**Pets.com Put to Sleep

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Pets.com, the online category leader in pet supplies, folded yesterday after extensive efforts to raise cash or find a buyer yielded zero results.


"We sought to raise capital and we failed to do so, and we looked at some other strategic opportunities [and] we didn't see any," said John Cummings, director of investor relations at Pets.com. "We engaged Merrill Lynch to help us in this effort and they were unsuccessful in finding an interested party, so that's sort of where we are."


The failure of Pets.com, San Francisco, is the second this week of an online category leader. Furniture.com announced Monday that it could not raise additional funds to continue operations.


Pets.com has sacked 255 of its 320 employees and plans to sell its remaining inventory, Web addresses, content, distribution center equipment and the Sock Puppet brand icon. "At this point, our plans are to sell all our assets," Cummings said.


Pets.com also earns the distinction of being the first publicly traded dot-com to fail. It was closely followed by online vitamin store MotherNature.com, which became the second publicly traded company to go under after it announced plans to close yesterday afternoon.


The closure of Pets.com also impacts Internet heavyweight Amazon.com. The Internet's No. 1 retailer held a 25 percent stake in Pets.com and was also a failed investor in recently defunct home furnishings site living.com.


The imminent shakeout in the online pet retail market became a reality in July when Pets.com announced a takeover of rival Petstore.com's assets and strategic partners.


But while Pets.com was absorbing Petstore.com, it was also looking to raise extra working capital or sell the entire company. As a cost-cutting measure, it opened a new customer service call center in the cheaper Greenwood, IA, area, relocating most of that department's staff there.


Revenue was growing as well. Third-quarter sales rose to $9.4 million, from $8.8 million in the previous quarter. Total cumulative customer orders surpassed 536,000 in the third quarter, from 443,000 in the second quarter. Projections for this year, in fact, were $35 million, compared with $5.8 million in 1999.


The retailer also sought to improve product margins and cut shipping and fulfillment costs -- scourges of the online pet retail category. Sales and marketing expenses were also trimmed to lower overall operating costs and conserve cash.


But such rescue efforts were to no avail. Hired to help the company, Merrill Lynch & Co. contacted more than 50 potential domestic and international suitors. Fewer than eight companies even agreed to visit the company.


"It is well known that this is a very difficult environment for business-to-consumer Internet companies," Pets.com chairman/CEO Julie Wainwright said in a statement. "With no better offers and avenues effectively exhausted, we felt that the best option was an orderly wind down with the objective to try to return something back to the shareholders."
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