OT: November 8, 2000 Pets.com Plans to Close
By REED ABELSON
--------------------------------------------------------------------------------
Related Article
• Pets.com to Acquire Competitor Petstore.com (June 14, 2000)
• Pets.com Gets Lukewarm Reception on Wall Street (February 12, 2000)
Audio
• AP Business Report, Updated Twice Each Hour
Business Home
• Return to Business Page
Technology Home
• Return to Technology Page
GET QUOTES Look Up Symbol
Enter Multiple Symbols
Portfolio / Stock Markets / Mutual Funds / Bonds / Currencies / Bank Rates / Industries
--------------------------------------------------------------------------------
ot even its popular Sock Puppet, the toy dog that starred in its television commercials, could save Pets .com.
In the latest example of the difficulties facing Internet retailers, Pets.com announced yesterday that it was closing down its operations. The company, which sells pet food and other supplies over the Internet, was losing money and found itself unable to raise more cash or to find a buyer.
Pets.com, which is based in San Francisco, said it was laying off about 255 of its 320 employees and would be selling most of its assets, including rights to the puppet. The company will be shutting down its Web site tomorrow.
Pets.com is now added to the list of Internet companies forced to shut down because they cannot raise more cash. MotherNature.com, an Internet vitamin retailer in Concord, Mass., also announced yesterday that it was dissolving its operations. The company said the business could not be financed as a going concern.
While many retailing dot-coms went public without being profitable, they assumed that they would have enough money to give them time to become profitable, said Faye Landes, who covers the sector for Sanford C. Bernstein. The problem is that they have not yet made enough money to finance their operations. "Once they stopped burning their cash, they discovered that they needed more cash," she said.
Pets.com's cummulative losses, for example, total $147 million through the end of September. While the company had not run out of cash, it anticipated needing more capital early next year.
Neither public shareholders nor venture capitalists are, however, willing to hand out more money. "The online retail space is the last place investors want to be today," said Ken Cassar, a senior analyst for Jupiter Research in New York.
In the case of Pets.com, the company said its investment banker, Merrill Lynch, had contacted more than 50 prospects but had found no willing investors or buyers. The company said that fewer than eight of the parties would even visit the company.
The company's chairman and chief executive, Jule Wainwright, was not available for comment, but in a statement released by the company, she said: "It is well known that this is a very, very difficult environment for business-to-consumer Internet companies. 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."
Since going public in February at $11 a share, Pets.com's stock has been a dismal performer. While it rose to a record of $14 during its first few days of trading, the stock has been selling for about $1 or less in recent months. It closed yesterday at 22 cents.
Among the company's investors is Amazon.com, the large Internet retailer. The company owned about 30 percent of Pets.com at the end of October, according to an Amazon spokeswoman.
While Pets.com had been able to attract nearly 570,000 customers, it was faced with the same challenge being experienced by many online retailers: how to make money selling over the Internet, given the high costs of shipping.
The company's assets include inventory, its Web address and its Sock Puppet brand. Pets.com had invested heavily in its brand, putting a commercial on during the Super Bowl. "They bought the highest-profile advertising money can buy," Mr. Cassar said.
The puppet made the rounds of morning talk shows and even appeared as a float in the Macy's Thanksgiving Day parade.
And the company learned another lesson, according to Ms. Landes. While Pets.com enjoyed brand recognition, not enough people were buying to make the business a success.
"Brand recognition is not the same thing as purchase intent," Ms. Landes said.
