Webvan, Petsmart Hope Deal Is Not for the Dogs

Following one of the hottest trends in e-commerce, Internet grocer Webvan.com announced Monday it has joined forces with another e-tail site, in this case Petsmart.com, to open a pet store on the Webvan site.

However, while other online partnerships have generated mutual benefits, there is some doubt about how much either of the companies involved with this deal stand to gain.

“I think Webvan would be better served by deals that add value to the netincome part of their financial statement, rather than the just the revenueside,” Yankee Group online retail analyst Paul Ritter told the E-Commerce Times. “A million dollars in additional sales won’t mean a lot if it onlyadds a hundred bucks to net income.”

The store, scheduled to open Friday, will offer pet food, supplies and accessories through select regional Webvan sites,including those in Atlanta, Georgia and Chicago, Illinois, as well as Sacramento and San Francisco, California. Over the next few months, additional regions, including Dallas, Texas and Los Angeles, will be added to the list.

“It makes a great deal of sense for both firms on the surface,” Ritter said. “But bylooking at the profile of the mix of goods planned to be sold, which seemsto be dog food and other bulky goods, it will depend a lot on who is bearingthe cost for the shipping of 30 pound bags of dog food.”

Risky Business

The Webvan-Petsmart alliance is the latest of many joint efforts announced in the ongoing e-commerce shakeout, where alliances have become one key to survival. For example, struggling e-tailer Toysrus.com gained significantly when it moved its operations to the Amazon.com site just in time for the critical holiday season.

Still, Webvan and Petsmart likely had different goals in mind when inking their deal, and working together does not necessarily mean the two will benefit equally from the arrangement.

“If Webvan begins delivering these types of goods along with their currentstable of products, it may drastically change their cost of goods sold andthe average value of every vanload, and perhaps have a big impact on theirmargins,” Ritter said.

Crunch Time

According to Ritter, it is important to Webvan to fill up its vans with products of other firms, “as long as they are the right products.”

While the Petsmart deal helps Webvan ensure its vans are fully loaded duringdeliveries, it may come at too high a cost.

“I have doubts whether low value, high weight dog food is the right product for Webvan atthis point in time,” Ritter said.

Dog-Eat-Dog

On the other side of the deal, the Webvan agreement could have mixed results for Petsmart, according to Ritter.

“Having to charge customers a much higher cost for delivery of the petsupplies than they might have otherwise paid can significantly alter thevalue proposition for customers buying those products online, which couldimpact sales for Petsmart.com,” Ritter said.

Nevertheless, Petsmart does get to take advantage of the customer service benefits that Webvan offers.

“It’s a smart move for Petsmart because it lets Webvan take over theshipping/delivery of the heavy stuff that’s expensive to get to customers,”said Ritter.

Trading Places

Webvan’s strategy of increasing its product base by partnering with other e-tailers has not come without consequence. Two weeks ago, Webvan announced that itsfourth-quarter revenue would fall short of expectations.

Webvan shares, which once traded as high as $17.50 in the past year, closed at 50 cents per share Monday, up 6 cents.