Pets.com became the poster child of the infamous dot-com bubble of the early 2000s. As the name of the site would suggest, Pets.com sold pet supplies to consumers. The company appeared to have all of the ingredients to succeed, yet ended up failing spectacularly. In the process, they threw away $300M of investors money. So how did this happen? In this article, we take a look at this remarkable collapse.
The domain name Pets.com was registered in 1994 by entrepreneur Greg McLemore. It took until 1999 for the business to become incorporated. The online store launched within a few weeks of incorporation. Both the website and domain name were purchased by well-known venture capitalist firm Hummer Winblad within a few weeks. Amazon.com would soon purchase a majority stake in the company – with in total millions being invested throughout 1999.
This money was used to fund large warehouses and infrastructure. In 2000, they used some more of the cash to purchase their biggest online competitor – Petstore.com. These various moves would later be criticised by analysts, who accused Pets.com of failing to be patient and getting the fundamentals of business right, instead trying to move things too quickly. This would prove to be a telling problem for Pets.com.
Pets.com also engaged in an extravagant marketing campaign. The website’s mascot – a sock puppet, became very well-known – helping the business to become known around the United States. The sock puppet became so well-known to the extent that it was interviewed by People magazine, before appearing on Good Morning America! The site aired its first nationwide commercial during the SuperBowl. This advert cost $1.2M – but reached millions of eyes – and was seen as a positive move.
The site was originally well received upon launching, and it enjoyed early success thanks to the interest generated from its advertising drive. Pets.com went public on the NASDAQ stock exchange in February 2000 – helping it to raise a stunning $82.5M! While this was positive in the short-term, it wasn’t seen in the same light by the time that yearly accounts were filed. These accounts showed good revenues of $619,000, but heavy losses overall, including outgoings of $11.8M alone on advertising. While most businesses lose money in year one, there was also the underlying concern that Pets.com would struggle to find its niche in the saturated internet market. A lack of market research prior to the site’s launch did little to quell such fears.
The site too gambled on the power of building a customer base. They sold products for around a third of the price they paid for them, and offered free shipping – all in a bid to secure a customer base. Yet this backfired hugely, with heavy products meaning large shipping costs too, with no discernible way of making an income. It actually reached the unusual point where a rise in sales was actually bad for the business, hastening its eventual collapse.
By late 2000, and after the bursting of the dot-com bubble, it was apparent to management that there was no chance to raise more venture capital – meaning Pets.com looked to be beyond revival. Management attempted to sell the company and recoup whatever was possible. By November 2000, the site announced they wouldn’t be taking any further orders, before laying off over two thirds of their workforce. Incredibly, the company had gone from an initial public offering to liquidation in just 268 days.
Pets.com was therefore deemed a failure. Looking back, Pets.com made some mistakes. But their business model could have worked. Chewy is an example of a business that has ran and profited in the same area. Meanwhile, Pets.com’s attempts to offer low prices in order to get a customer base is a similar strategy to that employed by Amazon – and there is little doubting their success. But the amount of capital that was wasted proved to be costly, and with money being lost on every order, it was only so long before capital would run out.
While the dot-com bubble saw many businesses collapse, few matched that of Pets.com. Considerable capital was wasted, and attempting to hurry the start-up process along proved a deadly combination. These days, if you type Pets.com into an internet browser you now reach Petsmart.com – a business that had offered to purchase Pets.com during its early financial woes. It is a funny world… For Pets.com, it was a question of what might have been.