PetSmart acquired Pet360 for $130 million in cash and up to $30 million more in future performance-based payments.
With consolidation hitting e-retail sectors from books to beauty products, even sock puppets aren`t immune. Pets.com and its TV mascot joined forces with Petstore.com in June in a merger that gives Pets.com a marketing deal in which it will be promoted in the grocery stores of Petstore partner Safeway for two years. Safeway`s Select brand pet food will be promoted on the Web site, and Pets.com gets a one-year exclusive deal to sell pet products on Discovery.com, another Petstore partner.
That could sell a lot of doggie treats, but competitors Petsmart.com and Petopia.com are aggressively sniffing out the same online turf. When the scuffle is over, who wins the category? "It depends on how tightly the online stores integrate with their partners," says Gomez Advisors retail analyst Matt Stamski. "PetsMart and Petsmart.com embody that click-and-mortar strategy. Petopia could go in deeper with its partner. " PetCo, the nation`s second-largest pet store chain, owns 20% of Petopia.
Petsmart.com is positioning for a big move with the announcement in February of a yet to be completed IPO.
And it`s not just nationally-known pet store chains that have entered the fray. Mom-and-pop pet stores can do a brisk local trade online, says Stamski. "For a business with relationships in the area, putting up a Web site is an inexpensive value-add," he points out.
But with margins low and competition a dogfight, what`s the prize? The fact is, online pet stores smell a big bone that remains out of reach. Americans spend $23 billion in pet supplies each year, but so far, few are doing so online. While 75% of pet owners with Internet access are aware of online pet stores, only 27% have visited one, says market research firms The NPD Group and Media Metrix. And a mere 14% of shoppers actually have purchased pet supplies online.
Women are "overwhelmingly" behind the traffic to online pet stores, according to research firm PC Data Online. With bags of dog chow as much as 40 pounds, it`s not surprising that pet food is the item most often purchased at (and delivered by) online pet stores.
With category sales at a fraction of their potential, it`ll take more than sock puppets for online retailers to cash in. "Big ad budgets have had an impact on the industry," says NPD New Media Vice President Carol Neithercut. "But marketers` next challenge will be to draw consumers in, convert them to buyers, and make it a profitable transaction."