Sink or Swim
Retailers and manufacturers in the aquatics segment of the pet industry are rethinking their strategies and adjusting to meet the challenging market forces they face today.
Could the aquatics category be headed for calmer waters, finally?
After years of stagnating sales—hurt, in part, by the five-year-old recession—there are signs that the aquatics industry may be on the verge of some sort of a breakout in awareness, which many hope translates to new sales for the beleaguered segment.
Still, the aquatics segment, which dates back to the 1920s, is a long way from its heyday of about 10 years ago when consumers rushed to their favorite pet stores to purchase the aquariums and supplies needed to house their pet fish.
On the eve of the World Pet Association’s first Aquatic Experience-Chicago, an aquatic-focused pet show held this month at the Schaumburg Convention Center, in Schaumburg, Ill., many in the industry are looking for the light at the end of the tunnel and hoping that things are beginning to turn around for aquatics products.
This is an industry that has struggled for a number of reasons. The biggest, baddest shark in these waters over the past few years has been the stagnant economy. When the recession hit, many consumers struggling to pay the rent or the mortgage could not in good conscience stop feeding and caring for their four-legged, furred pets. Fish tanks, on the other hand, were early casualties of the economic downturn. The aquatics segment of the pet industry was struck hard, as a lack of jobs and a deflated housing market translated into a rash of emptied fish tanks left out to dry in garages or awaiting curbside garbage pickup.
John Carberry, CEO of Jefferson City, Tenn.-based livestock distributor Sustainable Aquatics, recalls the hardships well. “Most of the business in the aquatics side is not in the inner cities; it’s in suburbia, where people have big houses,” he says. “So, in Las Vegas, we saw 80 percent of our independent retailers go out of business. In those areas where the real estate crisis was really bad, we saw dramatic fall off in business. Every place else, it was flat.”
Since then, the pet specialty retailers left treading water in the aquarium trade have faced a succession of nonstop pressures beyond just a languishing economy. The competition for their customers’ disposable income has converged from various angles—from big-box chains to Internet sellers to local garage-based reef clubs.
Fortunately, there are counter-forces at work. Many retailers and product manufacturers are thriving, having already proven their mettle through the darkest of times. Yet, even for these retailers, hope and optimism is tempered by the notion that some market challenges are here to stay.
The key to coping with those challenges is to adjust.
Choppy Water Ahead
The bad news is that there has been so much to adjust to. For starters, some retailers that survived the recession say they found themselves with less to work with, as manufacturers—which were also in a fight for survival during the downturn—changed their market strategies to stay solvent. Scaling back on the production of novel items that did not merit the investment may have seemed like a necessary move to many suppliers, but retailers wound up with holes in their inventories.
“Major manufacturers pulled back,” says Patrick Donston, owner of Absolutely Fish, in Clifton, N.J. “They started decreasing their lines and pulled interesting product out of the marketplace.”
The economy, however, has hardly been the only culprit responsible for the aquatic segment’s troubles. Most retailers expect a certain amount of competition from other merchants, and many had no choice but to share their turf with big-box chain stores known for low-prices and wide variety. The Internet added a new level of competition. Not only did mega-retailers such as Amazon move in on retailers’ territory, but aquatics enthusiasts themselves entered the fray.
Many say that brick-and-mortar retailers are losing customers to reef clubs and hardcore hobbyists who are selling goods, particularly livestock, from their homes, without having to bother with the pesky details of store ownership—such as paying rent and the payroll. As one retailer put it, “Joe Blow, who is operating out of his basement with no overhead and whose business doesn’t operate like a business,” are selling as dealers and, in essence, stealing retailers’ customers.
Yet the impact these dealers ultimately have may extend beyond the four walls of any one retailer, says Carberry. “If the brick-and-mortars don’t stay healthy, the industry dies,” he says.
The gravest threat to the aquatic segment, however, maybe the toughest to suppress. “The biggest competitive challenges in the aquatics segment of the pet industry center around the myriad of ways we define entertainment these days,” says Aaron Kline, general manager of Acurel, a manufacturer of a wide range of aquatics products. “With smartphones, video games, TV, etc., people get rewards instantaneously from stimulation and entertainment that they don’t have to work to achieve.”
The good news is that both retailers and manufacturers are realizing—and acting on—the need to evolve before the aquatics segment loses any more ground in pet stores.
From an industry-wide perspective, insiders seem to agree that the best strategy is to form a united front. Although easier said than done, the consensus is that by working together to bring attention to the hobby, pet store owners and manufacturers can strengthen the business for everyone.
“There is no doubt that we need to do more,” says Donston. “We need a ‘Got Milk?” campaign.”
The aquatics segment may not have its own branded slogan as of yet, but it seems to be heading in the right direction. This year’s debut of the Aquatic Experience - Chicago may be a step in the right direction. Created by the World Pet Association (WPA), the show promises to bring together consumers, retailers and manufacturers for the purpose of promoting and growing the industry.
Meanwhile, retailers and manufacturers are adjusting to the market’s changing tides on a more grassroots level, and they are meeting those challenges with success. “The aquatic sector continues to thrive for those stores that continue to look for innovation and new ideas for their customers,” says James Knight, sales director at Reef One Limited, which produces aquariums and supplies. “The retailers that stimulate and promote their aquatic business can, and do, set themselves apart from the competition and inspire their customers to be loyal.”
Some in the industry say that the recession did what economic turmoil often does: it sifted out the weaker businesses and left only the strong standing. In fact, in many cases, the surviving business often thrived in direct proportion to the losses around them. “The independent retailers that survived the recession became stronger as businesses,” Carberry says. “When the weaker ones went out of business, they were able to pick up market share.”
Thriving retailers tend to attribute their success to a few key strengths: the ability to offer services, quality products, variety, and accurate information and guidance. Stores that complement their retail sales with services seem to be particularly solid. “A lot of the stronger businesses are doing maintenance—setting up and maintaining marine aquariums for hospitals, offices and restaurants,” says Carberry. “Those are the ones that are really making money.”
The Fish Nook Pet Center, in Acton, Mass., is a prime example. Owner Sean Fitzgerald says tank maintenance is an important component of his business. Yet, his customers have also come to rely on his staff for their expertise. “A lot of people come to talk to us because my staff are experts at what they are doing,” he says.
Bob Novak, owner of Pets Warehouse, a small chain of full-line and aquatics pet stores in Long Island, N.Y., can also attest to the fact that to be successful in the aquatics category, retailers must offer customers the support they need. “It takes a lot of hard work, a lot of hours and customer service,” he says. “Customer service is the number-one thing.”
Having uncommon or hard-to-find product, particularly livestock, seems to give retailers an advantage over the competition, as well. “There has been a tendency for some stores to carry the same ‘me too’ products as the next store, and this tends to just drive diminishing margins for them,” says Knight. “We are seeing a broader change away from this mentality that is going to naturally help the aquatic section further.”
Many retailers understand that what sets them apart from their competitors makes them strong. “I have a lot of stuff that you are not going to see in most shops,” Fitzgerald says. “I have a lot customers that drive past a lot of other shops to get to me.
“This shop does well because I offer everything that, I, as a hobbyist, would come looking for and require. It’s not just the easy-to-get products and the things I make the most money off. It’s lots of spare parts.”
Making the Adjustments
Despite the strides retailers have made to keep their torches lit, some challenges will not let up. Competition from Internet sellers—from Amazon to basement-based hobbyists-turned-entrepreneurs—continues to steal at least some percentage of the market share from brick-and-mortar stores, which struggle to compete on price and variety. This relentless threat is shaping the way some retailers do business.
Novak, for example, has adjusted by simply refusing to sell products—including fish and coral—that can be found on the Internet at lower prices than he can afford to sell them for. “We have to be very competitive on the pricing,” he says. “For example, a filter—if we can’t be competitive on it, we don’t carry that product. There is no point. If a customer can find [a product] on a retail level for what we are paying [wholesale], we are going to look like a thief to that customer.”
Novak adds that while this strategy suits his three-store—soon to be four—operation, a single-store operator with a small, dedicated customer base may be able to set their pricing regardless of how much the product is going for on the Internet. Yet, he says, “For us to be competitive, in a sense, the Internet is our guide on pricing.”
However, as Novak suggests, retail pricing is not a one-size-fits-all proposition. While Fitzgerald does not find livestock sales on the Internet to be much of a menace to his business, he says the web does deliver a fair amount of competition in the dry goods segment. His strategy is to match web-based pricing on many of the higher-end products he sells, and then offer the value and convenience of a warranty. Often, he will have limited stock available on these products, but orders can be turned around within two or three days—no more time than it may take to get the product online. It’s a service he actively advertises.
“Certain companies will let me warranty [products] off my shelves,” he says, explaining that customers can bring defective products back to the store, which will handle the exchange or repair. “A bigger online retailer will say [to customers], ‘We won’t deal with that; you have to deal with the manufacturer. I do a ton of that business.”
While retailers have gotten crafty in order to stay in the game, they do have some natural advantages, say industry experts. Virtual sellers have no hopes of competing with the personalized, face-to-face service retailers can deliver, and there is no substitute for the guidance and information they can impart.
“One of the biggest challenges in the industry has to be the availability of knowledge within stores that sell more than just aquatics, says Knight. “Customers cannot get the same level of expert support and advice on the web, and the successful stores understand that this is key to how they can differentiate themselves.”
Savvy retailers are also likely to understand that not all purchases are driven or determined by price. “The Internet is all about saving nickels and dimes,” says Lance Reyniers, president of Python Products, noting that penny-pinching is not always on a customer’s agenda. “When I go into a store for anything, I look for acknowledgement that I’m there, cleanliness and knowledge—I look for someone who is going to help me—now,” he says. “You don’t get that from the Internet.”
Shrinking Customer Base?
The industry’s best efforts will be for naught, however, if customers lose interest in the hobby. While the aquatics segment has enjoyed a customer base of committed hobbyists, its long-term survival depends on a steady influx of new customers. Among the most troubling concerns plaguing the aquatics segment recently is that potential new hobbyists are being lured away by a myriad of other pastimes—everything from Facebook to video games to reruns of Breaking Bad. But retailers say there is plenty of evidence that the fear is unfounded.
“You see new customers, and people who left the hobby, but come back when their situations change,” Novak says. “I read all the stories during the recession about how many tanks were in garages, but people are re-establishing those tanks.”
Kline concurs, noting that the industry may also be reaping the rewards of some positive treatment in the press lately.
“Reality shows about fish and fish tanks help make aquatics seem relevant, so not only are enthusiasts getting back into the hobby, but new hobbyists are also learning more about fish, fish care and the market, and they are getting involved,” he says. “The next generation is key.”
Meanwhile, manufacturers are doing what they can to demystify fish keeping and to make the hobby attractive to as many people as possible.
“We live differently today than we did in the 1970s and 1980s,” Donston says. “Family lives are much crazier. [People] cannot put hours and hours into the aquarium. They enjoy the beauty and enjoy having fish as pets, but it needs to be easier.”
Manufacturers have taken note and are crafting products that simplify fish keeping—for example, aquariums designed to make water changes quick and painless. “We need to make it easy,” says Damian Hall, event and marketing communications manager for Rolf C. Hagen (USA) Corp., which recently debuted its Fluval Accent and Fluval M lines of aquariums that takes the hard work out of changing the tanks’ water. “We need to make it easy for people to succeed, and to offer solutions.”
Kline adds, “New aquatic product innovations—from tank design and aesthetics, to water care and clarifiers, to ways of delivering key vitamins to fish to maintain their health and beauty—and dramatically better filters have helped make tanks and aquariums easier to maintain. Also, the introduction of new types of fish have kept existing hobbyists engaged in the segment, but also invited new hobbyists into the hobby.”
Every little bit helps, say retailers, which are depending upon manufacturers to supply a wide assortment of products that meet hobbyists’ needs. “The advances in the hobby have helped,” Novak says. “Variety drives sales now—from a two-gallon tank to a 200 gallon. That [variety] lets anybody come into the hobby. Someone can have a small tank that is affordable or, if it’s in their budget, a larger tank.”
Getting people to participate in the hobby—and stick with it—continues to be the overarching goal. Fortunately, retailers and manufacturers alike are confident that the same magic that first attracted people to the hobby more than a half a century ago can still beguile people today.
“You take a kid today and put them in front of an aquarium, you’ll see that awe in their face. It’s like a kid looking into a candy store,” says Lance. “It’s still there.”