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IQ News: Analysis - Best of Breed

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The e-tail wars over books, music and toys were just the beginning.
Get ready for the Web's $23-billion dogfight.
The market catering to pets and their owners is thriving, and e-tailers are hoping to cash in on the action. There's a lot at stake: Americans spend $23 billion a year on pet products and services, according to the Cambridge, Mass.-based research firm Forrester Research. That's more than purchases of videos, music and toys combined. In fact, the only thing Americans spend more on is books, which account for $29 billion in annual purchases.
"A lot of people have pets, it's a huge market and what's really interesting is that spending is growing at a rate of 15 percent annually," says John Hommeyer, vice president of marketing at San Francisco-based Pets.com.
An estimated 58 million Americans, in fact--nearly 60 percent of all U.S. households--own some 212 million pets, and 70 percent of owners view their pets as children.
Given the size of the market and the upward trend in spending, e-tailers are scrambling to capitalize on the national craze for all things pet-related. In the past year, a flurry of pet-centric sites has launched on the Web, offering up everything from cut-rate catnip to top-notch veterinary advice. The weaker entrants are likely to go belly up when the market shakes out, but for now, they're all vying to be leader of the pack.
FROM BRICKS AND MORTAR
Stalwarts of the offline pet industry are among those entering the online fray. In June, PETsMART, the nation's largest retailer of pet supplies, relaunched PETsMART.com after acquiring startup company PetJungle.com. Then in July, archrival superstore PetCo announced a strategic alliance and equity investment in Petopia.com.
While brick-and-mortar retailers like these have the advantage of built-in distribution networks, a handful of nothing-but-Net players also are jockeying for position. Among them are:
- Pets.com, the pet project funded in part by e-commerce powerhouse Amazon.com;
- Petstore.com, a pet supply e-tailer that has an exclusive relationship with the American Animal Hospital Association;
- Allpets.com, an online pet lifestyle destination that features community and commerce offerings; and
- AnimalFair.com, the Web home and e-commerce site of the eponymous, offline quarterly magazine recently launched by Time Warner (see sidebar, page 60).
Each hopes to distinguish itself online by focusing on its core strengths, whether that's e-commerce, e-communities, animal lifestyle expertise or a combination of all three.
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SETTING FOUNDATIONS
Backing from Amazon makes Pets.com the 800-pound gorilla in the space. Along with financial and business support, it has access to Amazon.com's coveted customer base of 13 million online shoppers through links from the main Amazon site to Pets.com. It also benefits from Amazon's online expertise. For instance, Pets.com's employees can call their counterparts at Amazon for advice and counseling under a mentorship program.
"The Amazon connection is huge," says Hommeyer. "They've already got 13 million customers with their credit cards warmed up, and [research shows] over 60 percent of them own pets."
Other pet sites also are forging alliances. In fact, the success of online pet stores may have as much to do with finding the right partners as it does with capturing consumer attention.
"We've announced a series of partnerships," says Andrea Reisman, co-founder and CEO of San Francisco-based Petopia.com. "Our alliance with the ASPCA is particularly important to us. It's a huge part of our overall brand positioning for Petopia.com."
In the pets market, inking deals with such organizations as the ASPCA amounts to nothing less than the Good Housekeeping seal of approval.
According to Reisman, when PetCo originally was looking to make the move to the Internet, the company hired New York-based investment firm Morgan Stanley to research the market and find the best potential partners. Petopia.com came out as top dog. The ASPCA went through a similar process before it decided on Petopia.com as its exclusive partner.
"The big challenge in this space is to lock up customers quickly," says Steve Reinhardt, vice president of brand marketing at Emeryville, Calif.-based Petstore.com. "Obviously Pets.com benefits from Amazon's customer base and Petopia.com from PetCo's support. We decided to take a different approach."
Reinhardt says Petstore.com's agreement with cable channel Animal Planet, a part of New York-based Discovery Communications' portfolio of niche cable networks, is a definite boost in branding the site and conveying a feeling of emotional attachment to animal welfare. Additionally, Petstore.com's exclusive relationship with the American Animal Hospital Association, a Lakewood, Colo.-based veterinary association, gives the site access to 21 million pet owners, or roughly one out of three pet owners.
Both Petstore.com and Pets.com recently closed second and third rounds of financing, respectively, totalling around $100 million each. Most of the cash infusion has gone into TV promotion, but the companies have taken very different tactics. Pets.com has gone down the irreverent path with its "spokesdog" hand puppet and tagline, "Because pets can't drive." Petstore.com, on the other hand, has chosen to tug at the heartstrings of pet owners with a series of poignant black-and-white spots featuring the tagline, "Hey, we know."
"We found that people really long for a human connection when it comes to buying pet products and services," says Reinhardt. "So the foundation for our site and our brand campaign is that human connection. We wanted to show people in our advertising what their relationships with their pets are."
Adds Reinhardt: "We did a lot of competitive analysis of the other sites and found that a lot of them are kind of cold and cartoonish. We wanted to leverage the emotional connection people have with their pets."
Hommeyer counters that the Pets.com spokesdog has struck a nerve with consumers precisely because it doesn't take itself or the company too seriously. Besides, he says, "People love the sock puppet-dog-thing."
Beyond advertising and marketing, the formula for overall success may lay, in part, in the respective pet store Web site's ability to offer more than well-priced kibble. Allpets.com and Petopia.com prominently highlight community features on their main sites.
"A lot of sites are touting their communities, and there are advantages there," says Hommeyer, "but we're focusing on what we have." What Pets.com has, in addition to its relationship with Amazon, are wholly owned and operated distribution channels. Hommeyer claims that controlling every stage of the supply chain allows Pets.com to offer consumers better customer service than e-commerce companies that merely distribute products through third-party retailers. Currently, Pets.com has two fulfillment centers, and Hommeyer says that will expand as the company grows.
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IS A SHAKEOUT LOOMING?
But can there be room for more than one big dog in the neighborhood?
"We think you're going to see a lot of consolidation," says Hommeyer. "There's going to be a huge shakeout. There's probably room for more than one pet site, but certainly not eight."
Reinhardt agrees that the overcrowded online pets market will be thinned out in time, but says that connecting with consumers is paramount and ultimately will lead to success. "Brands that are able to succeed are the ones that are able to make that human connection and build trust," he says. "People will return to brands that they trust, and they trust brands with expertise. We're all pet people here."
While business goals are driving the current competition, there's a big personal element involved as well.
"It's a great time to be a pet owner, and it's a great time to be a pet," Hommeyer says. "We all love pets, and it's cool to come to work and have a business objective, but it's also a personal passion." n
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CANINE CHIC
As far as fashion events go, the Nov. 4 Paws for Style show at downtown New York's Puck Building was fairly subdued. Sure, there were the requisite throngs of paparazzi angling to photograph the beautiful people, including such offline babes as brainy model-cum-author Veronica Webb and chronically injured Giants cornerback Jason Sehorn. "The celebrities wanted to participate," says Lisa Rogen, vice president of special events at Animal Fair, "because the proceeds went to charity."
While gawking at celebrities appeared to be the favored pastime among the 500-plus attendees, the main attraction was the clothing. It was a "fashion show," after all. But it wasn't a run-of-the-mill event. The usual parade of human mannequins flaunting outrageously priced designer frocks was outshined by models that walked down the runway on all fours. That's because Paws for Style showcased creations for the fashion-conscious canine set from designers Pamela Dennis, John Bartlett and Joe Boxer, among others.
The show was the brainchild of Wendy Diamond, founder and editorial director of newly launched offline magazine Animal Fair. The lifestyle book positions itself at the unexpected intersection of fashion and pets. Paws for Style also served as the launch event for the magazine's Web site, AnimalFair.com. Media coverage for the shindig appeared in such mainstream outlets as People magazine and The New York Times Sunday Styles section.
Not bad for a company that began as a whimsical idea in Diamond's living room earlier this year. While competing e-tailers duke it out to acquire a broad base of customers, Diamond's focus remains firmly on the luxury niche within the online pets market. "There's a big market of pet owners who are looking for the best products for their pets," said Diamond. "If I'm getting a dog bed, I'd like that dog bed to go with the rest of my apartment."
Ironically, Animal Fair's chief rival, Pets.com, which recently launched its own offline magazine, held a canine fashion event at Times Square's Kit Kat Klub the day before Paws for Style. John Hommeyer, vp of marketing at Pets.com, insists the confluence of doggy fashion was a coincidence and adds, "Wendy's great, and Animal Fair does great things."
Diamond offers another take: "They copied us," she says, only half joking. While professing that she "loves" Pets.com, she sees some irony in the dog-eat-dog competition. Given that Animal Fair stresses the idea of fairness to animals, "it's funny when the small guy has to go up against the Amazons of the world," she says.--K