Pets. com was one of the online retailers of pet products, integrating product sales with expert information and professional resources. In order to compete and survive in the market, it hoped to build its attributes, which include brand recognition, product selection, quality of Web Store, reliability in ordering and shipping, customer service and competitive pricing. However, the company experience net loss soon after it started operation. And the hope of favorable IPO didn’t work. The company was at the edge of failure. Analysis: Why Pets. com, Inc. Failed? Pets. com, Inc had made some lethal strategic mistakes since its inception.
First of all, the cost structure is a big issue for the company. Pets. com provided approximately 15,000 SKUs, the intention was to leverage its vendor relationships to buy direct and thus realize better pricing. However, in order to maintain 15,000 SKUs, a lot of financial and inventory support were required. In order to support this strategy, the company opened large distribution centers and held large amount of inventory on hand. It directly increased the operating expense and the risk. Furthermore, in order to build a large customer base, the company spent considerable amount of money on brand building.
According to its Balance Sheets, the prepaid advertising in September 2000 amount to $18,268,000, while the net sale and net loss during the same period were $9,365,000 and $21,725,000. Secondly, Pets. com, Inc was too ambitious and planned to expand its business to all related direction. For example, it gave the customer the widest products choices, launched its own line of private label products, and provided extensive veterinary care information. Those activities might benefit for a mature business, but not in this case. Not only the expenditure associates with those activities, but also they distracted Pets. com, Inc. rom emphasized on its core business (online retailing). Thirdly, the company entered the business without enough considering the fierce competition in this market. The competitors include other online retailer (such as Petopia. com and PetsMart. com, which have physical superstores), large mass-market retailer (such as WalMart Stores and Kmart Corporation) and warehouse clubs (such as Costco, Inc), which have longer history, greater financial resources, established relationship with suppliers and loyal customer base. Last but not least, the shipping policy (shipping the product after receiving the money) needed to be improved.
It indeed protected revenue collection, but it also hurt the speed of the traction. The customer might switch to other vendor who could provide faster shipping service. Recommendation Pets. com, Inc. should not and didn’t have to build large warehouse and hold the inventory. A possible solution is that Pets. com, Inc. becomes an intermediary that arranges the sale on its website. Letting the sellers put their products on the website and ship the products directly to the customer after receiving the order would reduce the cost and risk associate with warehouse and inventory.
The products categories were not necessarily cover every aspect. Due to the limited resources, the company could first provide the basic and popular products, and consider about expansion after the customer and market share become large and stable. Advertising is necessary for brand the company in general. But in this case, the company went beyond the line. The advertising spending should limited to a certain amount. Pet. com, Inc should define its core business before doing any other things.
Since the resources are limited, if the decision is online retailing, it should concentrate on building and developing it, and not distracting by other possible opportunities. At the end of the paper, the company confronted the decisions between restructuring the company and finding a partner to merger with. Considering the fierce competition environment and the business nature, the company was not likely to survive after the restructure, and it was not likely able to find other investors to invest. In my opinion, it would be better off if the company could merger with other company.