The pet industry continues to be a darling of the investment community—a fact that was brought into sharp focus with the success of Petco’s recent transition back into a publicly traded company.
The big-box retailer made quite a splash on Wall Street in January with its initial public offering (IPO), which ended up raising more than $900 million in capital for the big-box chain. The company’s stock closed its first day of trading valued at a little more than $29—61 percent above its original IPO price of $18.
But it hasn’t just been Petco creating a buzz on Wall Street. At the same time the big-box retailer launched its IPO, Chewy’s stock price surged above $114 per share, more than double its value from six months earlier and approximately five times the original IPO price of $22 per share in 2019.
The interest that both retailers have drawn from investors isn’t surprising. Each experienced sales growth during the first 39 weeks of FY2020—Petco with a nine-percent increase, and Chewy with a 46-percent increase—thanks in large part to the impact of consumers’ migration toward online shopping during the pandemic. This, combined with the pet industry’s strong overall performance and the much-publicized boom in pet adoptions during 2020, has made investment in the two publicly traded retail companies, and the pet care arena in general, an attractive proposition.
But what does that mean for independent retailers?
Well, first and foremost, it means that two of the major competitors in the retail pet market continue to grow more formidable even as their smaller counterparts face a host of other challenges related to operating in the middle of a pandemic. Both Petco and Chewy are benefitting from infusions of capital that will most certainly be used to build on the growth that they have already achieved over the past 12 months.
Still, it’s not all bad news for smaller retailers. After all, Chewy is still not turning a profit, and Petco was reportedly carrying a debt load of more than $3 billion at the end of 2020, so both are facing their own challenges in the months ahead.
What’s more, as mentioned, Wall Street’s bullishness on the pet care market is largely based on the performance of the category overall—something from which we can all benefit. And while my conversations with independent retailers throughout the year made it clear that few—if any—of them were significantly benefitting from an uptick in pet adoptions, the fact remains that the number of households that include pets grew significantly in 2020. That is potential customer base that every pet product retailer—large or small—should be focused on adding to their base.
The key will be giving these new pet owners a compelling reason to turn away from Petco, Chewy and even the grocery stores they are currently shopping for their furry friends’ necessities. That means playing to traditional strengths such as a high level of animal care expertise, product knowledge and customer service, while also building new capabilities in areas such as e-commerce, home delivery and services.
By remaining focused on this approach, independent retailers can ensure that it’s not just the publicly traded pet specialty retailers that end up coming through the pandemic in better shape than they went in.