Wag.com summons ghost of Pets.com
Can you really make money selling dog food online? No, but Wag.com is going to do it anyway.
Is it a sign of a bad bubble that we're re-hashing ideas from the first dot-com boom? Or are some ideas right, just too early? The team at Quidsi, which runs Diapers.com and Soap.com and which was for $540 million this year, believes the latter, and they're launching Wag.com today to prove it.
Wag.com is a bubble 2.0 stab at Pets.com. For those of you too young to remember, Pets.com was a high-flying Internet retailer in 1999 and 2000. It sold pet food and other pet supplies online. Even in the frothy 1999 tech bubble, though, it was a puzzler that a company could make money selling dog food cheaply online and then paying for shipping on top of it.
In fact, Pets.com lost money selling and shipping low-margin pet consumables. So much that the company burned through its funding and folded less than two years after it launched.
Lesson learned, right? Apparently not. Quidsi believes that if they "start with the customer, and work our way back," as Quidsi's Marketing Director Earl Gordon says, they can make an online dog food business work. Because, clearly, nobody else has thought of this before.
The real secret is simply better logistics. There are three Wag.com warehouses, each with the entire inventory selection in them, to reduce shipping distances. Quidsi also uses provento move items throughout its warehouses and help shop floor workers pack and pick shipments. "We've been doing this for a while," Gordon says. "We can efficiently deliver a a 40-pound bag of dog food."
The other trick to Wag.com, in addition to its ability to leverage Amazon's own marketing muscle, is that, "It's not all about dog food and cat litter." Josh Himwich, who runs commerce solution for Quidsi, says that the company would barely squeak by if it focused on selling commodities, as the Diapers.com brand already appears to do with its eponymous products. "Diapers are loss leaders at every single [retail] store. Not quite for us, but approaching it. If all you do is sell dogfood, you won't stay in business."
So the Quidsi sites all "promote a healthy mix," Himwich says. Diapers.com orders often have high-margin, cheaper-to-ship toys and baby care gear in them. Soap.com sells over-the-counter drugs and beauty products in addition to giant tubs of Tide. And Wag.com will sell pet toys and other pet gear. The commodity consumables are what hook the buyer in, month after month, but the sweeties that people add to their orders are where the money is made.
Amazon.com is of course the master at getting customers to sweeten their orders, by offering free shipping after a certain order size threshold, or by giving discounts on two-product bundles created on the fly. Not that Quidsi needs much help in this arena, but I doubt Amazon's expertise will hurt here.
Oddly, though, Amazon's and Quidsi's stores will remain separate. Wag.com won't use Amazon logistics to help fulfill its orders, and if you order a bag of dog food from Amazon, then Amazon--not Wag.com--will deliver it.
As Quidsi seems to have figured out the business making money, even if indirectly, from delivering bulky or heavy commodities to consumers, Wag.com looks like a solid expansion plan.
Following this launch, and in time for the holidays, Quidsi plans to launch Yoyo.com, a new online toy store. Exhuming the Pets.com model not presenting enough of a challenge, the company leaders also feel a need to prove that eToys, too, was ahead of its time, or poorly executed, or both. "We're going after all the ones that never worked," Himwich says.Previously, Amazon in 2009 for about $850 million.