May 31, 2006, 12:00 AM

No Horsing Around

It`s a virtual zoo at PetsUnited, where animals - and sales - are multiplying thanks to a strategy that spans new technology and new ad campaigns.

Dr. Doolittle could talk to the animals, but he didn’t do a lot of volume. At PetsUnited’s Forum.Dog.com, around 15,000 animal lovers talk about the animals every day.

Creating such online forums for customers is just one of a number of strategic moves-which include decreasing the number of print catalogs, adding a universal shopping cart for multiple sites and launching television advertising-PetsUnited LLC has been making or considering to strengthen customer loyalty and drive sales. And the company is making these moves right in the middle of a stampede.

An online menagerie

PetsUnited is herding a variety of animals into an online menagerie as it moves forward with an aggressive growth plan. On top of company stalwarts Dog.com and Horse.com, PetsUnited added Ferret.com in October, PetSupplies.com (which includes merchandise for cats) in December and Bird.com in April. Additionally, it will scale up even more in July when it launches Fish.com. Gathering all these creatures great and small-and possibly more-under one umbrella could be quite a trick.

“When you’re adding product lines, buying companies, integrating those companies, converting web sites, looking for new distribution centers-it just gets overwhelming sometimes,” says Chris Van Doren, CFO of the Hazleton, Pa.-based company. “Managing growth is a big challenge. Ultimately we’re building a good, solid infrastructure to have a scalable platform to take us from almost $50 million in total sales last year to $100 million and beyond in the next three to five years.”

To help achieve this level of growth, PetsUnited-which sells online and via catalogs-is considering adding another species: Homo sapiens. The company is looking into more acquisitions, and they may not be related to pets, says CEO Alex Tabibi. “We want to be the leading merchandiser and marketer in any area we decide to go into-whether it’s pets or socks or whatever,” Tabibi says. “Today we’re using our marketing knowledge, technology and infrastructure and our community-building experience to focus primarily on pet products. Five years down the road we may be a company with 20 to 30 product lines being sold on various e-commerce sites, many not pet-related.”

Market doubling

Less than five years down the road the online market for the company’s bread and butter-pet supplies-will be more than double what it is today, according to Jupiter Research. The Internet and consumer technology research firm predicts total online spending for pet supplies this year will reach $900 million, about 4% of the total pet supplies market, and climb to $1.9 billion, about 7% of the total market, in 2010.

There is plenty of opportunity for pet supplies e-retailers to grow, especially as a steadily increasing number of shoppers for these products are shifting to buying online, says Patti Freeman Evans, retail analyst at Jupiter Research.

“Most of the growth will come from people who have not yet purchased this kind of product online, but some growth will stem from customers who have spent online for these products and are beginning to spend more,” she says. “E-commerce certainly is growing at a faster pace than the overall pet supplies market because it’s newer and still in the adoption phase.”

The primary challenge PetsUnited faces is that of many other e-retailers-competition, Freeman Evans contends. “New e-commerce sites are coming online at twice the rate of all other types of web sites, so competition is fierce,” she says. Retaining customers will be key as the company attempts to grow even more, she adds.

Evolution

Under different names, Dog.com and Horse.com started as catalogs 36 and 27 years ago, respectively; the company complemented the catalogs with e-commerce sites eight years ago. Ferret.com was the result of organic growth. PetsUnited recently acquired PetStockroom.com, a bird supplies company, and transformed it into Bird.com in April. Like Ferret.com, the soon-to-swim Fish.com is being created in house.

In addition to selling numerous brand name products, the company also manufactures some of its own.

PetsUnited is rapidly changing from one fairly specific concept to a much larger, multi-divisional business, Tabibi says. In addition to acquiring companies and creating new e-commerce sites, the company is making changes throughout its animal kingdom.

“On Horse.com, for example, we’re expanding riding styles beyond Western to include English, Polo and Rodeo,” he explains. “At the same time, we’ve been adding functionality to some of our sites, including online communities, classified ads and other services. The reason we’re so busy is because we’re not simply expanding product lines and buying new companies and so forth in one area-we’re doing so in five, and looking for more.”

If the company fares as well with its new e-commerce sites as it has with its mainstays, Dog.com and Horse.com, growth will not be a problem. Dog.com dug up $7.7 million in 2005 (which includes revenue from the first three months of Ferret.com operations), a 267% increase over online sales of $2.1 million in 2004. Dog.com sales in 2005 represented 56.6% of the dog line’s $13.6 million total sales.

Scrapping for share

Horse.com sales in 2005 galloped 77.5% to $15.8 million compared with 2004’s $8.9 million (which includes revenue from progenitor CountrySupply.com). E-commerce sales in 2005 accounted for 45.5% of the horse line’s $34.7 million total sales.

All together, the company registered $48.3 million in 2005, a leap of 46% over 2004’s $33.2 million. The web accounted for 48.7% of total company sales in 2005. PetsUnited predicts web sales will account for 55% of total sales this year, 60% in 2007 and 65% in 2008.

But it will be scrapping for market share with a wide array of competitors. They include giants like Petco Animal Supplies Inc. and PetSmart Inc. to mid-size retailers such as Drs. Foster & Smith Inc., Jeffers Pets and Dover Saddlery Inc. to small local stores and tack (horse supplies) shops. What’s more, there are specialty retailers for each species. The company says it differentiates itself from the pack by keeping prices low and customer service high.

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