Pet Stores in Peril
Even with pundits heralding an economic recovery, a tough competitive climate has many independent pet specialty retailers struggling to survive.
Is the independent pet specialty retail channel becoming an endangered species?
Because of several different factors, the answer, unfortunately, may be yes. A lingering recession that has plagued the U.S. economy over the past 18 months has changed the way consumers think and shop. Shoppers, industry experts say, will emerge from these difficult times much more price sensitive, and thus be more susceptible to the selling proposition of discount retailers and mass merchandisers.
A second factor may be the way retailers purchase products. Many independents say that it is becoming much harder to compete with the larger pet specialty chains and the mass retailers on price, especially with the larger players getting deep discounts from many manufacturers and distributors. The old adage that some major chains are selling products at prices that independents are buying them for definitely holds true in the pet care category, many independent retailers say.
So where does that leave independent pet retailers? Not in a very good spot, say many independent operators. “We can’t just depend on offering better service and education anymore,” says one independent pet store owner. “It is all about the bottom line, and it is hard to measure up when we are at such a disadvantage when compared to the larger chains.”
Yes, obviously, this is not good news for pet specialty stores, which typically depend on higher-ticket premium products to differentiate themselves from competitors. Add to this a proliferation of online retailers that have extremely low overhead costs, the rapid expansion of big-box pet chains and the growing attention that pet products are getting from discounters and mass merchandisers, and you have an extremely tough competitive environment for independent pet stores.
The effect that this decline in spending and rise in competition are having on independent pet specialty retailers has been profound, and even businesses that were experiencing phenomenal success just a few years ago have been unable to escape unscathed. “We’re having a tough year, there’s no question about it,” says Dan Headrick, owner of Wag Pet Boutique in Raleigh, N.C. “The growth that we experienced since we opened in 2003 was pretty remarkable; and then around the fourth quarter last year, that growth trajectory started flattening out. Sometimes, we just don’t know where the customers are.”
Sizing Up the Competition
As if a recession of historic proportions wasn’t enough to test independent pet stores, these businesses must also contend with a growing field of competitors, as major players in a variety of other retail channels are drawn to the relative stability and strong profits of the pet products market.
“There’s no question that there is a more competitive retail environment out there,” says Steve King, president of the Pet Industry Distributors Association (PIDA). “The pet products industry has been viewed by every type of retailer as a good place to be–that’s certainly been borne out by the interest Wal-Mart has shown in pet products. So the big-boxes are looking at every opportunity to increase their presence in the pet industry, and certainly the online retailers continue to proliferate.”
Unfortunately, much of the increased competition that independent pet stores face is able to use attractive pricing to draw shoppers at a time when consumer wallets are tighter than ever. “The bottom line is that the consumer is price driven,” says Tonya Spear, owner of The Aquarium in Old Town, in Wichita, Kan. “No matter how knowledgeable and helpful we are, no matter how nice our stores are or how many different products we offer, it really all boils down to price.”
While industry experts often point to an independent’s broad knowledge base and focus on customer service to compete with the low prices offered by discount retailers, a new breed of price-conscious pet owners has gotten quite savvy at getting the best from both worlds. One case in point is an anecdote told by retailer Jennifer Myerscough, owner of Imagine Ocean Aquarium Services, Inc., in Canton, Ga. “I recently heard about a fish and reptile retailer in Winston-Salem, N.C., who spent 45 minutes with a customer going over the importance of water quality and what types of fish they were going to keep, etc.,” she says. “And [the customer] ended up saying, ‘Thank you for the information. We’re going to head back to Wal-Mart, but if we have any more questions, we’ll call you.’”
“A lot of people do that,” continues Myerscough, “they’re just not so obvious about it. Unfortunately, it’s becoming a more frequent occurrence.”
According to Spear, a proliferation of online retailers, particularly in the aquatics category, has exacerbated the situation. “As far as consumers are concerned, the local stores are a good place to look at products first-hand, ask questions about how a product works and which product is the best for their situation, but they will not support the local stores and actually buy from us when they can find the same item for half the price online,” she says. “This is why we are seeing so many pet stores going out of business.”
This is not to say, however, that brick-and-mortar retailers are completely unable to compete with online retailers, big-box pet stores and mass merchandisers. To do so, however, pet stores must focus on their competitors’ weaknesses. For example, when Kevin Willyerd, owner of Animal Ark a full-line pet store in Kingwood, Texas, has a customer who points out that an online retailer offers a lower price, “I’ll often ask them about shipping,” he says. “There are times where they find out it’s going to cost an extra $20, for example, for a canister filter, and that will make a difference. Then I’ll say, ‘Hey, if you want me to be around when you have a problem, you have to think about that too.’”
Myerscough notes that this same ability to provide ongoing service related to a purchase is also a good point of comparison against big-box competitors. “You’re not going to have your questions answered by the kid at Wal-Mart who was stocking shelves in a different department the day before,” she says.
For many pet stores, effectively competing with online retailers means adjusting the product mix. Willyerd is one such retailer. “There are quite a few things that I quit carrying because customers come in, they get my advice on it and then they go [purchase the item] online to save money,” he says. “The nice lighting systems, the upper-end canister filters, UV sterilizers–I used to stock all of those things; I don’t stock any of them anymore.”
Myerscough is another retailer who has had to adapt her store’s product mix in order to compete. “I keep a very low inventory of tanks, fixtures and hardware,” she says. “If somebody wants it, I can order it for them; and if I’m special ordering it and it’s in and out the door, I can afford to give a more competitive price than if it’s renting space on my shelf.”
Willyerd contends that inventory adjustments are also necessary to battle against other retail channels and points out how a savvy retailer can foster goodwill, and thus loyalty, from customers by conceding to the big boxes in some cases. “Wal-Mart is going to blow out their 10-gallon tanks at prices that are cheaper than what I can buy them for,” he says. “So I’m going to send people to Wal-Mart to buy their 10-gallon tanks, but I’m going to tell them, ‘Come back here so we can get it set up and we can help you with your fish.’ That’s what we have to offer. We’re not going to sell pallets full of 10-gallon tank setups. But that is what Wal-Mart does want to do, and that’s what they do well.”
As Willyerd indicates, livestock is one area where small, independent retailers can turn to for a competitive edge. While online retailers, as well as brick-and-mortar stores in other channels, do participate in this segment of the trade–particularly on the aquatics side– shoppers often find that these businesses have significant disadvantages when it comes to selling animals. “I think it’s a real specialty to order livestock online, and that’s one place where the shipping really does kill them,” says Willyerd.
According to Myerscough, in addition to having to get past the shipping hurdle, online retailers often leave customers underwhelmed when livestock is delivered. “Once a person is disappointed with livestock they’ve ordered online–it’s either much smaller or larger than they anticipated, or it perishes–they [don’t do it again],” she says.
Myerscough is also not worried by the involvement of the big boxes in the livestock trade. “Any half-decent hobbyist will find out soon enough that the quality of livestock at mass merchants just isn’t there,” she says, noting that although she no longer sells freshwater fish, the substandard livestock sold by the local Wal-Mart has kept her in the business of freshwater aquarium supplies. “I’ve been able to retain quite a large number of freshwater hobbyists because I continue to provide support and supplies. So, when somebody comes in after buying sick fish at Wal-Mart, I sell them the medications to fix it.”
Bern Levine, CEO of Pet Food Ltd. and Pfx Pet Supply, pet food distribution companies on the east and west coasts, says that pet food is another major point of competition for smart independent pet retailers, and for good reason. “[Independent pet stores] don’t have another thing that gets the turns that food gets,” he says. “And turns drive profits. It gets the customer into the store, which gives the retailer the opportunity to sell them some more treats or a fish, or something else.”
Accordingly, Levine says that a lot of the independents are putting in larger dog food sections, and therefore are starting to see their profits come back up. However, instead of shying away from traditional pet food brands that can be found in the aisles of grocery stores and mass-merchandisers, Levine says that he has noticed many pet stores have embraced, and thus profited from, the name recognition that these brands bring.
“You see a lot of ads for Purina, Iams and Pedigree,” he says. “If the stores stock some of those brands, they’re able to reap the benefits of the advertising. People recognize those brands, and maybe the retailer will ultimately want to change the customers mind, but at least they’re getting them into the store.”
Levine notes that the manufacturers of traditional pet food brand are likewise drawn to the independent pet specialty channel because of the influence they have with pet owners, and so their making their products more attractive to small pet stores with competitive pricing.
Willyerd is one independent retailer who has taken advantage of this trend. “We’ve added Nutro foods, which are handled by the big-boxes and even by some of the real knock-off discounters, but Mars does offer independents a frequent-buyer program where we can offer our customer the tenth bag free without it costing us anything extra,” he says. “We’ve been advertising that, and highlighting that 10-percent discount-saying [the competitor’s] bag is $47, ours is $48.59, take 10 percent off of that and you’re saving money by buying with us.”
The Right Partners
If they’re going to successfully compete with the growing number of price-focused competitors out there, pet specialty retailers must find the right supplier partners. Luckily, there are a host of suppliers that specialize in serving small, independent pet stores, and according to some retailers, these suppliers have really stepped up during these tough economic times.
“When [the economy] really started going downhill last year, we were getting calls from distributors and suppliers offering all kinds of sweet discounts,” says Headrick. “They weren’t just taking orders at that point, they were selling.”
In addition to offering discounts, Headrick says that he has noticed that suppliers have been offering more marketing resources such as displays and signage, as well in-store sales support. “We’ve seen more actual boots on the ground, in terms of [suppliers] sending reps out to the store, offering to help us sell and merchandise their product, sending people to some of our weekend events, like when we host rescue groups, to set up a little stand and give out free samples or answer questions,” he says. “We use it, and it has been helpful. If they’re going to send someone to help us sell or help us with merchandising, we make space for them and put them on the calendar.”
When it comes to the type of support that he is looking for from his supplier partners, Willyerd is all about information. “Information is our stock and trade, so the [vendors] that help the most are the ones that make it easier for us to obtain information and convey it to customers,” he says. “There are several vendors that are very good at leveraging of some of the mass communication technologies that are available, primarily email, to get us important information. I also have a great appreciation for a good vendor website that provides the information we need in order to sell their products. I can do that around my schedule, rather than having to take the time when a vendor comes in.”
Outreach Brings Returns
Many industry experts believe that the independent pet specialty channel’s current turmoil isn’t indicative of an endangered species of retailer, but rather a thinning of the herd. The boom experienced in pet products market over the past decade made it quite easy to achieve success in retailing these products, they say; and now the tough economic picture and heightened competition is separating the wheat from the chaff.
“The old days of just hanging up a sign and opening up the door isn’t going to make it anymore,” says PIDA’s Steve King. “Even with advertising, the retailer has to look at new opportunities to reach out to the consumer beyond taking out an small ad in the yellow pages. They have to be more proactive in reaching out to customers and giving them a reason to come into their stores.”
Headrick is one retailer who recognizes the importance of taking an active approach to drawing new customers in today’s tough selling environment, as opposed to passively waiting for pet owners to come to him. “We’re out every Saturday doing an event somewhere in our community,” he says. “I have my people putting together little gift bags by the hundreds all the time. We’re giving them away with discount coupons, our business card, product samples and plenty of literature.”
With these outreach efforts, Headrick has come full circle. “When we first started we did these kinds of things; that’s how we established our brand in the market,” he says, noting that he let these types of marketing efforts fall by the wayside as his business became successful. “Well, by the second quarter of this year, when things still weren’t turning around, I said, ‘We’re going to go back to the basics. We’re going to get up earlier and come home later.’ We staffed up a little bit and started pushing right back out into the community again to keep awareness of our brand up.”
Myerscough also sees the value in going back to the basics, particularly in terms of going above and beyond when it comes to customer service. To illustrate this, she relays a story about a customer who put up an online hobbyist group posting about the difficulty he was having with an online retailer that refused to address a damaged product. Taking the initiative, Myerscough approached the manufacturer to get the necessary replacement parts and offered to fix the customer’s product for free. In the end, that customer ended up spending a significant amount of money in the store.
“You kind of have to think outside the box and go above and beyond to take advantage of where the e-tailer falls short,” she says about taking the initiative to offer help to a hobbyist in distress. “Show the customer that there is value in coming to the brick-and-mortar store.”
A Case for Survival
Most experts agree that the survival of independent pet specialty retail channel is crucial for the ongoing health of the overall pet industry. Not only are these stores largely responsible for putting pets in the homes of the public, they also serve as an important testing ground for much of the innovation in the market.
“The pet industry has remained a vibrant place where ingenuity and entrepreneurship are rewarded, in large part because of the independent retail sector, which introduces new products into the market,” says King. “If you walk through Global Pet Expo or any of the other trade shows, it’s remarkable how many new companies and new products you’ll find each year; and in other industries, those products and companies would not have the same opportunity to reach consumers because they’re locked into a system where there is a handful of large retailers that control 90 percent of the market, and they’re only going to take on a certain number of new products each year. In contrast, the pet industry, because it has such a vibrant independent retail segment, there are opportunities available for new manufacturers and new products to get exposure and build an audience.”
Levine says the important role that independents play in the pet products industry is even understood by the big-boxes with which they directly compete. “I believe that PetSmart and PETCO understand that for their business to grow, the independent pet store has to survive,” he says. “They keep adding these emerging brands to their portfolio, and they do that when the brand gets big enough with the independent pet stores.”
It’s lucky for the industry, then, that while independent retailers face a tough challenge ahead, many experts believe that these stores will ultimately survive. “The independents have shown great resilience over the years,” says King. “Ten, 15 years ago, there were people who really questioned the ability of independents to survive as PETCO and PetSmart were growing.”
King also notes that the while the rise of big-box pet stores has thinned the number of independents over the past 15 years, “those that survive today are much more professional in their approach to retailing and understand what it takes to get people into the store and keep them in the store.”
“They continue to have a bright future, but it’s going to take a lot of hard work to maintain it.”
Willyerd is one retailer who agrees that hard work is what will make a difference for the independent retailers that survive through these tough times. “Over the last year and half, we haven’t grown at the rate that we were previously, but I think things look better now than they did last year, and I think it’s made us stronger,” he says. “We’re poised to explode once the economy gets a little bit better.”