No Horsing Around

Guide to E-Commerce Technology

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.

“We have a broader range of products that are much less expensive than our competitors’,” CEO Tabibi contends. “And our customer service is excellent. That is why we’re growing so fast. You don’t grow at the clip we are because you’re more expensive or your service is poor.”

PetsUnited prides itself on keeping prices as low as possible, CFO Van Doren says. “For the last six and a half years we’ve been battling with vendors to keep costs down so we can offer customers the best deals out there. It’s an ongoing battle that will never end, but we’re doing our best to control prices.”

Pet lovers united

The company, however, does not reach out to customers simply by attempting to offer low prices or good service. It also relies on its animal-specific online communities to engender customer loyalty as well as gain feedback to help guide its business strategies.

Forum.Dog.com is an example of PetsUnited’s online communities. It receives nearly 15,000 unique visitors every day, the company reports. Shoppers who register for the forum can post comments, advice, questions and answers, as well as upload photos, view other members’ profiles and subscribe to an e-newsletter.

Even though it does not directly generate sales, community-building is key to successful e-commerce, Tabibi argues. “There are a lot of questions and a lot of knowledge out there,” he says. “Creating the forums is one of the important things we have done.”

Someone may have a dog that’s limping, for example, and post a question in the forum. “People like to discuss and discover things,” Tabibi says. “Sometimes topics are silly and fun. Other times they’re very serious stuff. Online community members leap in there and help each other.”

Still, the effect that forums—and similar content like customer reviews—have on web sales is unclear. Jupiter is in the midst of research examining how user-generated content affects sales. “Forum participants are very engaged people,” Freeman Evans says. “In this case, they are very interested in learning about what they should be doing for their pets, and such engaged customers are a great audience for a company to have.”

Forum members, however, aren’t the only ones learning from the online community. Company executives have discovered a lot about customers and their shopping preferences from the web discussions.

“In March in the horse forum, customers were talking about our free shipping offer and its pros and cons,” Van Doren explains. “We’re offering free shipping for orders over $49 on Horse.com and in its catalog. The trade-off is we use a consolidator shipping service—it’s cheaper but slower. We had dozens of customers giving their opinions, which was very enlightening. Most of them understood we’re simply trying to keep costs down and pass savings on to them. This kind of feedback helps guide our business decisions.”

From the horse’s mouth

An online community section fosters a tighter bond between a company and its customers, Tabibi says. “Regarding the free shipping, one forum member posted a note saying they were annoyed it took eight days to get their package. Another customer replied that the company is giving them this option, and they don’t have to go that route. A message like that coming from a customer is more powerful than coming from me as the CEO. There is nothing more valuable than having people who like you as a company.”

To keep customers coming back and help develop new ones, PetsUnited is preparing web site enhancements and new marketing tactics.

It has been using technology and services from Omniture Inc. to improve site navigation. Now it’s looking to add functionality, like a universal shopping cart that customers can use across all PetsUnited sites, and optimize site search. “If you’re looking for products for your macaw, we don’t want products for canaries displayed in search results,” Van Doren says.

Catalog reduction

On the marketing side, the company relies on conventional web marketing, promotions and a weekly e-newsletter, as well as word of mouth, which is aided by dedicated customers in the online forums, Tabibi says. The company now is considering television advertisements.

Further, it’s cutting back the number of catalogs it prints. “On the dog side we have dramatically reduced the number of catalogs shipped while increasing overall revenue,” Tabibi says. “We most likely will not be doing catalogs for our new ferret segment. If we decide to buy companies with existing catalogs, we will continue to ship those catalogs for the time being. In the end, decreasing the number of catalogs is a very important part of our strategy. We will continue with catalogs but in a much more focused and limited way.”

Decreasing catalogs during a time of increasing web sales saves money and minimizes expenditures on resources like paper, he adds.

With all the changes and growth there inevitably will be obstacles to be overcome. PetsUnited is dealing with a couple right now. “What keeps me up at night is just maintaining the most efficient infrastructure and making sure we are able to maintain the supply/demand equation for our company,” CEO Tabibi says. “But we have embraced the Internet and are all about technology that can help us operate as efficiently as possible.”

For Van Doren it’s literally keeping things together. “Getting the operating divisions integrated and bringing about true multi-warehousing functionality is a significant challenge,” the CFO says. “Meeting that challenge, though, will bring about huge benefits for us and our customers. The company will gain smoother, more efficient processes, and customers will continue to be offered lower prices and quicker delivery.”

No sacred cow

The PetsUnited team plans to address these and future challenges using knowledge gained through important lessons it has learned to date. For example, when it comes to e-retailing there is no sacred cow, Tabibi says.

“There are a lot of things people take for granted in the catalog arena, such as defined and limited amount of space,” he says. “In e-commerce you have to completely alter your thinking. You have to be open to everything. If you test a pill with a rat it won’t necessarily have the same effect on a human being. You cannot make assumptions.”

bill@verticalwebmedia.com