Animal magnetism

Jun 01, 2006 9:30 PM  By

Alex Tabibi, chairman/CEO of Pets United, has a lofty goal: He wants his company to be the Wal-Mart of the Web. Unfortunately for him, Walmart.com is already the Wal-Mart of the Web. So for now, Tabibi is contenting himself with becoming a top dog of online pet supply merchants.

During the past two years, Tabibi built Hazleton, PA-based 1-800 Pet Supply, or Pets United, as the holding company is called, into a multititle marketer with projected sales this year of $75 million. Along with a menagerie of Websites, the company mails nearly 15 million copies annually of its three print catalogs: Country Supply, specializing in equine products; Dog.com; and Petstockroom, which sells bird supplies.

Though the horse and dog businesses started as catalogs, the modern-day Pets United didn’t really take off until the Los Angeles-based private investment group, Z Capital, that Tabibi started with his brother, Carlo, zeroed in on the pet supply market. One of the first investments Tabibi’s group made was in PetQuarters.com, shortly before the general pet products online merchant folded in 2001. The Tabibis bought the assets of PetQuarters out of foreclosure in September 2004. Those assets included The Dog’s Outfitter, a business-to-business catalog that has morphed into Dog.com, which now caters to consumers.

Last summer Tabibi went on a spree, buying the URLs of Ferret.com, Fish.com, Bird.com, and Petstockroom.com. (These last two were merged into Bird.com.) And in November 2005, Pets United acquired Ottumwa, IA-based Country Supply, which has 600,000 horse-owning customers. In keeping with the rest of the business, the Website was quickly renamed Horse.com. Tabibi’s roster does not include Cat.com because the URL is owned by industrial powerhouse Caterpillar. “If someone can convince them to sell, we’ll buy,” he jokes.

By aggregating a list of URLs, Pets United aims to create a one-stop destination where customers can find products and information about their pets while networking with each other via online communities. The strategy seems to be working: Web sales more than doubled last year, to $23.4 million from $11 million in 2004. This year, Tabibi says, they’ll tally about $45 million. The print catalogs will account for the remaining $30 million in sales.

Fred Anderson, president of South Orange, NJ-based catalog intermediary Anderson Direct, who advised Pets United on the Country Supply deal, says Tabibi’s related-URL concept allows for more marketing synergies. “It’s a little like Monopoly: Park Place and Boardwalk are far more valuable when you own them both because you can do so much more with them,” Anderson says.

Moreover, according to the Greenwich, CT-based American Pet Products Manufacturers Association (APPMA), 63% of U.S. households — 69.1 million homes — own a pet, and 45% of households own at least two. Pets United’s equine customers own an average of 2.7 dogs in addition to at least one horse. So Tabibi reasons there’s plenty of opportunity for cross-selling within the $24.5 billion pet food and supplies market.

A plethora of pet merchants

Tabibi wants to build Pets United into a billion-dollar operation within five years. But there are plenty of competitors to make that goal a difficult one.

With estimated sales of $200 million, Rhinelander, WI-based Doctors Foster & Smith is arguably Pets United’s most formidable catalog/Web foe. The 36-year-old company is well established in many of the same markets as Pets United and is involved in several other (cats, reptiles) in which Pets United doesn’t have a presence. Then there’s also $3.8 billion PetSmart, a multichannel merchant with 825 stores in the U.S. and Canada and a solid Web presence (it owns the Dogs.com URL, which no doubt gets some traffic meant for Pets United’s Dog.com) as well as the $2.0 billion Petco, with 775 stores and its own e-commerce site.

Nonetheless, Tabibi insists that there’s room for another major player — especially if said player focuses on cost control. For that reason, Tabibi says, “the direct import business is a large part of our strategy.” Pets United has been importing much of its merchandise from China since 2005, which he says allows the company to save 50%-80% on most of the toys, bedding, and apparel it sells.

And that’s also why Tabibi expects to phase out catalogs over the long haul. “I don’t think this idea of mailing millions of catalogs is particularly intelligent economically or environmentally sustainable over a long period of time. I’d be very doubtful if in 10 years we are mailing nearly as many catalogs.”

In his view, paper, postage, and ink costs as a percentage of sales are far too high to allow any marketer that relies on catalogs to succeed. Tabibi does admit, however, that catalogs can be effective when used as bounce-back in customer shipments.

Content may be king — but can it sell?

As the first wave of dot-com entrepreneurs learned the hard way, print catalogs are a major means of driving shoppers to a Website. But Tabibi contends that the editorial content of Pets United’s site will be as effective. “People are looking for value-added services, more than just products,” he says. By offering content, “you’re creating goodwill with the customer. We’re trying to creating a forum, a population.”

User groups are already pushing traffic to Horse.com. In late February, just two weeks after its launch, the Horseforum section on Horse.com had 5,473 users at one time — a large enough crowd to encourage Tabibi to believe he’s onto something. “The traffic is only increasing daily,” he adds.

And besides merchandise sales, Tabibi is counting on revenue streams such as classified ads and paid sponsorships.

But the people who come to a Website looking for tips on training their dog or to post pictures of their cat on a forum don’t necessarily buy products while they’re on the site.

Amy Africa, president of Williston, VT-based consultancy Eight By Eight, is skeptical of Tabibi’s strategy. “Content performance is lower than it’s ever been,” she says, adding that the majority of sites that focus more on information than commerce have conversion rates of less than 0.3%. Sites that try to do both often are masters of none: Blogs and online magazines provide more-robust content, while sites that make selling their sole business throw all their resources into moving merchandise.

How would Africa suggest that Pets United boost conversions and sales? First, the company can build link and page popularity, she says, “which would help its rankings on search engines. Organic rankings are not only more effective [than paid search listings] in terms of conversion but they don’t cost that much either.”

She also advises Pets United to be aggressive in collecting e-mail addresses, especially if it intends to eventually cease using direct mail as a touchpoint. For instance, it could use pop-up screens to capture the e-mail addresses of forum participants and of people who abandon searches or shopping carts. Then it could use “thrust and on-demand e-mails” to capture sales or personalize the site with acquired information, Africa says.