Remember Pets.com Inc., a publicly traded company that sold pet supplies online and then became the poster child of the dot-bombs and went bust more than a decade ago. The San Francisco start-up, founded in 1998, raised $110 million, went public in 2000 and then crashed in late 2000. Even the famous sock puppet mascot could not save it! All of a sudden web-only pet stores are online again and striving to make a profit.
PetFlow is part of a new group of Web-only pet-supply stores that have emerged in recent years, with some such as MrChewy.com and Wag.com springing to life in just in the past few months. Backed by top venture-capital firms as well as by tech heavyweights including Amazon.com Inc., the start-ups illustrate how the economics of selling heavy bags of pet food over the Internet have evolved since the Web's early days. PetFlow.com Inc., a Manhattan start-up that has raised $10 million in venture capital and ships one million pounds of pet food a month. What has changed since 2000?
Basically the economics of e-commerce has changed so radically a pet food business may be able to succeed based on the dramatically lowered cost of beginning and running an Internet based business. The lowered costs include:
* The current support for storing and shipping products. There are third-party companies that store and ship large volume products charging a storage fee and per-shipment fee, which amounts to between $4 and $5 per order.
* Internet services such as Amazon's Web Services division, which rents computing power and storage, has reduced the need for companies to buy their own computer servers. Using what are known as cloud-computing services costs hundreds of dollars a month or less, compared with servers that can cost thousands of dollars. Ms. Wainwright, former CEO of Pets.com, said it cost between $7 million and $10 million to get Pets.com running, before acquiring inventory. At PetFlow, Mr. Zhardanovsky the CEO, estimates it took only about $50,000 to launch the company, excluding buying pet food and other inventory. PetFlow hired outside tech engineers for $50,000 to create the website and online shopping-cart system and paid a few hundred dollars a month for Internet service.
* There are now 232.1 million Americans with access to broadband Internet at home or in the office, compared with 48.5 million in 2000, according to Forrester Research. Only 1.2% of overall commerce was online in 2000, compared with 7.2% today, Forrester said.
Petflow founders expected the company to break even by the second quarter of 2012 and have sales of $30 million this year, up from $13 million in 2011. Traditional retailers such as PetSmart Inc. and Wal-Mart Stores Inc. are also jumping on the Web. Wal-Mart started selling animal food online in fall 2010 so that it could expand its selection. "Online, we have an expanded assortment of pet products that complement the pet supplies in your local Wal-Mart store," said spokesman Ravi Jariwala. That lower-cost of Internet business has enabled other smaller companies to jump into the pet-food space online. Mr. Chewy, based in Miami, launched in September and expects to record $5 million in sales for the month of December, up from $1 million in January 2011, said co-founder Michael Day. Wag.com, run by Amazon subsidiary Quidsi Inc., launched last July. David Zhang, site manager for Wag.com, said the company uses robotic technology to quickly move around cat or canine kibble, which helps reduce labor costs. "Would we have been able to do this a decade ago?" said Mr. Zhang. "Probably not." Forrester Research estimates U.S. online sales of pet supplies will reach $4.8 billion in 2015, up from $2.5 billion last year.
It remains to be seen if these online pet food retailers will thrive or crash like Pets.com. Michael Rubin, CEO of Kynetic, which runs an online-shipping consortium
called ShopRunner Inc., said the three pillars of a good online-retail business,
are "high margin, high price and low weight." The pet-supply industry meets none
of the criteria, he said. In addition, the low start-up costs and outsourcing of shipping services may not be able to sustain a high volume business. Stay tuned to see if online pet food retailers will be a winner or a just a dog.
