PetSmart (PETM) is the largest pet supply store in North America, with 908 retail stores as of the end of 2006. As the leader of a $36 billion-a-year industry that has doubled in size since the early 1990’s PetSmart is well-positioned to leverage its large store network and scales of efficiency.[1] However, this lucrative retail niche has not gone unnoticed by supermarkets and one-stop retailers such as Wal-Mart Stores (WMT), many of whom offer an increasing variety of pet food and supplies.
PetSmart differentiates itself by providing a breadth of products (about 13,400 pet products per store), ranging from brand names as well as an its own private brands. Perhaps its most distinguishing competitive advantage is its service offerings. As of 2006, 67% of all retail stores incorporated full-service veterinary hospitals. Many locations also offer grooming, pet training and other similar services.
[edit] Financial and Store Metrics
Below are relevant operating and store metrics for the company. The company has successfully continued growing its store base while experiencing modest growth in its sales per square foot.
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[edit] Company Specific Trends and Risk Factors
- Expansion to veterinary and other services Over the past several years veterinary care and other services such as grooming and pet training have grown to account for nearly half of the pet industry’s revenue. PetsMart has recognized this trend as a way to expand its business and has capitalized on it by incorporating full-service veterinary hospitals in 608 of their 908 locations (67%). Within the next few years expect PetsMart to have all their stores updated with veterinary hospitals as this trend continues to generate most of the industry’s revenue.
- Competitive force of the pet industry. The pet care industry has become more competitive as a result of the expansion of supermarkets, warehouse clubs, and other mass retail merchandisers, like Wal-Mart Stores (WMT), Target (TGT) and Costco Wholesale (COST), many of which have access to greater resources than PetSmart due to sheer size. Largely due to the rapid growth of the industry, specialty and discount retailers alike have entered the pet market, and pet owners can increasingly purchase merchandise for their pet at their local grocery or discount store as well as standalone pet stores like PetSmart.. [4]
[edit] Macro Trends Affecting PETM
- Increases in costs of specialty services. The rising costs of veterinary services have fueled dramatic revenue growth because of the growing emphasis on specialties, diagnostics and pet owner’s overall desire to provide better healthcare for their animals. Owners have become more willing to spend a lot of money on their pets because they consider them members of the family and as a result are committed to keeping their pets healthy. An increase in health insurance for pets may help fuel the growth in demand for veterinary services.
- Rising oil prices. Like any retailer that transports products from distribution centers, increased fuel prices can negatively impact operating efficiencies. In 2006, freight expense as a percentage of net sales were actually lower compared to the previous year year due to a reduction in average miles driven per store. PetSmart opened a new distribution center and improved truck space utilization. These kinds of gains may be one-time, and the company may see additional increases in fuel prices affect their bottom line. [5]
[edit] Industry & Competition
[6] The pet care industry generates about $36 billion per year in the U.S. As a growing market, it is highly fragmented and has attracted
supermarkets, warehouse clubs and mass retailers in addition to the myriad specialty pet supply chains, independent pet stores, veterinarians, catalog retailers, and
e-commerce players.
Key competitors include Petco, Target (TGT), and Wal-Mart Stores (WMT). These companies can sometimes offer basic pet staples at lower prices than PetSmart by leveraging their size while PetSmart attempts to compete on product breadth (13,400 different pet products per store on average) and services such as grooming and veterinarian visits. In the pet pharmaceutical business, the company competes with veterinarians and direct marketing retailers such as PetMed Express (PETS).
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[edit] Market Share
Based on industry wide pet care and supply revenue of $36 billion, the company's market share is estimated around 12.8%.
Competitive Metrics
|
| Company
| Operating Margin
| US Market Share
|
| PETsMART | 7.5% | 12.7% |
|
| PETCO | 7% | 6% |
|
[edit] Footnotes
- ↑ 2006 PETM Annual Report pg.1
- ↑ 2006 PETM 10-k Annual Report, "Selected Financial Data" pg.24
- ↑ 2006 PETM 10-k Annual Report, "Selected Financial Data" pg.24
- ↑ 2006 PETM 10-k Annual Report, "Risk Factors" pg.10
- ↑ 2006 PETM 10-k Annual Report, "Quantitative and Qualitative Disclosures about Market Risks" pg.36
- ↑ http://www.researchbuy.com/marketwikis/Pet_Care_Market_Research
- ↑ 2005/2006 APPMA National Pet Owners Survey
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