PETsMART: teaching an old pet care business new tricks

Discount Store News, Dec 6, 1993 by Richard Halverson

PETsMART has tapped into the love that pet owners of the '90s lavish on their creatures, establishing customers rapport and earning the goodwill of two national organizations devoted to animal interests, through various services it ofers and policies it has adopted.

PETsMART can take credit for pioneering the pet supplies superstore, inspiring about 10 imitators since 1987 and establishing the category killer pet food and accessories store as a hot new retail concept.

But the chain has done more than grab a 5-year lead on the competition in opening 25,000-sq.-ft. superstores, stocking them with 7,500 skus and generating the largest sales volume of any such chain based on an everyday low price emphasis.

In addition, PETsMART has tapped into the love that pet owners of the '90s lavish on their creatures, establishing customer rapport and earning the good-will of two national organizations devoted to animal interests, the American Humane Association and the Humane States, through various services it offers and policies it has adopted. PETsMART.

* Gives free space to local humane societies to operate weekly Luv-A-PET adoption programs, offering a $15 cash reimbursement to pet owners to offset the adoption fee for November and March adoptions;

* Operates pet grooming centers up front behind glass, so customers can watch pets being clipped;

* Leases space to veterinarians to operate low-cost clinics, such as a vaccination clinics charging only $5 for a rabies shot;

* Operates a "Santa Claws" promotion offering photos of pets with Santa at Christmas;

* Donated $1.7 million in money and services in 1993 to the American Humane Association, including $1 for every bag of Authority, its private label dog food, that the chain's customers buy;

* Rebates to local humane societies 5% of the purchases that their members make at PETsMART;

* Follows an environmentally correct policy of refusing to sell salt water tropical fish, only fresh water fish, because of damage done to coral reefs in collecting them, and wild birds, because many die when taken-from tropical rain forests.

In addition, the chain sells no puppies or kittens. Pet overpopulation is so severe that PETsMART should not add to the problem, said president Mark Hansen. Through its 89 stores, owners have adopted 23,000 dogs and cats, Hansen said, and the total will hit 50,000 by the end of 1994.

PETsMART has turned a negative, not selling puppies and kittens, into a public relations positive with its Luv-A-Pet adoption program, said John Mannhaupt, an associate of Brakke & Associates, a Dallas-based management consulting firm for the pet care industry.

One of its major innovations, leasing sapce to veterinarians, has created a controversy within the animal health care industry, Mannhaupt said, because the establishment fears low-cost competition from PETsMART clinics. Vets also fear the erosion of professional status by being associated with a discounter, he said.

And PETsMART is certainly perceived to be a discounter, Mannhaupt said, offering premium brands, such as Iams and Science Diet, for about 25% less than specialty stores.

PETsMART has successfully transferred the megastore concept from such categories as office supplies and building supplies to pet care, Mannhaupt said. Its projections of adding 40 more stores next year to a year end base of 107 appear realistic, he added.

Access to capital is one of the best things going for the chain, the consultant said. PETsMART went public in July at $16 a share and its stock now trades at $34 a share. Venture capital behind the chain includes: a 25% stake taht Chancellor Capital Management owns; a 5.4% stake held by T. Rowe Price Threshold Fund; and a 5% stake held by a subsidiary of Carrefour.

The 1980s explosion in the yuppie demand for high-protein, upscale pet foods, such as Science Diet and Iams set the stage for the growth of the pet supplies superstore, said Pat Stewart, a Kansas City management consultant for the pet care industry. Buying Science Diet, formerly available only from vets or pet specialty stores, became as much a status symbol as driving a red Jeep Cherokee, he said.

Dog and cat food accounts for 55% of sales, while accessories account for 30% more, Stewart said. Services amount to abut 6% of revenues, while fish and birds and miscellaneous items, such as rabbit hutches, account for the balance.

The chain began life in Phoenix in 1987 as The Pet Food Warehouse. Its stores now incorporate a hybrid design of warehouse merchandising for pet foods in the rear of the store and retail racking for pet accessories in the front of the store.

Among the innovative merchandising wrinkles, Hansen cites its glass enclosed bird aviaries across the front of the store. Positive air pressure prevents germs from getting into the cages, he said. The chain guarantees birds for 14 days, compared to three days at Wal-Mart.

Another innovation is the central fish tank filtration system for the tanks that line one wall and hold fresh water fish. The system automatically takes into account differing water quality and makes sure the water is kept at the correct chemical balance, Hansen said.