At a time when customers and Wall Street are more bottom-line focused than ever, the challenge for the country's largest pet-store chain is to give customers reasons to keep walking in the door."We have lots of competition," said Philip Francis, PetSmart chairman and chief executive officer. "Our strategy has been to zig when everyone else is zagging."
One way the Phoenix-based company intends to zig this year is to focus more on specialty services. The company is aiming for a 20 percent increase in sales of services not offered by competitors, including "doggy day camp"; overnight boarding that includes dessert and a belly rub; and a combination of a credit and rewards card that can be decorated with an image of the customer's pet.
The numbers appear to back up the strategy: A bright spot in PetSmart's fourth-quarter earnings was a 26.9 percent increase in sales of services, to $123.4 million.
PetSmart, which had $4.67 billion in annual sales in 2007 and operates more than 1,000 stores in the United States and Canada, has long been a top dog with Wall Street. As recently as last summer, analysts and national financial writers were praising the company's business model.
More recently, analysts have begun to question whether, in light of the tougher retail climate, PetSmart has zigged too far in the direction of store expansion and racks of items like $12 rhinestone dog collars.
After the company's earnings report this month projected flat or single-digit same-store sales for the next two quarters, financial writers and stock-market analysts razzed the company with headlines such as "PetSmart needs a scooper" and "Some days you're the dog, some days you're the hydrant."
PetSmart's same-store sales were nearly flat in the fourth quarter, which included the holiday season. And while shoppers spent an average of 3.5 percent more per ticket in the last quarter, shopper traffic was down 2.6 percent. PetSmart's net income was 2 percent lower than the same quarter a year ago: $75.4 million.
"Our current situation is unlike anything this business has experienced in the past," said Francis, who noted that Pet-Smart's business continued to grow even during the aftermath of the terrorist attacks of Sept. 11, 2001, as people stayed home to strengthen bonds with family and pets.
PetSmart officials said they traditionally have counted on about half their business coming from sales of items like dog leashes and cat toys. Slightly more than 40 percent has come from pet-food sales, an area that continues to be profitable.
What surprised PetSmart officials late last year was the lack of spending on toys, leashes and other gear.
To bring things into balance in the slower market, Francis said, the company will scale back construction of new stores in the next two years. And, while it won't drop sales of pet luxury items, PetSmart store buyers will be pickier about the items they stock.
Opening 45 more PetsHotels and hiring additional staff to provide services, like breed-specific dog grooming, are among the company's priorities this year, Francis said.
The strategy may sound risky in economic times when families are cutting back on small luxuries, like visits to sit-down restaurants.
But industry observer Mark Kalaygian, editor in chief of Pet Business magazine, a New York-based trade publication, said he thought the focus was smart. Independent pet stores traditionally have offered pet-care advice as a bonus to customers, he said.
Phoenix customer Vicki Myles, who owns both a busy fast-food restaurant and a lively pug-beagle mix named Lola, fits the profile of the customer PetSmart covets. She said she views doggy day camp and stays at the PetsHotel as necessities.
Lola "has so much energy and she loves to be around other dogs," said Myles, who has worked as many as 100 hours a week at her Chick-fil-A. " We don't feel guilty at all about leaving her."
Source: The Clarion Ledger
Labels: PetSmart
