PetSmart is the top dog and the cat's meow in its industry. The #1 US specialty retailer of pet food and supplies operates more than 1,430 stores in the US, Canada, and Puerto Rico in addition to an e-commerce site. The retailer offers 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 its own private labels. Unique to PetSmart, its stores provide in-store PetsHotel boarding facilities, grooming services, and obedience training. The company's 20.5%-owned vet services firm Medical Management International (known as Banfield) offers its services in about 850 stores. Investment company BC Partners bought PetSmart in 2015.
Change in Company Type
After several months searching for a buyer, in March 2015 PetSmart was acquired for $8.7 billion by private equity firm BC Partners and taken private.
The pet products retailer and services provider organizes its business into two segments: merchandise (88% of sales in 2014 -- the last year it reported as a public company) 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.
The company provides a broad range of competitively priced pet food and pet products and offer dog training, pet grooming, pet boarding, PetSmart Doggie Day Camp day care services and pet adoption services in-store. The company has more than 200 in-store PetSmart PetsHotel dog and cat boarding facilities.
Expert veterinarian care is available in more than 60% of its stores, where Banfield Pet Hospital, operates full-service pet hospitals. PetSmart holds 20.5% of Medical Management International, the operator of Banfield Pet Hospital.
PetSmart's stores are spread across the US, Puerto Rico, and Canada with concentrations in California, Texas, and Florida. Canada has a total of 85 locations.
Sales and Marketing
Now-private PetSmart no longer reports how much it spends on advertising, but in fiscal 2014 it spent $140 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 -- pet360.com, and selected social networking sites to keep its brand name in front of existing and potential consumers.
Note: The company's 2015 financials were not available as it went private. The last reported financials were in 2014, and are shown below.
Years of gradual revenue increases continued in 2014 as the company reported a 2% lift, from $6.7 million to $6.9 million. The growth was due to strong demand for PetSmart's pet grooming services and revenue generated by the addition of PetsHotels in more locations. The gains were offset by unfavorable currency exchange rates. Net income, which has also been trending up, grew by 8%, from $389.5 million to $419.5 million, due to the higher revenue along with a decrease in operating, general, and administrative expenses. Cash from operations dropped slightly, from $653 million to $615 million.
Amid a slowdown in performance, PetSmart put itself up for sale in August 2014 following a review of its business begun in the spring. It was bought in March 2015 by private equity firm BC Partners and taken private.
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 the past few years. The retail chain operates more than 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 years. (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.)
In 2015 PetSmart Promise announced plans to build dog and cat kennel facilities at day centers for temporarily homeless families in five new cities this year: Helena, Montana; Morristown, New Jersey; Salem, Oregon; Harrisburg, Pennsylvania; and Lake Houston, Texas.
The company has been experimenting with "microstores" that have a smaller footprint; it opened a dozen of them in 2014. Overall, as part of its ongoing market alignment strategy, in 2014 the company relocated about 60 stores and closed five.
PetSmart opened a new distribution center in Bethel, Pennsylvania, in 2014. Completion of the $50-million facility, is expected to help alleviate demands on the pet products retailer's supply chain.