The Specialty Retail Industry: Pets
...ket, PetsMart and Petco only account for 15 percent of the total industry. (Merle, 2004) These pet superstores had claimed 31 percent of the market in 2000. The biggest threats to the pet superstores are the mass merchandisers like Wal-Mart and Target, because their market share is steadily increasing. They fall a close second to the superstores holding around 29 percent of sales. “In 2000, mass-market sales gains slipped to 6 percent, down by half from a 12 percent sales spurt in 1998.” (Market Looks, 2001) Below these two fighting sections are the diminishing supermarkets with 19 percent share (dropping from 28 percent in 1985), and the independent pet stores with 12 percent share of the market which has dropped from a 30 percent share in 1985. (Market Looks, 2001) Most people used to buy their pet food at supermarkets. However, pet superstores have an advantage in that they sell the premium dog and cat foods. Exhibit 7 displays the Share of U.S. dollar sales of pet supplies by retailer type for the year 2000, while Exhibit 1 contrasts the shares of pet supply sales in percentage between 2002 and 2004. These exhibits are another example of how the industry is highly competitive. From the charts you can visualize how the supermarkets have been losing market share, while the superstores, mass merchandisers and independent pet stores/chains have been fluctuating only small percentages. One gain that mass merchandisers make one year is very susceptible to being taken back from another competitor the next year. (See years 2000 vs. 2002) It is a constant struggle to gain market share. Strategies The key strategies for a retail industry of this kind are to become (or remain) “the outlet of choice for each customer’s full range of pet product purchases, to develop retailer/marketer alliances along with channel-specific lines, and to increasingly emphasize private labels.” For example with the supermarkets that are aware that they are being taken over by the superstores and mass-merchandisers, many are increasing product selection, creating sections or whole departments that are more inviting and easier to shop, as well as building customer loyalty through advertising and promotion. The small independent pet stores have managed to stay alive during the PetsMart and Petco take-over by focusing on specialization through a certain pet or premium product, as well as stressing the customer service aspect. Unfortunately, even with these efforts, independent pet stores have continued to suffer greatly with sales declining 16 percent. (Lummis, 2003) Exhibit 12 displays the Top challenges for pet retailers taken from a large survey conducted by the Pet Age Publication. These challenges and any others should be considered when either entering a new industry, or trying to maintain business in a current industry. Supplier Power Supplier power in the industry is relatively non-existent. The pet superstores are comparable to Wal-Mart in that they fight for the everyday low price, and have the power to get it. Suppliers want their products to be in the superstores where they will make the most money and get their name out there. While the pet superstores could care less if their products are there or not, they have plenty of other options. Therefore, the suppliers are forced to comply with the superstores’ terms. Pet superstores have been referred to as “category killers” which is defined as “a chain of large-format stores that focus on one category of merchandise and make the most of various economies of scale.” These “category killers” offer a greater assortment of products than their retail competition, and fight for the everyday low price. The low-price focus of the “big dogs”, while the continued basis of their own success in pet supplies as in consumer goods overall, places intense pressure on rivals across the retail field, curbing price points and giving further advantage to major suppliers that, like these large players themselves, milk the profits from economies of scale rather than premium prices. “Category killers” also have the power to drive hard bargains with manufacturers of their products by being able to buy direct from them with favorable discounts. Independent retailers and the distributors that serve them have suffered severely from these “Category killers” in the pet superstore sector which have been estimated at generating about $3.3 billion in revenues for the year 2000. (Market Looks, 2001). Although PetsMart and Petco have a tremendous amount of power when dealing with larger pet supplies manufacturers comparative to Wal-Mart’s buying power, independent pet stores have potential strength that can be useful with the consumer trends that are expected to take over in years to come. (Lummis, 2003) For example, there is a growing demand for value-added products as well as a growing appreciation for a more personalized customer service experience. Not everyone likes to deal with the large superstores and prefer the more intimate shopping experience where their sale makes a difference. This could potentially cause a move back to the smaller neighborhood stores in the future. As a result of this potential, more and more independent pet stores continually enter the market to try for a portion of the pet boom. (H.H. Backer, 2005) Threat of New Entrants The recent growth in all of the segments of the pet industry has lead to opportunities for both existing players in the market, and new entrants. The change in demographics, new lifestyle trends, and the change in American’s attitude towards their pets has led to a great increase in consumer spending throughout the past five years. The sizeable number of players in the industry, as well as the consolidation among manufacturers, has transformed the maturing pet industry into a dynamic and highly competitive environment. As a result of the industry’s success in using the human-animal bond as an advantage, there is a growing presence of pet products in both traditional and nontraditional retail outlets. Businesses like T.J. Maxx, Home Depot and Ikea are all trying to cash in on the growing business by providing their customers with animal related merchandise. (H.H. Backer, 2005) This is possible for larger chains like Home Depot to try their chances in the pet industry because of their established size and success in their own market. The entry and exit barriers into the market are high, just be...