Pets.com

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Pets.com is a former dot-com enterprise that sold pet supplies to retail customers.

It began operations in February 1999 and closed in November 2000. A high profile marketing campaign gave it a widely recognized public presence, including an appearance in the 1999 Macy's Thanksgiving Day Parade and an advertisement in the 2000 Super Bowl. Its popular sock puppet advertising mascot was interviewed by Peoplemagazine and appeared on Good Morning America. Although sales rose dramatically due to the attention, the company was weak on fundamentals and actually lost money on most of its sales. Its high public profile during its brief existence made it one of the more noteworthy failures of the dot-com bubble of the early 2000s. US$300 million of investment capital vanished with the company's failure. The [1 company was headquartered in San Francisco, California, U.S. Pets.com was a short-lived online business that sold pet accessories and supplies direct to consumers over the World Wide Web. It launched in August 1998 and went from an IPO on a major stock exchange (the Nasdaq) to liquidation in 268 days. Other similar business-toconsumer companies from the same period include Webvan (groceries) and Boo.com (branded fashion apparel). After its start by Greg McLemore, the site and domain was purchased in early 1999 by leading venture capital firm Hummer Winblad and executive Julie Wainwright. Amazon.com was involved in pets.com's first round of venture funding. Pets.com bought out one online competitor, Petstore.com, in summer 2000. The company rolled out a regional advertising campaign using a variety of media (TV, print, radio and eventually a Pets.com magazine). It started with a five-city advertising campaign rollout and then expanded the campaign to 10 cities by Christmas, 1999. The company succeeded wildly in making its mascot, the Pets.com sock puppet, well known. The Pets.com site design was extremely well received, garnering several advertising awards. In January 2000, the company aired its first national commercial as a Super Bowl ad which cost the [2] company $1.2 million and introduced the country to their answer as to why customers should shop at an online pet store: "Because Pets Can't Drive!" That ad was ranked #1 by USA Today's Ad Meter and had the highest recall of any ad that ran during the Super Bowl. The company went public in February 2000; the former Nasdaq stock symbol was [citation needed] IPET. It was the last dot-com to go public before the bubble burst. Pets.com did make significant investments in infrastructure such as their warehousing. Pets.com management maintained that the company needed to get to a revenue run rate that supported this infrastructure buildout. They believed that the revenue target was close to $300 million to hit the break even point and that it would take a minimum of 4 to 5 years to hit that run rate. This time period was based on growth of Internet shopping and the percentage of pet owners that shopped on the Internet. Despite its success in building brand recognition, it was uncertain whether a substantial [3] market niche existed for Pets.com. No independent market research preceded the launch of [3] Pets.com. During its first fiscal year (February to September 1999) Pets.com earned [3] revenues of $619,000, yet spent $11.8 million on advertising. Pets.com lacked a workable business plan and lost money on nearly every sale because, even before the cost of advertising, it was selling merchandise for approximately one-third the price it paid to obtain [3] the products. Pets.com tried to build a customer base by offering discounts and free shipping, but it was impossible to turn a profit while absorbing the costs of shipping for heavy bags of cat litter and cans of pet food within a business field whose conventional profit

margins are only two to four percent. The company hoped to shift customers into higher margin purchases, but customer purchasing patterns failed to change and during its second fiscal year the company continued to sell merchandise for approximately 27% less than cost, so the dramatic rise in sales during Pets.com's second fiscal year only hastened the firm's [3] demise. By fall of 2000, and in light of the venture capital situation after the bursting of the dot-com bubble, the Pets.com management and board realized that they would not be able to raise further capital. They aggressively undertook actions to sell the company. PetSmart offered less than the net cash value of the company, and Pets.com's board turned down that offer. The company announced they were closing their doors on the afternoon of November 6, 2000, mere hours before the 2000 United States presidential election. Pets.com stock had fallen from over $11 per share in February 2000 to $0.19 the day of its liquidation announcement. At its peak, the company had 320 employees, of which 250 were employed in the warehouses across the U.S. While the offer from PetSmart was declined, some assets, including itsdomain, were sold to PetSmart. The Pets.com management stayed on to provide an orderly wind down of operations and liquidation of assets. During this period, CEO Julie Wainwright received $235,000 in severance on top of a $225,000 "retention payment" while overseeing the closure. In June [5] 2008, CNET named Pets.com as one of the greatest dotcom disasters in history.

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March 29, 1999 Pets.com is shutting down its retail operations and laying off hundreds of employees, the company said Tuesday. The Amazon.com-backed company was the leading online pet store and was known for its wildly popular sock puppet spokesdog. The San Francisco-based company said it would sell off its assets, including its catchy URL and the rights to the sock puppet icon. "I am deeply saddened by this event," chief executive Julie Wainwright said in a statement.
Pets.com: What went wrong?
Matt Stamski, analyst, Gomez

The company said in a notice on its Web site that it will continue taking orders until 11 a.m. PT Thursday. Pets.com plans to shut down its Web site that day, although it may delay the closure depending on its order volume, company spokesman John Cummings said. Some of the layoffs will be effective Tuesday, but Cummings said he did not know when the other employees would lose their jobs. Unlike some of its dot-com brethren, Pets.com has not filed for bankruptcy and has no plans to do so, Cummings said. Instead, the e-tailer will distribute the proceeds from its asset sales to its shareholders, he said. Although no one stepped up to the plate to invest in Pets.com this summer or buy it outright, Cummings said that several companies have already expressed interest in buying its assets. "It is well known that this is a very, very difficult environment for business-to-consumer Internet companies," Wainwright said. "With no better offers and avenues effectively exhausted, we felt that the best option was an orderly wind down with the objective to try to return something back to the shareholders." Pets.com is only the latest Internet company to join the dot-com death watch. Monday, Furniture.com said it had shut down, and earlier this month, male lifestyle site TheMan.comclosed down its site. In recent weeks, Beautyjungle.com, Eve.com and BigWords.com have either closed their doors or laid off staff. Pets.com will be the second Amazon aligned e-tailer to close its doors. In July, home furnishings e-tailer Living.com closed shop and filed for bankruptcy. "I think that the most interesting thing about this is the rapid collapse of an entire industry," Gomez senior analyst Matt Stamski said. "I think it's unprecedented in this recent shakeout." As part of the winding down of its operations, Pets.com will lay off 255 of its 320 employees. As of Tuesday morning, the company's Web site was still up and running. Founded in 1998, Pets.com raised $82.5 million in an initial public offering in February.

Tarnished domains
Many of the domain names that were once considered prime Internet real estate are now affiliated with companies that have gone out of business or suffered serious staff cuts. Since June: Pets.com shut down. Furniture.com shut down. Politics.com shut down. Stamps.com laid off 240 employees. Drugstore.com laid off 10 percent of its staff. Jewelry.com shut down. Garden.com laid off 40 percent of its staff. Food.com laid off 50 percent of its staff. More.com sold off assets. WebMD.com laid off 1,100 employees. Living.com shut down. Auctions.com shut down. Hardware.com shut down. Petstore.com shut down. Reel.com shut down.

Pets.com bought rival Petstore.com in June and announced plans in September to move some of its staff to the Midwest to cut costs. Despite these moves, the company's stock price has been mired below the $1.50 level for months. Trading in Pets.com stock was temporarily halted Tuesday. When trading resumed, the price promptly plunged to 22 cents from 66 cents, a one-day decline of 67 percent. Volume topped 4 million shares.

After trading as high as $14 this year, the rockbottom stock price values the entire company at about $6.4 million. The month before it went public, the company spent almost half that amount on 30 seconds of advertising during the Super Bowl. Marked initially for its fierce, well-financed competition, the online pet supply market has since been beset with consolidation and collapse. In addition to Pets.com's purchase of Petstore.com, Petopia, backed by offline pet supply giant Petco, laid off 60 percent of its staff last month. Despite all the initial hype and funding--the four largest players each raised more than $50 million in private financing--pet supplies are not a natural e-tail market, Stamski said. Pet owners are less likely than others to shop online, he said. Additionally, the e-tail pet stores have not offered a compelling reason to shop online. Although delivering pet food and supplies directly to consumers is a convenience, that benefit is outweighed by the fact that the consumer has to wait days to receive their orders, Stamski said. Considering that pet food is available at just about any neighborhood grocery, few people have a reason to shop online, he said. "You had five Web sites selling the same products, the same level of service and essentially the same name and it was difficult to tell them apart," Stamski said. "This recent collapse will erase some of that confusion." As of the end of October, Amazon owned nearly 30 percent of Pets.com, Amazon spokeswoman Patty Smith said. Despite Amazon's large percentage stake in the pet supply retailer, Smith said Pets.com's failure would not have any "material" impact on Amazon's financial statements. Amazon considered Pets.com an equity-method investee, meaning that Amazon has been deducting a portion of Pets.com's losses each quarter from the value of Amazon's initial investment. As of the end of September, the net value of Amazon's stake in Pets.com was less than a couple hundred thousand dollars, Smith said. A month later, the value of the investment reached zero, she said. This "will not have any impact on our finances," she said. Smith declined to say whether the failure of Pets.com and Living.com has dissuaded further investments by Amazon in pure-play e-tailers. "We never discuss our future investment strategies one way or another," she said. "But we remain bullish on e-commerce."

Although most e-commerce companies have been operating in the red, Pets.com was among the more financially challenged. In every quarter of operation, the company contended with negative gross profit margins. A company's gross margin is the difference between the amount it charges customers for its goods or services and the amount it pays suppliers for those goods and services. Having negative gross profit margins essentially meant that Pets.com lost money on every item it sold. In Pets.com's third quarter, which the company reported late last month, the goods it sold cost Pets.com $277,000 more than it sold them for. That was an improvement from the second quarter, when Pets.com lost $1.7 million on its gross margins. As of Sept. 30, Pets.com had about $23 million in cash, down from $37 million at the end of June. The company lost $21.7 million in the third quarter on $9.4 million in revenue.

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