When Petco published its 2020 annual report last week, it revealed that the big-box retailer’s sales increased 11 percent compared to its fiscal year 2019. While this represents solid growth, particularly for a mature business contending with a pandemic that completely upended the retail industry in general, Petco’s topline performance only tells us so much about the significant progress the chain has made as a formidable competitor within the pet care market over the past couple of years. 

To get a more comprehensive look at how the company has improved—and, more importantly, how it can be expected to continue improving in the future—we have to dig a little deeper. With that in mind, here are several key details from the annual report that reflect the strides Petco has made in positioning itself to gain market share in a tough competitive environment.


A Growing Customer Base

According to its annual report, Petco added nearly one million active customers in each of the final two quarters of its FY2020, growing its total customer base to more than 20 million strong. It’s reasonable to assume that some of this growth can be attributed to the pandemic-fueled pet adoption surge. However, it is also likely that at least some of these customers were drawn away from independent and neighborhood pet stores—especially given the fact that Petco increased its advertising spend by $70 million YOY.


Managing Healthcare

In just a few short months, approximately 50,000 customers signed up for Petco’s Vital Care paid subscription plan, which offers pet owners benefits such as unlimited veterinary exams, nail trims and teeth brushing for a fee of $19 per month. Even at this modest level, the program stands to bring in nearly $12 million annually, but it is doubtful that this is purely viewed as a direct revenue stream. More likely, Petco intends the free services to drive increased foot traffic, product sales and customer loyalty. And given the fact that the company drew tens of the thousands of subscribers without even investing much—if anything—in marketing the program, it’s pretty scary to think about where Vital Care could be by the end of 2021.  


A Focus on E-Commerce

Petco more than doubled its e-commerce sales (+103 percent YOY) thanks to not only the impact the COVID-19 pandemic had on consumer shopping habits, but also key investments that the big-box chain made in this segment of its business. According to its annual report, Petco invested more than $68 million in digital and information technology during FY2020—a 33 percent increase YOY. Other factors that contributed to the chain’s e-commerce growth include:

• By using stores as “micro-distribution centers,” the company is able to leverage the fact that its 1,400-plus pet care centers are located within three miles of 53 percent of its customers, including the 720 locations that were equipped to handle ship-from-store orders by the end of FY2020.

• Buy online, pick-up in store (BOPUS) sales grew by more than 225 percent last year as consumers increasingly looked for opportunities to streamline their shopping trips.

• Petco’s mobile app had been downloaded over three million times by the end of FY2020.


Building Loyalty

After growing by 43 percent in FY2020, autoship sales now account for nearly 45 percent of Petco’s digital revenue. That is important because autoship customers are notoriously difficult for competitors to lure away without an overwhelming proposition.


Better Financial Health

In addition to growing its overall sales and making key improvements in areas that should continue to pay dividends well into the future, Petco’s financial health also improved in FY2020, when it slashed its debt nearly in half. By the end of the year, the company’s total debt was about $1.7 billion, versus $3.3 billion at the end of FY2019.