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 1,350 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 its own private labels. Unique to PetSmart, its stores provide in-store PetsHotel boarding facilities, grooming services, and obedience training. The company's 20%-owned vet services firm Medical Management International (known as Banfield) offers its services in about 850 stores. Investment company BC Partners is buying PetSmart.
Change in Company Type
After four months of searching for a buyer, in late 2014 PetSmart accepted an offer of $8.7 billion from private equity firm BC Partners to take the company private. While the company has reported growth in the last few years, it's been very slight, always a bad sign for retailers.
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 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.
PetSmart's 844 stores are spread across the US, Puerto Rico, and Canada with concentrations in California, Texas, and Florida. Canada has a total of 85 locations. In 2014 the company relocated about 60 stores and closed five.
Sales and Marketing
PetSmart in fiscal 2014 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 -- and selected social networking sites to keep its brand name in front of existing and potential consumers.
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.
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.) 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. It has been experimenting with "microstores" that have a smaller footprint; it opened a dozen of them in 2014.