Why E-Commerce Works for Sites Like SitStay.com, Waggintails.com

Darcie Krueger sounds relaxed and upbeat when she answers the phone at SitStay.com, an online retailer of healthy dog treats and other dog paraphernalia based in Lincoln, Neb. “We offer dog lovers products they often can’t find other places,” she says, while cooing to Tilli, the 55-pound Belgian Shepherd sitting on her lap.

Krueger, who in 1997 started SitStay with her husband, Kent, with money from their 401(k) account, has good reason to be upbeat. While larger pet supply e-tailers?most notably Pets.com?have crashed and burned, the Kruegers have established themselves in a high-margin niche, earning profits of $111,000 on $880,000 in sales last year. “Our online store has always paid for itself,” she says.

Another, smaller site for pet lovers, Waggin’ Tails Pet Essentials (Waggintails.com), based in Lee, Mass., has also been able to turn a profit on less than $5 million in sales by offering high-end dog food and hard-to-find treats. The trick? Unlike the big sites that tried to offer everything to animal owners, SitStay.com and Waggintails.com specialize in fewer items with margins that exceed 30 percent. By contrast, Pets.com shipped lower margin goods, such as 20-pound bags of run-of-the-mill dog food available in every physical pet store.

SitStay has made a decision to stay small. The partners have turned down several offers from VC firms for fear they would lose too much control. “We saw that it didn’t work with the larger sites,” says Krueger. “It’s always been surprising to us how some people can take so much money and dump it into the wrong places.”