PetSmart rides ‘premiumization’ of pets
Apparel, services attract spending RETAIL
• PetSmart’s growth in Canada over the past 20 years has escalated naturally due to the rising number of households keeping pets.
But what’s really helped fuel the specialty retailer’s business of late is the increasing number of people who dress up their pets in sports jerseys and Halloween costumes and splash pictures of them across social media.
“Pets are part of t he family, and people want to include them in how they live their lives,” PetSmart Canada president John DeFranco said in an interview.
The retailer, which has 117 stores across the country, encourages customers to post pictures on its Facebook page of pets donning team apparel, such as Vancouver Canucks dog jerseys.
“The growth in the industry has really been driven by the premiumization of pets over the years — pet parents spending more on their pets,” DeFranco explained.
“People have been spending more on pet food, on apparel, on supplements and on services.”
While ownership of cats and dogs has gone up about one to two per cent per year in Canada in the past few years, the Canadian pet industry has been growing at an average of 3.6 per cent per year for several years, according to market research firm Euromonitor, to the tune of $ 4.7 billion annually. That’s just for pet food, supplies and services, and does not include the costs of pets or veterinary services.
Euromonitor estimates sales growth will accelerate slightly to an average of just above four per cent annually through to 2020.
The trends bode well for Pet Smart, whose U.S. parent was acquired in 2015 for US$8.7 billion by a consortium of private- equity investors led by London- based BC Partners and including the Caisse de dépôt et placement du Québec and Toronto-based Longview Asset Management.
For its part, the Canadian retailer is gearing up its expansion efforts, opening 12 new stores over the course of 2016 and is looking to accelerate the pace in 2017 and beyond, DeFranco said.
That could seem bullish for a retailer whose 15,000- square- foot stores are located exclusively in big-box power centres, a real estate segment in which some old-school “category killers” have seen their business hit hard as people bought items such as electronics and toys online.
“Some of the smaller players in the power centres are struggling, and the industry overall is struggling with transactions as customers are consolidating trips or making purchases online,” DeFranco agreed. “That has not been our experience.”
Bruce Winder, partner in Toronto- based Retail Advisors Network, said PetSmart has grown because it has remained relatively uncontested in its retail niche; rival PetValu promotes local convenience, with 500 small stores in different retail formats, while big players such as Wal-Mart carry a narrow selection of pet products for more value-conscious customers.
“The pet category has been on a growth trajectory for at least 10 years — these days pets are as important to people as children,” Winder said.
“PetSmart is focusing on the middle- to upper- income pet customer, someone who is less pricesensitive and that insulates it a bit from economic swings. The more they can add toys and services the better, because that is where they make their margin. It’s a nice, profitable niche.”
Winder said the only risk for PetSmart would be if Petco, its direct rival in the U. S., decided to venture into Canada. “With private-equity ownership, PetSmart is under pressure to grow, and Petco is a category killer as well.”
DeFranco said the retailer’s services and in- store events help increase customer visits to stores. The company offers grooming and pet training services in the majority of its stores and seven of its locations are “hotels” that board animals or serve as a “doggy day camp” while people work, a concept it is expanding to stores across the country.
In- store events include new product and food launches, pet adoption events and seasonal pet pictures with Santa.
Adoptions also encourage repeat visits. Most stores have shelter cats for adoption and hold regular dog adoption events, leading to an adoption rate of more than 20,000 pets per year at PetSmart’s Canadian stores.
“We have thousands of customers walk through our doors every day — if you can get adoptable pets out in front of those pet parents, they have a much better opportunity to get adopted.”
Demographic trends are also working in the company’s favour, as millennials are getting pets earlier and having kids later. “We are seeing pets in the household longer” as a result, he said.
(REGULAR EVENTS) GET ADOPTABLE PETS OUT IN FRONT OF THOSE PET PARENTS.