Case Study in Corporate Finance
Pets.com was one of the online retailers of pet products, integrating product sales with expert information and professional resources. In order to compete and survive in the market, it hoped to build its attributes, which include brand recognition, product selection, quality of Web Store, reliability in ordering and shipping, customer service and competitive pricing. However, the company experience net loss soon after it started operation. And the hope of favorable IPO didn’t work. The company was at the edge of failure.
Analysis: Why Pets.com, Inc. Failed?
Pets.com, Inc had made some lethal strategic mistakes since its inception. First of all, the cost structure is a big issue for the company. Pets.com provided approximately 15,000 SKUs, the intention was to leverage its vendor relationships to buy direct and thus realize better pricing. However, in order to maintain 15,000 SKUs, a lot of financial and inventory support were required. In order to support this strategy, the company opened large distribution centers and held large amount of inventory on hand. It directly increased the operating expense and the risk. Furthermore, in order to build a large customer base, the company spent considerable amount of money on brand building. According to its Balance Sheets, the prepaid advertising in September 2000 amount to $18,268,000, while the net sale and net loss during the same period were $9,365,000 and $21,725,000. Secondly, Pets.com, Inc was too ambitious and planned to expand its business to all related direction. For example, it gave the customer the widest products choices, launched its own line of private label products, and provided extensive veterinary care information. Those activities might benefit for a mature business, but not in this case. Not only the expenditure associates with those activities, but also they distracted Pets.com, Inc. from emphasized on its core business...
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