PetSmart is the top dog and the cat's meow in its industry. The #1 US specialty retailer of pet food and supplies operates about 1,275 stores in the US, Canada, and Puerto Rico. The retailer offers a noteworthy 11,000 products, which range from scratching posts to iguana harnesses. Products, which are also sold through the PetSmart website, are marketed under national brands and PetSmart's own private labels. Unique to PetSmart, its stores provide in-store PetsHotel boarding facilities, grooming services, and obedience training. Veterinary services are available, as well, in about 810 shops through pet hospital operator Medical Management International (known as Banfield), of which PetSmart owns more than 20%.
The pet products retailer and services provider organizes its business into two segments: merchandise (88% of sales) and services (11%). The remaining 1% of revenue falls under its Other category.
To support its business, PetSmart has a network of forward distribution centers and combination distribution centers. Its forward distribution centers fulfill consumable products that require rapid replenishment while the company's combination distribution centers handle both consumable and non-consumable items. PetSmart broke ground on a new distribution center in Bethel, Pennsylvania, in fall 2012. Completion of the $50-million facility, which will help alleviate demands on the pet products retailer's supply chain, is expected during the first quarter of 2014.
PetSmart logged an 11% increase in net sales in fiscal 2013 (ends January) as compared to 2012. Contributing to the gains were the impact of a favorable foreign exchange fluctuation, a 6% rise in same-store sales, and the benefit of 46 net new stores and four new PetHotels. Net income for the same reporting period increased 34%, thanks to higher net sales partially offset by rising operating, selling, general, and administrative expenses. The company points to several factors for the year-over-year increase. It was helped by store growth, planned incremental advertising spending focused on a variety of products, and an additional selling week during the fiscal year. The latter, however, increased operating, general, and administrative costs by $18.3 million. Indeed, as the love affairs between pets and their "pet parents" (company lingo for its customers) intensify, the company has seen its sales grow during the past five years to reach its highest levels in fiscal 2013, thanks to the rise in same-store sales and additional new stores.
Going forward, the company is concentrating on the service side of small animal care. Grooming, pet training, boarding, and day camp services cater to a growing industry niche and diversify PetSmart's revenue stream. Indeed, sales of pet services have accounted for 11% of net sales in both fiscal 2013 and 2012. The retail chain operates nearly 200 in-store PetsHotels boarding facilities and Doggie Day Camps, used primarily by upper-income consumers. The company estimates that there is enough demand to support some 400 PetsHotels; it typically opens up to a dozen of them each year.
As for its brick-and-mortar retail business, some 88% of PetSmart's sales come from pet food and supplies. Surprisingly, less than 2% of its sales are generated through selling pets, such as fresh-water tropical fish, birds, reptiles, and small animals. Indeed, this part of its business has remained about 1.6% of its revenue for three years in a row. (PetSmart does not sell dogs or cats, but instead encourages adoption by sponsoring in-store and front-of-store adoption programs with local humane organizations.) The retailer plans to launch at least 1,400 of its PetSmart stores throughout North America. During the past three years the chain has opened more than 125 locations.
Sales and Marketing
PetSmart in 2012 spent $118 million toward its total advertising expenditures (net of vendor allowances for advertising agreements) and direct response advertising.
As part of the company's marketing efforts, PetSmart extends its PetPerks loyalty program to customers, sending offers directly to them based on their purchasing activities. The retailer also relies on its PetSmart.com website -- complete with a community feature -- and selected social networking sites to keep its brand name in front of existing and potential consumers.