View From The Road
According to some of the pet industry’s distributors, there’s good reason for independent specialty retailers to be optimistic, even as they face a continuation of the current economic malaise.
Because of their position in the market, distributors can provide valuable insight into the overall health of the pet industry. Constantly working with numerous vendors and retailers, these pet industry professionals have a unique view of emerging trends on both sides of the supply chain–from product categories that are trending up or down to selling strategies that are successfully spurring growth.
With this in mind, Pet Business canvassed several pet product distributors to get their impressions of the state of the pet industry. What we uncovered is a great deal of optimism, as well some specific challenges and opportunities that retailers face as our economy (hopefully) starts down the road to recovery.
The State of Pet Retail
Across the board, the pet industry distributors said that they, as well as their retailer customers, fared well over the second half of 2008. And while the level of success varied from distributor to distributor, even the most conservative reports indicated some growth.
Steve King, president of Pet Industry Distributors Association, has gotten similar feedback from his organization’s distributor members. “Most distributors that I’ve spoken with really had a very good 2008,” he says.
One such distributor is Federal Way, Wash.-based Animal Supply Co. “We just finished our strongest year ever,” says Deb Wilson, the company’s director of retailer development. According to Wilson, many of her retailer customers have shared that success. “I handle a majority of our larger customers, and I’m getting reports from them that are similar [to ours]. Good, strong, healthy retailers are doing well in this economy, and that’s great news.”
Jim Bradley, CEO of West Hazleton, Pa.-based Bradley Caldwell Inc. also says that pet specialty stores are faring much better than other retail segments. When an employee recently expressed some concern over media reports about retailers having problems, Bradley recounts, “I said, ‘I’ve seen those same [reports], but I have yet to see them show a pet store.’”
He says that the bottom line is that “while we’ve seen a few stores struggle, others are doing quite well.”
Wilson agrees, noting that while she has seen an increase in store closures (usually businesses that were not operating efficiently), she’s encouraged by the number of new stores opening. “We currently service approximately 1,200 active independent retailers,” she says. “Right now in the queue, we have about 27 new store openings that we’re involved with or aware of.”
According to Wilson, stronger, financially sound retailers are finding great bargains in real estate during this economic downturn, which is aiding in expansion.
Another encouraging sign of good health among pet specialty retailers is the turnout at distributor open-house trade shows. “We have a tradeshow coming up [this month],” says Bradley. “Before we even sent an invitation out, we had over 100 dealers signed up to participate.” He says his company had no trouble selling out vendor booth space, further evidence that the pet specialty market remains strong.
All of these positive reports about the health of pet specialty retail beg the question, why are these stores doing better than the vast majority of their counterparts in other industries? According to most of the distributors we spoke with (as well as other industry experts), the answer lies largely in the fact that the economic crisis has consumers focused on life around the home.
“We’ve been in business for 22 years, and whenever the economy softens, our business usually does better,” says Wilson. “We’ve seen this happen several times now, and one of the things that we feel contributes to it is that people hunker down and stay home more. So they’re spending more time with their pets and may pamper them a bit more.”
Bradley agrees, asserting that, “When [pet owners] quit spending on travel and other things, they tend to take care of their critters.”
One segment of the pet care market that has proven particularly recession-resistant is the food category. This plays a key role in the continued health of independent pet specialty retailers, which depend on food purchases to drive customer traffic into their stores. Luckily, most pet store shoppers are unwilling to trade down to grocery or mass-market brands when it comes to their pets’ diets.
“Even when a consumer really starts to feel a squeeze and looks to perhaps trade down in some items, food is probably going to be one of the last areas they consider,” says King. “You have a combination of brand loyalty and the fact that it can be difficult to switch a pet from the feed that it’s used to, so people are reluctant to do that without good reason. That’s particularly true with the super-premium brands that you find in the specialty pet channel.”
Wilson has the same impressions about the food category, but offers up an added wrinkle to why pet owners are reluctant to trade down at their pets’ dinner bowl. “I believe that the pet food recall continues to have an impact on consumers,” she notes. “Whether they’re consciously or subconsciously thinking about it, the temptation to trade down is mitigated.”
Of course, success is not equal across all segments of the pet industry. Some segments are trending down.
“Retailers will tell you that aquatics has been down for awhile, and that trend is continuing,” says Bob Merar, president of Milwaukee, Wis.-based General Pet Supply.
According to King, many other distributors ha ve seen the same disturbing trend in the aquatics segment of the trade. “The aquatic category is one that most people cite as an area of concern,” he says. “When you add up the cost of the aquarium, the filtration system and everything else that goes into a setup (particularly if you’re talking about a large aquarium), that can be a big-ticket item and a tougher sell in a down economy.”
While Merar agrees that the expense of the aquarium hobby makes it more prone to negative effects of a downward shift in the economy, he also attributes much of this segment’s trouble to the fact that maintaining an aquarium requires a lot of time and energy. “I think a lot of consumers are moving towards things that are less time consuming,” he says, citing other pets, like dogs and cats, and even virtual fish tanks as lower-effort alternatives that many consumers are choosing over the aquarium hobby.
The companion bird market is another area that hasn’t performed as well as other segments of the industry, but this isn’t generally attributed to the state of the economy. “We have felt the caged-bird market soften over the last decade, ” Wilson reports.
Regardless of the state of the economy, there are numerous positive and negative trends affecting the health of pet specialty retail. For example, just before the economy really went in the tank, high fuel costs were biting into just about every retail industry. While fuel prices have come down significantly since mid 2008, they’re being felt in the pet industry’s supply chain. “We still do have a fuel surcharge on every delivery, although we’ve lowered it three times now,” says Bradley.
Wilson says that high diesel prices are also making surcharges necessary for Animal Supply Co. “We have a sliding-scale fuel charge, based on the Department of Transportation for the region,” she explains. “Our fuel surcharges have been as high $20 per stop. Today, they’re at $5, and when diesel goes under $2 per gallon, they go away completely.”
Fuel costs should be expected to remain volatile. The escalation of conflict in the Middle East and the looming threat of oil-production cuts could easily bring gas prices back up to (and even over) the high levels experienced in 2008.
A positive trend that distributors mention is the continued growth of natural and holistic products. “I think it flows from both the increasing interest in the green movement (people tend to tie those two things together) and residual concern that came from the melamine scare a couple of years ago,” says King. “Those brands have grown up. They’re not on the fringe anymore; they’re very much a part of the mainstream of animal nutrition. They’ve done a good job of marketing the attributes of their products to the mainstream consumer.”
One trend that distributors have some concerns about over the long term relates to live-animal sales. “They’re seeing an increasing trend of stores getting out of live animal sales,” says King. “Even if they don’t necessarily handle live animals, a full-line distributor sees stores that carry live animals as a critical component, because it not only differentiates these stores from the mass merchandisers, it also provides the animals necessary for selling products. Without an animal being sold initially, there’s no need for the products that support the health and care of that animal.”
Ready for a Rebound
When they turn their attention to how pet stores, and retailers in general will perform in the year ahead, all of the distributors we spoke with were quite optimistic, even if that optimism is somewhat tempered by uncertainty. “I think everyone is being cautious about 2009,” says King. He notes that this means distributors will probably try to keep inventory levels fairly conservative and may modify their product mix to minimize some slow-moving big-ticket items.
Of course, like everyone else, distributors depend on reports about the overall economic picture when prognosticating on the future health of retail. “If you listen to what everyone says and look at all of the indicators,” says Merar, “it doesn’t look like we’re going to come out of it until the back half of 2009 into early 2010.”
Regardless of how long it takes for the economy to rebound, Bradley says now is the time for retailers to put themselves in the best possible position to profit from the inevitable recovery.
“This is a time when working closely together can help both the independent retailer and distributor become stronger and build a better foundation for the future,” adds Merar.
Wilson agrees. “Independent retailers are looking for partners to help them grow their business,” she notes. “We feel it’s our obligation as distributors to provide leadership and share with them what’s really going on in the market, how our other customers are doing, and what other customers are doing that might help their business.”
Beyond having the right distributor partners, independent pet specialty retailers need to focus on their competitive strengths during these tough times, adds Wilson. “Now is the time for retailers to do what they do best: interact with customers, share their knowledge and solve problems. That’s what keeps independent retail alive and well.”