If pets.com failed, why is chewy.com succeeding?

One of the most notorious failures of the dot.com era was pets.com, which cost investors $300 million.

Recently I got a direct mail piece from chewy.com, which appears to be the same thing. The Miami Herald says that chewy.com is growing wonderfully.

Mindy the Crippler gets Hill’s Ideal Balance for $48.59, including Prime shipping, from Amazon. The same product is available at the exact same price from chewy.com. Since almost everyone is already an Amazon customer, what would motivate them to switch to chewy.com?

Readers: help me out here… how can this idea that completely failed in the 1990s suddenly be viable? Why chewy.com instead of Amazon.comWalmart.comPetsmart.com, et al.?

[I recognize that some ideas did become more viable with the growth of the Internet, e.g., the collaborative online encyclopedia (tried many times before Wikipedia, but never reached critical mass). But if anything Amazon and the other big retailers seem to have become more dominant compared to the 1990s.]

16 Comments

  1. Neal

    September 10, 2017 @ 12:56 pm

    1

    A specialty website can provide a better experience than Amazon in the same way that a local pet store can better help you choose a dog food for your pet than Walmart. They are selling products rather than skus, but in addition to product expertise they (specialty website) would also need web design and information management expertise.

  2. Colin

    September 10, 2017 @ 1:38 pm

    2

    The dog and cat food we buy is available on Amazon Subscribe-n-Save cheaper than Chewy. Specifically, the 11# bag of cat food is $3 cheaper, the 30# bag of dog food is $4 cheaper. Note I compared to the autoship price on Chewy.

    Hmmm, both are about 10% cheaper on Amazon….

  3. Coward

    September 10, 2017 @ 2:39 pm

    3

    Amazon decided to comingle inventory SKU’s among different affiliate vendors. This means that even if you buy directly from Amazon or by a reputable affiliate, you may be getting counterfeit product that a shady affiliate bought cheaply from China.

    So now many people are afraid to buy from Amazon.

  4. Chris Neumann

    September 10, 2017 @ 3:07 pm

    4

    Is the thesis of this post really that e-com for pets is not a viable business? In the 90s, there were way fewer people on the internet, and it was fashionable to sell things at a major loss. They did that a bunch and went out of business. As I’m sure you’re well aware, people spend a lot of money on their pets, and direct-to-consumer business models are working very well these days. Per the previous poster’s comment, a specialty site can generally do a better job than a generic one like Amazon. Perhaps Amazon’s logistics can provide cheaper pricing for heavy bags of food, and I’m sure Chewy doesn’t want to lose money on that stuff, but Chewy is also a bunch of ex-Amazon people, where the culture is oriented around strategically using data to learn as much as possible as quickly as possible to build a structural competitive advantage, and this is done by running a series of controlled experiments. In the industry, this is known as A/B testing or split testing. I do it as a consultant for a bunch of companies, and it works. For instance, look at the stock of weight watchers over the past year or two. Note this is also the core strategy of Facebook, and Mark Zuckerberg has said so explicitly on the Masters of Scale podcast. The “legacy” companies like Petco/PetSmart, etc aren’t very good at this, and will eventually lose to companies like Chewy, which is why PetSmart bought Chewy for $3B in cash. I wouldn’t be surprised to learn there was a bidding war with Amazon for them, as pets is a multi billion dollar category with very loyal consumers.

  5. lion

    September 10, 2017 @ 3:51 pm

    5

    Generation X was counter culture scrooges who went out of their way not to buy the products everyone else was. Millenials are willing to pay any premium to conform. They spend $8 to go 50ft in an Uber, $12,000 to rent an apartment where their friends are, or an extra $50 to buy from whatever unknown startup their friends are using. They’re a modern miracle of conformism.

  6. Stephen Dennis

    September 10, 2017 @ 4:28 pm

    6

    Different cost structure

  7. Cliff R.

    September 10, 2017 @ 4:48 pm

    7

    Buying dog food on Amazon comes with the risk that you’ll get counterfeit food. I trust Chewy in this regard much more than I do Amazon. However, I recently stopped using Chewy when they stopped carrying Fromm’s dog food–now we use PetFlow.

  8. Trevis Rothwell

    September 11, 2017 @ 12:12 am

    8

    None of Chewy, PetFlow, PetSmart, PetCo, or Amazon carry my border collie’s preferred Red Mills food. I pass over two closer grocery stores to do weekly household shopping at a local store that sells it.

  9. Isaac D

    September 11, 2017 @ 2:20 am

    9

    Amazon prices are not stable, and have actually fluctuated significantly from month to month for my dog’s food. As a Prime member, some months I use an Amazon subscription for my dog food, other times I cancel it and order on chewy.com.

    I think the big difference from the 90s is that the shipping costs are baked into the price of the good. So the $50 dogfood that the local store is selling – which probably wholesales for $25 – is also $50 on chewy.com, with $10 of the profit going towards shipping instead of maintaining a physical facility.

  10. David K.

    September 11, 2017 @ 7:58 am

    10

    I think Coward is on the right track. It used to be that, if Amazon sold it, it was easy to find, and you could get it in a couple days. Now? Good luck on both counts.

    Amazon has gotten so big that it’s tough to figure out who’s selling you the product, and there’s a non-insignificant chance that, if you’re ordering a commodity, it’s coming from China. The quality will be hit-or-miss, of course, but what peeves me even more is that it’s going to take weeks to be delivered. I’ve had a couple of these recently, where I didn’t think to drill down to the details, but, once ordered, I couldn’t be bothered to cancel and find something local. I’m paying for Prime primarily because of free 2-day shipping. This means nothing for things coming from overseas.

    It’s also nearly impossible to find some things on the site any more. If you aren’t looking for something well-differentiated, you can be inundated with irrelevant results. And, even if you ARE searching for something that has well-defined results, it’s annoying to have to sort through everything even tangentially-related in the results.

    And another thing , what’s the deal with giving me 30 results for the same thing? I was searching for an out-of-print music CD, and I got 3 listings for it, which were all links to pages of about 10 3rd-party resellers. It’s the same, single SKU. (There was only ever 1.) Why do I need 3 separate listings for it? Why do I need the t-shirt with the cover, when I’m looking specifically for the CD? Why do I need other CD’s in the artist’s catalog in the results? And why does Amazon need to list 30 different sellers for it? Make all this miraculous deep machine learning work for me, Amazon: if you’re not going to carry it, then give me a single listing, with the top, say, 5, 3rd-party sellers of the item. Leave all the tangential results to the horizontal results at the bottom of the page. And stop telling me that customers who bought that CD also bought… the same CD from someone else.

    Ebay is now a storefront, with almost everything having a buy-it-now price, and Amazon sells as many used items as new. Might as well just join them, at this point. Almost all of my criticisms of Amazon work just as well for Ebay.

    I was about to let Prime lapse, and then I discovered The Man in the High Castle.

    Dang it.

    I said all that to say this: I hope more chewy.com‘s come on the scene to take a bite out of Amazon, but they need to STAY FOCUSED. If they try to become bigger than their niche, then I might as well deal with Amazon’s crap. Better the devil I already know.

    Seems to me that a great another great niche would be… out of print music and movies. What Ebay used to be, at the start, without the auction.

    This drive of all companies to grow until they become the 800-pound monopoly in their segment is driving me nuts, but I’ll save the full-blown rant.

  11. bobbybobbob

    September 11, 2017 @ 9:50 am

    11

    A lot of electronics on Amazon are counterfeit now. If you buy an SD card the brand name will be fake and there will be a bunch of bad sectors.

     Revzilla.com is a good example of a successful specialty retailer with nothing to fear from Amazon. The Amazon experience is now very much like walking into a walmart. It’s noisy and strangely hard to find what you’re looking for and you get no help. The other customers leaving reviews are annoying.

  12. J. Peterson

    September 11, 2017 @ 5:11 pm

    12

    how can this idea that completely failed in the 1990s suddenly be viable?

    The gullible VCs who invested in Pets.com have retired, and replaced with new ones (like the investors in Juciero)

  13. Alan

    September 11, 2017 @ 11:11 pm

    13

    You just haven’t waited long enough. The founders putting in $150k enables a business model that $300mil of investors doesn’t support. Petsmart putting in $3.5bil will be the pets.com aha moment.

  14. jay c

    September 11, 2017 @ 11:23 pm

    14

    Look at McMaster-Carr’s website link. Look up say, “deck screws” and then see how you can drill down and select the tip, the screw size, the length, etc. Now look at the mess at Amazon. You get a mish-mash of deck screws of various sizes, light bulbs, lag screws. There’s no place to select the screw size or the length Typing in keywords often makes it worse. Yes, if I use McMaster I get a shipping and handling charge, but they deliver same day if it’s in stock (in LA) and they have will call.

  15. billybob

    September 16, 2017 @ 10:56 pm

    15

    nbsp;Chewy.com sells prescription dog food (yes, there really is such a thing). Amazon doesn’t. Also Amazon runs out of dog food even though it’s in your subscribe-and-save, strings you along for a week saying it’s coming, and then cancels your order. So far Chewy hasn’t done that.

  16. SteveJ

    September 17, 2017 @ 12:45 am

    16

    My wife, a veterinarian, buys huge volumes of stuff from Chewy (I unpack these shipments for her), and far prefers it to Amazon etc. because Chewy has fabulous customer service. She can talk to someone 24×7, and they actually do the things they say they will. On very rare occasions, an order will get messed up, and one phone call invariably fixes it.

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