Profiting from Polarization
By Mark Kalaygian
Published: April 1, 2012


As the media continues to beat the drum about America’s shrinking middle class, are we seeing a similar trend unfold in the retail world?

Indications are that this may be the case. Consumers’ shopping habits are becoming increasingly polarized between high and low ends of the retail spectrum as the disparity between the economic situation of this country’s “haves” and “have-nots” grows larger. It is a trend that is being witnessed both in the broader retail world and in the pet care industry, specifically.

For stores positioned on the higher end, the news has been good so far. Consumers who shop this end of the spectrum have proven to be less sensitive to pricing and more tolerant of price increases. That means retailers catering to this group have had an easier time maintaining or even improving their margins in recent months.

On the other hand, retailers that depend on low prices as their major competitive advantage are watching their margins continue to erode as their customer base continues to struggle financially and looks for some relief at the cash register.

In many ways, the same dynamic is playing out in the pet care category, particularly when it comes to food—and let’s face it, pet retailing is all about the food. Many industry observers report seeing more and more pet owners either trading up or trading down in the food brands they purchase. Contributing to this polarization has been a steady stream of price increases passed on from manufacturers as ingredient costs have risen. And further price increases combined with rising fuel prices promise to expand the divide.

With this in mind, pet specialty retailers must identify which group their customer base falls into—are they trading up or trading down? If it is the group that is trading down, you are likely competing head-to-head with Walmart, Target and local grocers, and things are probably going to get a lot tougher in coming months as pricing pressure continues to squeeze your food margins down to unsustainable levels (if they haven’t already). What’s more, these shoppers are less inclined to make impulse purchases of higher-margin items, so offsetting the low markups on food products will be more difficult.

Catering to the trade-up set is a much better position for small, independent pet specialty stores. However, building a loyal following among these shoppers requires more than simply looking for bigger price tags. Retailers must make sure that they carry products that truly offer enhanced quality and value over lower-priced options. In addition, they must provide the type of shopping experience that discerning shoppers expect, complete with a cohesive merchandising strategy and a knowledgeable, friendly staff.