January 19, 2001, 12:00 AM

Pets.com bites the dust

The beleaguered online pet store category took another hit today as San Francisco-based Pets.com said it would cease operations, immediately laying off approximately 255 of its 320 employees and announcing plans to sell off the majority of its assets including inventory, distribution center equipment, the sock puppet brand icon and more. A brief message that appeared at the top of the web site`s home page says the company will no longer take orders effective November. 9 at 11 a.m. PST.

The announced suspension of operations follows numerous efforts to salvage the sagging company, as it tired to attract either capital or a buyer. Earlier this year, the company called in financial advisor Merrill Lynch, which contacted more than 50 prospective strategic and financial partners here and abroad in search of a bailout. In efforts to cut operating costs, the company as recently as September said it would relocate most of its customer service operations from its corporate headquarters in San Francisco to Greenwood, Indiana, where already operated a distribution center. However, the troubled leader in what has been a troubled online category failed to attract the cash or partners it needed to continue. Of the 50 organizations contacted, fewer than eight agreed even to visit with the company.

"I am deeply saddened by this event and regret that we will not be able to continue our commitment to our customers to provide the very best buying experience on the Internet," said Julie Wainwright, chairman and CEO.

But providing the best experience for its 570,000-some customers wasn`t producing needed margins. "This category has a number of problems and I don`t think Pets.com could have overcome them. This is a great category from a content point, but as it relates to buying the product, most of the category is pet food and that gets picked up in a weekend grocery run," says Thomas Wyman, Internet research analyst with J.P. Morgan Securities. "The other killer is shipping costs Ð shipping dog food across the country is a very expensive proposition. Because this is a price-sensitive category, they couldn`t charge appropriately for those shipping costs."

Pets.com`s loss could be competitor PetSmart.com`s gain. PetSmart.com`s remaining online competition, Petopia.com, is struggling after recent layoffs. And PetSmart.com has something Petopia doesn`t Ð stores, which give it extra buying power and needed offline infrastructure.

"PetSmart.com will win now," adds Wyman. "The playing field has been cleared."

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