Why is Pet Valu closing its U.S. stores?

In announcing its plan Wednesday to close all U.S. stores, Pet Valu provided just one reason for the grim news.

“The company’s stores have been significantly impacted by the protracted COVID-19-related restrictions ,” read a statement from Chief Restructuring Officer Jamie Gould .“After a thorough review of all available alternatives, we made the difficult but necessary decision to commence this orderly wind down.”

To some, however, that didn’t pass the smell test. After all, pet stores were deemed essential early in the pandemic, allowed to keep operating while many other businesses temporarily closed. On top of that, pet adoption rates have spiked during the pandemic and the pet care industry continues to grow, proving its resilience even amid an economic down turn.

While Pet Valu declined to comment beyond its news release Wednesday, industry experts said the retailer had some weaknesses surrounding its store layout and e-commerce platform that hindered its ability to successfully compete — like it once did — in a crowded, and rapidly changing, U.S. market.

The closure will lead to an undisclosed number of job losses across more than 350 Pet Valu stores in the Northeast and Midwest. In addition ,64 people at the company’s Tredyffrin Township, Chester County, corporate office and 93 employees at its warehouse in Bristol Township, Bucks County, will lose their jobs in January, according to notices filed with the state Wednesday.

Through the years, Pet Valu, which was acquired by a private equity firm in 2009, aggressively expanded its footprint. With stores that averaged 3,000-5,000 square feet, Pet Valu was able to fit into spaces that could not house a Petco or PetSmart, which average 10,000-15,000 square feet, explained Amanda Lai, manager at McMillan Doolittle, a Chicago retail consulting firm.

Fast-forward to 2020, and it became increasingly important to consumers to shop in places where they could safely socially distance, she said. A smaller store could not accommodate as many customers separated by 6 feet, which could have dwindled in-store traffic.

That, of course, is assuming the consumer went to a brick-andmortar store.

What the pandemic has done is accelerate online sales of pet food, in turn taking a larger share of the business from physical stores. While online sales represented 15% of the U.S. pet food market last year, up from 2% in 2013, that share could surge to about 26% by 2025, according to an Oct. 15 research report from investment bank Jeff eries that analyzed the pet food industry.

Many might be seeing that play out, via a quick glance at a neighbor’s porch to see a cardboard box labeled, Chewy.com. For its part, Chewy reported second-quarter net sales of $1.7 billion, a 47% jump.

Petco and PetSmart also have made gains in e-commerce. For example, PetSmart in September announced a partnership with Door Dash for a same-day delivery service across its more than 1,400 U.S. stores.

“In the heart of the pandemic, pet owners opted for online delivery or shopped at stores where they were able to safely socially distance,” Lai said. “Both of these factors were weaknesses of Pet Valu, who lacked the e-commerce capabilities of Chewy and whose small footprint became a turn off for consumers who wanted to socially distance themselves while shopping.” But brick-and-mortar pet stores aren’t dead.

With the increase in e-commerce and subscription models, many physical stores have shifted focus to becoming a “one-stopshop for animal services,” Lai explained. That includes training, veterinary care, day care and self-wash stations.

“Although Pet Valu’s small store format allowed the brand to expand quickly, their format ultimately limited their ability to compete on experience and in-store assortment,” she said.

Having what the customer wants is key. While dog food, for example, isn’t a huge profit maker for a pet store, the business has to have the products the customer desires, said Tony ElChaar, owner of Ch a ar, a pet supplies retailer with three Lehigh Valley stores.

For instance, ElChaar said demand for frozen dog food increased during the pandemic, so his business acquired freezers to meet that need. “We try not to lose focus on our customers and co-workers,” said ElChaar, who added that his business is having a goodyear and hopes to add a fourth store in the next year.

What he saw at Pet Valu, which has several Lehigh Valley stores, was a shift toward private-label pet food, which comes with higher profit margins but also takes away space from the well-known brands customers might expect to see.

While private-label pet food was 12.6% of the U.S. pet food market in 2009, its share today is 9.5%, according to the Jefferies report. While that share could increase, pet food tends to have higher brand loyalty than other consumer packaged goods, the report notes.

That fits right into the humanization of pets, especially as millennial sand Generation Z have increasingly adopted animals and pushed off having children until a later age. Much of why Pet Valu is closing its U.S. stores also could boil down to market.

The U.S. division of Pet Valu licenses its name from Pet Valu Canada, which is a separate company in Ontario that is unaffected by the wind down. Pet Valu Canada, described as a “market-leading, highly profitable and growing business” in a news release, will continue to serve customers across 600 stores in Canada.

As that might suggest, there are major differences between the U.S. and Canadian markets.

In the United States, Pet Valu found itself competing with larger pet retailers such as Petco, PetSmart and Pet Supplies Plus as well as the giant big-box companies such as W al mart and Target—and Chewy and Amazon. Canada is a little different, said Lai, who spent part of her childhood in Mark ham, Ontario — also where Pet Valu Canada is based. PetSmart and Pet Va lu, she said, were the major players in the Canadian pet business for along time, joined in 2018 by Pet co through a partnership with retailer Canadian Tire.

And when it comes to e-commerce, La is aid Chewy doesn’ t ship to Canada directly and PetSmart’s website in the country doesn’t offer the Auto Ship recurring delivery program, which helps drive customer loyalty.

With Canada lagging behind U.S. trends, it might simply be a more lucrative focus for Pet Valu.