The 1M1M Deal Radar 2010: SitStay ,Lincoln,Nebraska

SitStay, Inc. started as an online mom-and-pop dog supply store that has become one of the largest dog supply retailers on the Internet, defying conventional wisdom about the viability of selling pet products online. Readers may recall the failure of Petopia and the collapse of Amazon-backed Pets.com, which raised $82.5 million in an IPO in February 2000, bought rival Petstore.com in June 2000, and folded in November 2000. SitStay, which was founded in 1998, survived perhaps in part because of its niche approach. With a focus on “good for your dog supplies,” SitStay believes strongly that the health of the dog comes first. This philosophy has led it to focus on healthy dog treats, chews, and foods, and safe dog toys and equipment.

The owner-founders and former husband-and-wife team Kent Kreuger and Darcie Kreuger call SitStay “a hobby that got way out of control.” In the mid-1990s Kent created a website about dogs that became popular. Darcie had the idea to sell products on the site to help pay for hosting expenses, and they founded SitStay, which is based in Lincoln, Nebraska, in 1996. Kent’s background is in computer science. He had no retail experience other than being a shopper. Darcie’s background was a degree in criminal justice, retail experience, and a lot of common sense. It was she who convinced Kent to quit his regular job of 15 years and put it all on the line to sell dog supplies on the Internet.

Today, traffic to SitStay’s websites (www.sitstay, www.rescue.sitstay, www.dogrun.sitstay, and www.bbs.sitstay) is 1.35 million. Kent estimates that SitStay has served half a million customers. When they started, Kent and Darcie made it a point to sell only products they would use themselves and believed were good for dogs, not necessarily what large manufacturers were pushing. The SitStay site carries a large range of products including beds and mats; collars and harnesses; grooming supplies; flea and tick supplies; training tools; food; chew toys, bones, and chew sticks; leashes, pens, and crates; equipment for service dogs (e.g., seeing eye dogs) and therapy dogs; and books and gifts for owners and dog lovers. There is a smaller but comprehensive selection of cat supplies such as kibble and canned food, leashes, treats, grooming supplies, and carriers. The site also has social media and interactive features, including videos on YouTube, a Facebook page, a blog on training tips, a customer forum, a pedigree generator, and a rescue directory where people can find dogs to adopt.

According to the Humane Society of the United States, there are approximately 77.5 million owned dogs and 93.6 million owned cats in the country; these are by far the most popular pets. Thirty-nine percent of U.S. households own at least one dog and 33% at least one cat. In its 2009–2010 survey, the American Pet Products Association (APPA) estimates that people spend $1,490 annually on their dogs. Further, Kent says that pet supplies without the service segment (e.g., kennels and grooming) is a $10 billion dollar segment. The APPA puts the figure much higher, at an estimated $47 billion for all pets. Within these pet-owning households, SitStay’s target segment is middle- to upper-income women aged 40 to 70. Kent says that SitStay targets women because they are the caregivers for dogs in most non-hunting homes. Dogs can take the place of children in empty-nest homes, with the woman continuing to do the caregiving.

The company says it gained traction by being one of the first, if not the first, online dog supply stores. That resulted in prominent coverage in the New York Times and SitStay’s Web address being used in a Visa advertising campaign. The company also had a product nobody else had, Macho Stix. “This is a 100% natural dog chew made from, um, a bull penis. That makes some news,” said Kent. But credit should also go the company’s overall approach. In an early profile on SitStay in Inc magazine, Funda Alp of the APPA said that in the fragmented pet supply market, where as mentioned above, big names such as Pets.com have failed online, “what’s really important is to find a niche and grow within that niche.” This is what SitStay has done. Another online success story is SafePetProducts, but their target segment, animal control products, is somewhat different from SitStay’s.

Revenue is between $3 million and $7 million. SitStay stocks over 3,000 SKUs in its warehouse. Up until the last two years the company has always been profitable. With the recession and its aftermath, it is breaking even. At first, Kent and Darcie financed SitStay with personal savings, retirement savings, and credit cards. Other than an operating loan, the company has not received any other financing and has grown through revenues. Kent and Darcie would be very interested in raising money for franchising their retail stores and creating a line of SitStay Retreats. They haven’t pursued this yet because they are not familiar with the process. The ideal investor would be someone who has relevant contacts and experience.

The company now has nine employees, a 20,000 square foot warehouse, and three dogs that test everything. Kent says that he “is the conservative one and Darcie is the risk taker. She jumps off the cliff and [I] figure out how to build a parachute on the way down.” SitStay is expanding by opening its first retail store and offering the first SitStay branded line of treats and chews. There is no plan to exit. “We love what we do and plan to do it forever,” say Kent and Darcie, who are no longer married (“How’s that for ammunition?” jokes Kent) but remain business partners. “As for investors, we would love to grow SitStay to compete with Petco and PetSmart on a national level. This of course means a healthy investment but also healthy returns. Our customers call us the L.L. Bean of dog supplies. If we could bring that feeling out to more people, SitStay could explode in growth.”

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This segment is a part in the series : The 1M1M Deal Radar 2010