failed as a business-to-consumer e-commerce entity. Pets.com was a San Francisco-based e-tailer existing only as a virtual firm that offered pet products, information, and resources to consumers. The site was launched in November, 1998 about the same time as several other online firms offering pet products. Petstore.com, Petopia.com, Petsmart.com, and PetPlanet.com were a few of the major competitors in the online pet industry, although Pets.com had a first-mover advantage being the first of these virtual pet stores to enter the market. In spite of the rising competition in the online pet market, Pets.com appeared to be on a road to success in the beginning of 1999. Sadly, the success never brought profits for the online firm and Pets.com decided to close its doors in November, 2000 just two years after its launch.
Pets.com offered consumers a broad product selection, large-scale inventory, competitive prices, and expert advice from a staff of pet-industry experts and veterinarians. It also offered an efficiently designed website that attracted many customers. One problem with Pets.com’s business model was that it was not unique and did not offer consumers anything different from the other online pet supplies retailers. Each of the pet e-tailers could easily be confused with its competition. Pets.com claimed that it planned to use the money it received from investors in November, 1999 to increase marketing and expand its distribution facilities. Pets.com hoped to become the “one-stop shop for pet supplies, offering a wider range of products than any of its competitors, including products carrying its own product label” (Wolverton, 1999). Although Pets.com along with three of its main online competitors received large sums of venture capital funding to keep it going, the challenge for Pets.com was to differentiate itself from competitors. Another problem that Pets.com faced was that it entered a market of selling low-margin food and supplies that are extremely costly to ship to consumers. Many consumers just preferred to shop at local discount stores such as the grocery stores where they would be shopping for food anyway. Pets.com as well as the other online pet supplies firms failed to offer customers a better alternative to what they already had. Shopping online for these kinds of products was not any more convenient for them than shopping at an actual retail store.
Pets.com had the
advantage of owning the most valuable domain name in the online pet market, but
its competitors had other advantages.
For example, Petsmart.com had brand recognition on which to build its
site. Pets.com received a burst of
confidence when it became affiliated with Amazon.com and gained access to
Amazon’s powerful database of consumer buying habits. With the extreme name recognition and
popularity of Amazon, Pets.com had a one-up over other
e-tailers in the pet market. Unfortunately, this advantage was not used to
its full potential and Petsmart.com continued to lead Pets.com in online
traffic and revenues. Despite the tough
competition, Pets.com remained in the “dog-eat-dog” online pet market (Wolverton,
In June, 2000, Pets.com made the decision to purchase the assets of its rival Petstore.com. Pets.com acquired the customer database, domain name, trademarks, live fish business, and several strategic supplier agreements from Petstore.com (Olsen, June, 2000). This acquisition did not come as a surprise in the online pet market because consolidation had been expected for a while. Although Pets.com’s shares were near an all-time low, executive of Pets.com were confident in their decision at the time. “By acquiring these key assets and strategic relationships, we expect to reap the benefits of consolidation and thus strengthen our position as the online pet category leader,” remarked one chief executive of Pets.com (Olsen, June, 2000).
Pets.com struggled
with the fact that they were not making any profit and In September of 2000,
the decision was made to move part of its operations from
Pets.com had made some
major decisions in 2000; it went public in February, acquired Petstore.com in
June, entered the bricks-n-mortar segment by selling its puppet mascot in June,
and moved part of its operations to a new location across the
The reasons for the closing of Pets.com relate back to an unsustainable business model and unachievable expectations. Basically, Pets.com “bet everything on the market” (Fischer, 2000). It acquired large amounts of funding from venture capitalists without demonstrating any background of achievements or success which most likely raised the confidence level of executives far beyond what it should have been. Without any experience, the firm went public only a few months after its initial launch. Pets.com assumed that the market and its revenues would grow quickly enough to allow for a profit before funding money was exhausted. Too strong of a focus on market share instead of on gaining profits led to the downfall of Pets.com. Also, another contributing factor is that this e-tailer may have overestimated the number of online customers it could gain in the pet market.
Just like numerous other pure-play businesses, Pets.com went public too soon and spent money too quickly. One of its major mistakes was the excessive spending on marketing and advertising. Since funding was continuously available during the beginning months of Pets.com, they did not think twice about spending everything in hopes of increasing consumer awareness of the business which would hopefully lead to increased sales. The goal was to outspend competitors and then adjust prices when the competition decreased. During its lifetime Pets.com spent more than $70 million on marketing and an average of $400 to acquire each new customer (Bucholtz, 2000). Pets.com advertised more heavily than any other online pet e-tailer. Unfortunately, this excessive advertising did not only benefit Pets.com as hoped for, rather it helped the entire online pet industry to increase sales. Marketing expenditures did not establish Pets.com as a market leader, but instead just brought higher revenues to all pet e-tailers.
Pets.com also failed to position itself in an effective manner. It needed to provide customers with a good reason for its existence and to satisfy a need. With a few exceptions, Pets.com just offered products that could be more easily obtained at nearby retail stores and pet information about health, grooming, behavior, etc. that did not justify a virtual shopping trip. Pets.com failed to compete with a unique positioning strategy but instead decided to compete with low prices just like its competitors. This mistake led to the selling of merchandise at prices below cost for the duration of its operations.
The online pet market was a crowded one in the time period when Pets.com was alive. With so many competitors offering the same products and services to a finite number of consumers, it was no shock that many of these e-tailers failed. Pets.com never became the sustainable business that it could have been with a meaningful customer base and long-term profitability. It did have a very valuable domain name, a strong e-commerce affiliate, a very popular mascot, and other clever marketing ideas and strategies, but none proved to be truly successful in the end.
Pets.com along with others in the online pet market chose to enter a market that was not exactly very attractive for e-commerce. They just offered products that were already readily available to consumers. Pet supplies just weren’t meant for e-tailing as much as other products because this industry didn’t really serve a real need. It may be convenient for some people to have pet food and supplies delivered directly to their homes, but is it really convenient when they have to wait days to receive orders and pay shipping costs too? Another factor was that there was just no way that online pet stores could offer an experience like physical pet stores were able to offer.
This online retail failure story supports the claims made in the article, “No Sale: Plenty of Companies Still Don’t Let Consumers Buy Products Online; Why?” The costs of doing business online are greater than the benefits for some firms. Pets.com demonstrated that their benefits of e-tailing did not outweigh their costs because they operated for two years with negative profit margins. They had to sell products below cost in order to compete, and they failed to recover from their losses. A large portion of the market for online pet retailers is not presently online. The article makes the argument that there is no point to go online if a business’s customers don’t do much shopping there. This is a factor that affected Pets.com because they were unable to attract enough online customers to reach their goals. Shipping costs for online sales are also mentioned as a reason for some businesses to avoid the online market. Pets.com clearly understood that they would be offering low-margin products to consumers for high shipping costs but they decided to launch their business anyway. Some businesses can be successful even with high shipping costs, but Pets.com did not have a chance to prove this. There are many reasons why some firms may not want to enter the online selling market, and the experience of Pets.com is just one example of many.
Bibliography
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2000.
Fischer, Jeff. “Why Pets.com Died.” MotleyFool.com.
Olsen, Stefanie. “Pets.com To Buy Assets of Rival Petstore.com.” CNET News.com. June 13,
2000.
Olsen, Stefanie. “Pets.com’s Puppeteer On Strike Against Ad Industry.” CNET News.com.
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