Survival of the Fittest
With the current economy testing the health of pet retailers like never before, Pet Business investigates why some thrive while others flat-line.
As today’s turbulent economy sends scores of businesses into code-blue status, retailers of every ilk should consider themselves high-risk patients.
The retail industry is like a heart attack victim who has gotten used to eating whatever he likes and still being okay, says Dan Jablons, president of Retail Smart Guys (www.retailsmartguys.com), a Los Angeles-based retail consulting firm. Now the industry has been told it is time to start eating healthy again. “We can’t eat fried chicken for breakfast, and we can’t eat chocolate cake after that,” he says.
Just as the patient has to start eating better after a heart attack because his body can’t handle the abuse, independent retailers need to buckle-down, go back to the basics and focus on making their stores healthy again. “When the economy was great, you could abuse your store—it didn’t matter, people were buying anyway; they bought for fun,” says Jablons. “Now we’re back to brass-knuckle retailing.”
There is no question many pet stores have been hit hard by the recession after years of economic stability and growth allowed the pet humanization trend to take the industry to new heights. While pet product sales have not been hit as hard as other retail segments, for independent pet retailers who opened their doors during the boom years, the transition has not been an easy one.
Wholesale price increases on staple items represent a particular problem for pet stores, many of which have seen their profit margins erode as a result. One retailer reported seeing an increase of about five percent in pet food prices over the last year.
For the time being, consumers seem to understand the increase in food prices, says Paula Harris, owner of Noe Valley Pet Company in San Francisco. But she is quick to admit she doesn’t know how much higher she can go. “We do get kind of squeezed by these food companies,” she explains. “They raise the price and we have to face the customers. We just try to let [the customer] know that the cost of ingredients has gone up and ingredients are better than ever before–that’s why it’s so expensive.”
Harris says her customers are very health conscious and are willing to sacrifice for their dogs—a trend many retailers are reporting—yet even the most loving pet owner doesn’t have an infinite budget.
Recovery Coming Soon?
Many retailers are hopeful that 2012 will relieve some of the pressure and bring a turnaround for the economy. A complete rebound, however, seems unlikely.
Kiplinger, a Washington, D.C.-based publisher of business forecasts, reports that growth is not accelerating as it normally does in a recovery. Final figures for 2011 were not available at press time, but on its website Kiplinger predicts that data will show the economy grew at an adjusted annual rate of three percent in the fourth quarter of last year, just to slow again in early 2012. Still, the publisher predicts that the economy will turn out to be better this year than last, with annual growth of about 2.3 percent—a bit faster than the overall 1.8 percent pace in 2011.
Recovery, it seems, is indeed on the way—it’s just coming a lot slower than many would like; and for stores that played it fast and loose during the good times, this may spell the end. For stores that played it smart, however, it’s simply time to tighten their belt buckles again.
“I opened my doors in a recession, and now we are going through another recession,” says Teri Segelke, owner of J & T Country Feeds, Inc., a pet store in Greeley, Colo. “In those hard, turbulent times you just have to know when to cut back and you’ve got to know how to balance.”
Jablons could not agree more. The difference between thriving and barely surviving is a solid product assortment and better-than-expected customer service, he says. Retailers have to keep these two factors front of mind everyday.
“They’ve got to permeate everything [retailers] do throughout their retail career,” says Jablons.
Having the right product assortment not only allows the store to make a profit; it’s also a determining factor in whether a customer returns. If customers stop in and can’t find what they are looking for, it is unlikely that they will try again. But if they leave thinking about how much more they wanted to buy—chances are they will come back to do just that.
“The best marketing any retail store ever has is the right assortment,” says Jablons.
Finding the right product mix is not easy. Mostly, it is a matter of knowing what sells within the store’s demographic—what its customers like and have come to expect—but all retailers have had their share of surprises. Sometimes, products that they thought would do well have bombed; other times, products do much better than expected. The key is to limit and maintain enough flexibility to react to these inevitable miscalculations.
“Sometimes we’ve really guessed wrong on a dog coat or dog sweaters,” admits Harris, whose strategy has been to test new products in a limited supply at first. “Pink is not a color for my neighborhood; they don’t like pink,” she says, noting that she learned this the hard way when she brought in pink rhinestone items on a trial basis. “I didn’t do that again. Luckily we didn’t order too many of them.”
Other times, Harris has been pleasantly surprised by an item’s success. For example, she says she initially had reservations about bringing in antler chews. So, following her usual strategy, she started off small. “And they did really, really well,” she says. “So we just built it up and now we’re selling lots of them. Now they’re moving really quickly.”
Jablons says many of his independent pet retail clients complain that it is difficult to differentiate their stores based on product selection. “They all say everybody has the same food,” says Jablons. “Well, not everybody has the same food, number one. And number two, there are all kinds of other cool items they can play around with.”
Unfortunately, many retailers have stopped scouring the marketplace for new products and new ideas. While it is easy to understand how a bleak fiscal year might contribute to this type of apathy, retailers need to be looking for the products that will allow their store to grow again, instead of simply trying to hold the line.
“As a buyer, your job is not to buy the same things over and over again—it’s to buy the newest and coolest things on the marketplace,” says Jablons. It’s a new economy, he explains, and so retailers need to revisit things that might not have been a good fit in previous years—he mentions private-label pet food as one example—and reevaluate based on the current market.
Segelke is a retailer who learned first-hand what reevaluating a pet store’s offerings could mean to the health of her business. She originally opened J & T Country Feeds as a feed and grain store, but as the agriculture business suffered, she diversified and began bringing in premium dog food. This allowed her to increase sales to existing customers while attracting new ones, many of whom had no need for animal feed. Now she stocks food for dogs, cats, birds and small animals, as well as general pet supplies.
As Simple as Service
Even the best product mix can’t ensure retail success on its own. Many of the items available in a pet store are also available online, often at lower prices. With this in mind, brick-and-mortar retailers must focus on what Jablons sees as their primary advantage over Internet-based competitors.
“The thing is, [pet owners] are going to come and buy [products] at an independent pet retailer, because they get better service there,” he says.
But, as with so many things in business, providing top-flight customer service is much easier said than done. In order to consistently offer a high-level of customer service, a pet store must find and retain high-quality staff. Therein lays the challenge.
Segelke knows exactly how difficult it can be. “I had opened a second store in August 2008,” she says. “I closed it in January 2009 because I could not find reliable, honest help.”
One might think that with so many people out of work today, it would be easy to find good help, but Karyn Lehmann, owner of PAWS… in Redlands, Calif., says that retaining employees is particularly hard in this economy. Because the store is working on narrower margins, she says, it cannot offer a very competitive salary.
“It’s just one of those problems you have to learn to deal with,” says Lehmann.
Paying well enough to keep solid staff without breaking the store’s budget is a problem that every pet store must deal with, and it is one that each retailer seems to handle differently. For Segelke, it has meant keeping her store primarily a family business. For Lehmann, it has meant a new appreciation for manufacturer sales reps who bring lunch. And for Harris, it has meant careful hiring and offering her employees a lot of autonomy.
“I try to hire people that are fairly mature—I don’t mean in age, but in attitude—and they have a lot of autonomy to think for themselves and to explore their own strengths, whether it’s merchandising or customer service or decorating windows,” she says.
Harris works with her staff to pinpoint which aspects of the business they are particularly good at and enjoy. “I try to give them things that they enjoy so they feel fulfilled too,” she says. “[It is] not just what are they doing for me—for Noe Valley Pet Company—but how are we helping them to discover their strengths.”
This approach, combined with health insurance and a good living wage, has worked well for Harris. She currently has three full-time employees, one of which has been with her for four years and another that has been there for three.
Of course, happy employees are more likely to stay with their employers, and this stability can be critical to maintaining a happy customer base. “The less turnover we have, the longer people stay, the happier our customers will be because they really like consistency of having the same person there when they come in,” Harris explains.
In addition to providing consistency, the longer a store retains a good employee, the more that employee is likely to know about both the store and its products, allowing them to answer customer questions and increase sales. Good employees with solid product knowledge and sales skills, who know and care about the store’s customers, are the key to good customer service.
And having good customer service and the right product assortment should help ensure that once customers come in, they won’t leave empty handed. According to Jablons, it’s about doing something that excites customers. “These things that we’re talking about—great customer service and the right assortments—they actually add up to creating excitement on the retail floor,” he says.