WWW.IBISWORLD.COM Pet Stores in the US March 2014 1
Lucky dog: Pet owners will invest in premium products as disposable income rises
IBISWorld Industry Report 45391 Pet Stores in the US March 2014 Andy Brennan
2 About this Industry 15 International Trade 29 Industry Assistance 2 Industry Definition 16 Business Locations 2 Main Activities 30 Key Statistics 2 Similar Industries 18 Competitive Landscape 30 Industry Data 2 Additional Resources 18 Market Share Concentration 30 Annual Change 18 Key Success Factors 30 Key Ratios 3 Industry at a Glance 18 Cost Structure Benchmarks 20 Basis of Competition 31 Jargon & Glossary 4 Industry Performance 21 Barriers to Entry 4 Executive Summary 22 Industry Globalization 4 Key External Drivers 6 Current Performance 23 Major Companies 8 Industry Outlook 23 PetSmart Inc. 10 Industry Life Cycle 24 PETCO Animal Supplies Inc.
12 Products & Markets 27 Operating Conditions 12 Supply Chain 27 Capital Intensity 12 Products & Services 28 Technology & Systems 13 Demand Determinants 28 Revenue Volatility 14 Major Markets 29 Regulation & Policy www.ibisworld.com | 1-800-330-3772 | [email protected] WWW.IBISWORLD.COM Pet Stores in the US March 2014 2 About this Industry
Industry Definition Pet stores sell a variety of pets, including shampoos, medication, toys, pet dogs, cats, fish and birds. Stores also sell containers, dog kennels and cat furniture. pet foods and pet supplies, such as Some stores also offer pet services such collars, leashes, health and beauty aids, as grooming and training.
Main Activities The primary activities of this industry are Retailing pets Retailing pet food and supplies Providing pet grooming and boarding services
The major products and services in this industry are Live animals Pet food Pet services Pet supplies
Similar Industries 54194 Veterinary Services in the US Operators in this industry provide veterinary services.
81291 Pet Grooming & Boarding in the US Operators in this industry provide pet grooming and boarding services.
45411a E-Commerce & Online Auctions in the US Operators in this industry retail pet foods and pet supplies via the internet.
45411b Mail Order in the US Operators in this industry retail pet foods and pet supplies via mail order or catalogs.
Additional Resources For additional information on this industry www.americanpetproducts.org American Pet Products Association www.petage.com Pet Age Magazine www.petbusiness.com Pet Business www.hsus.org The Humane Society WWW.IBISWORLD.COM Pet Stores in the US March 2014 3 Industry at a Glance Pet Stores in 2014
Key Statistics Revenue Annual Growth 09-14 Annual Growth 14-19 Snapshot $16.5bn 3.2% 2.7% Profit Wages Businesses $594.7m $2.2bn 13,156
Revenue vs. employment growth Number of pets (cats and dogs) Market Share PetSmart Inc. 9 210 40.3% 6 200 PETCO Animal 190 3 Supplies Inc. 180 0
19.5% Millions % change 170
−3 160
−6 150 Year 06 08 10 12 14 16 18 20 Year 05 07 09 11 13 15 17 19 Revenue Employment SOURCE: WWW.IBISWORLD.COM p. 23 Products and services segmentation (2014) 6% Key External Drivers Live animals Number of pets (cats and dogs) 13% Pet services Per capita disposable income External competition for the Pet Stores industry Number of households 52% Pet food
29% Pet supplies
p. 4
SOURCE:SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM
Industry Structure Life Cycle Stage Mature Regulation Level Medium Revenue Volatility Low Technology Change Medium Capital Intensity Low Barriers to Entry Medium Industry Assistance None Industry Globalization Low Concentration Level Medium Competition Level High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 30 WWW.IBISWORLD.COM Pet Stores in the US March 2014 4 Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
Executive The Pet Stores industry has purred along members, pet owners frequently lavish Summary over the past five years as cats, dogs, fish them with all-natural and organic pet and birds have remained popular home foods and treats, in addition to high-end companions. Even during the Great services. Examples of pet services go Recession, which slowed demand beyond the traditional grooming, dog throughout most of the retail sector, the walking and training; today, premium industry continued to yield revenue services like pet therapy sessions and growth. This trend was mainly driven by pet-only flights are available for four- an increasing number of pet parents, or legged family members. This is the case pet owners who treat their four-legged particularly for dog and cat owners. These friends as family members. During the positive trends, combined with rising economic downturn, when consumers of sales, have increased profit margins for all income levels reduced spending, pet industry players in the five years to 2014; parents cut back on their personal IBISWorld estimates that margins have increased from about 3.1% of revenue in 2009 to about 3.6% in 2014. Indulgent pet parents will continue to drive In the five years to 2019, the Pet Stores industry is projected to maintain strong demand for premium pet food and services growth. As the economy continues its upward trajectory and consumers have discretionary spending before spending more discretionary income, revenue from less on their pets. Consequently, revenue premium products and services is growth for the industry slowed during the projected to increase. Moreover, the recession but maintained its overall number of pet-owning households is positive trend. Revenue is expected to expected to continue increasing, yielding increase at an average annual rate of greater demand for industry products. 3.2% to $16.5 billion in the five years to However, for basic pet supplies, 2014. In 2014, revenue is expected to competition from supermarkets, discount grow 1.4%. department stores and online-only The emerging trend of pet parents has retailers is expected to remain strong. In also commanded high demand for the five years to 2019, industry revenue is premium pet products and services. Since forecast to rise at an average annual rate pets are often considered family of 2.7% to total $18.9 billion.
Key External Drivers Number of pets (cats and dogs) Per capita disposable income As households adopt more cats and dogs, Consumers increasingly perceive pets as demand for industry goods such as pet family members, so products for pets can foods, medicine and accessories be considered nondiscretionary. A increases. According to the American Pet decrease in disposable income has little Product Association’s (APPA) National effect on demand because households Pet Owner’s Survey, the average dog or typically reduce spending on other cat owner spends between $200 and household and leisure products before $300 annually on food for their pet. The cutting down on pet food and toys. number of pets is expected to increase However, a rise in per capita disposable during 2014, creating a potential income increases the propensity for opportunity for the industry. households to purchase a greater WWW.IBISWORLD.COM Pet Stores in the US March 2014 5
Industry Performance
Key External Drivers quantity of goods and premium items consumers with added convenience. continued that are more expensive. Per capita External competition for the Pet Stores disposable income is expected to increase industry is expected to increase in 2014, slowly in 2014. posing a potential threat to the industry.
External competition for the Number of households Pet Stores industry According to the APPA’s most recent Pet food, toys and accessories supplied by National Pet Owners Survey, 68.0% of US this industry compete with comparable households own a pet. Consequently, an products offered by supermarkets, increase in the number of households will grocery stores, department stores and likely increase the number of pet owners online-only retailers. These retailers in the United States, supporting industry often sell the same products or very demand. The number of households is similar products as pet stores, providing expected to increase slowly during 2014.
Number of pets (cats and dogs) Per capita disposable income
210 4
200 2 190
180 0 Millions 170 % change −2 160
150 −4 Year 05 07 09 11 13 15 17 19 Year 07 09 11 13 15 17 19
SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Pet Stores in the US March 2014 6
Industry Performance
The Pet Stores industry has grown as higher disposable incomes encourage Current strongly over the five years to 2014. greater spending on pets. Performance Owners’ tendencies to treat their pets like With strong demand and rising sales, family members have powered the pet stores have experienced increasing financial resilience of this industry. By profit margins during the five-year period. offering more innovative, specialized and Sales of premium pet food, supplies and premium products and services, pet pet services in particular have driven up stores have been able to cash in on pet profitability because they typically have owners’ desires to pamper their pets. In higher markups. Further, industry addition, rising pet ownership in the revenue has been growing at a faster rate United States has led to overall higher than the number of employees or wages. demand for pet food and supplies. Wages are estimated to increase at an Consequently, revenue for the Pet Stores annualized rate of just 2.3% over the five industry is estimated to increase at an years to 2014, to $2.2 billion. IBISWorld average annual rate of 3.2% to $16.5 estimates that in 2014, average industry billion in the five years to 2014. Industry profit margins will reach 3.6% of total revenue is expected to jump 1.4% in 2014 revenue, up from 3.1% in 2008.
Growth during the Industry growth in the five years to 2014 recession is largely attributable to higher pet Spending on specialty ownership and accompanying demand for pet products. According to the products slightly declined, 2013/2014 National Pet Owners Survey but operators added pet published by the American Pet Products services to boost revenue Association (APPA), about 68.0% of US households own a pet, which equates to 82.5 million households. Throughout the food increased 26.8% between 2008 and past two decades, pet ownership has been 2013, and are expected to continue growing slowly but steadily. The APPA growing in 2014. reports that in 1998, about 51.0 million Operators have been actively adding homes owned at least one pet, and by pet services to capture more of the 2005, this number had risen to 69.0 consumer dollar. Pet Business reported million. Such growth rates have in another survey that in 2010 22.0% of translated into rising demand for pet retailers added pet-related services, such supplies in the five years to 2014. as grooming and pet boarding, to Because supplies such as food and improve sales and margins. Indeed, treats are required for the wellbeing of APPA reports that spending on pet pets regardless of household income, services increased 40.6% between 2008 demand for the Pet Stores industry has and 2013. IBISWorld expects that in proved resilient even during bouts of low 2014, the continued emphasis on pet consumer confidence and decreased services will be a primary driver for sales. disposable income. To this end, pet food, As the unemployment rate slowly which accounts for about 52.0% of subsides and households gain more industry sales, was a leading contributor disposable income, consumers will likely to positive sales during the recession. increase their spending on these According to APPA data, sales for pet discretionary pet services. WWW.IBISWORLD.COM Pet Stores in the US March 2014 7
Industry Performance
Competition from Pet stores are traditionally small and bigger stores independently owned operations; about Smaller operators compete 59.1% of industry players are nonemployers (stores without paid with big-box retailers employees). Even among businesses that and pet stores, including have employees, most employ fewer than Walmart and PetSmart four workers. Just 7.8% of total operators have more than 20 employees. Because of their predominantly small purchase in bulk from wholesalers. size, industry enterprises have faced During the recession, these cost savings external competition from supermarkets became bargain prices for consumers, and mass merchandisers, while fending allowing larger stores to draw in more off big-box specialty stores from within customers. Also, many consumers have the industry. This pressure has gravitated online to purchase more- contributed to overall consolidation of affordable substitutes in lower quantities. the industry and has placed incredible Smaller operators face even more price pressures on small specialty stores. competition when selling premium During the recession, some of these products, which are often a boon for small specialty stores were forced to exit small retailers. High-end goods are the industry or find niche markets in primarily sold through specialty pet order to remain competitive. In the five stores and other niche retailers, years to 2014, the number of industry providing a degree of guaranteed sales operators contracted at an average for operators, shielding them from direct annual rate of 0.7% to an estimated competition. This is because 13,156 companies. This decline is partly manufacturers typically place restrictions due to increased external competition on ultra-premium pet products, selling from supermarkets, department stores them only to specialty pet stores. and online-only retailers. Big-box specialty stores such as In recent years, supermarkets have PetSmart and PETCO still offer lured customers away from smaller customers the best of both worlds by specialty stores, offering the convenience providing a broad selection of pet of one-stop shopping. Grocery stores products while operating on a scale allow consumers to shop for a wide range large enough to pass cost savings down of household products in one location, to consumers. Furthermore, these large including pet supplies. Time-poor stores have also provided premium consumers have turned to this type of products, a factor that has caused store to streamline and simplify errands. external competition for small Meanwhile, mass merchandisers have specialty stores. As a result, the big-box emerged as major retailers of pet strategy has been a sweeping success in products, offering cheaper prices for the Pet Stores industry. PetSmart, in frugal consumers. Due to their sizes, particular, has increased its market stores such as Walmart and Costco exert share from 37.0% in 2009 to an higher buying power and always expected 40.3% in 2014. WWW.IBISWORLD.COM Pet Stores in the US March 2014 8
Industry Performance
The five years to 2019 are expected to be Industry promising for the Pet Stores industry. Industry revenue Rising pet ownership is expected to be a Outlook 8 strong driver of industry demand. In addition, slowly improving economic conditions will boost consumer spending, 6 allowing customers to purchase more premium pet products and services. As 4
such, industry revenue is projected to % change increase at an average annual rate of 2 2.7% to $18.9 billion in the five-year period. Despite this growth, the Pet 0 Stores industry will continue to face Year 06 08 10 12 14 16 18 20 strong competition from grocery stores, mass merchandisers and a growing SOURCE: WWW.IBISWORLD.COM number of online-only retailers. The number of pets owned by which will contribute to the industry’s households in the United States is the growing revenue. primary driver of demand for the Also, an increased trend toward industry. Because the industry sells pets, higher-margin premium pet products including cats, dogs, birds, hamsters and and pet services is expected to guinea pigs, an increase in pet ownership favorably affect industry profit margins rates translates to higher revenue for the during the next five years. Wages are industry. In addition, a rise in pet expected to increase at a slower rate ownership leads to higher demand for than revenue, at a 2.6% annualized rate discretionary and nondiscretionary to $2.5 billion, increasing the average products such as food, treats and toys. To industry profit margin. IBISWorld the industry’s benefit, demand for pets, forecasts profit margins to increase especially cats and dogs, is expected to from 3.6% of revenue in 2014 to 3.8% in rise during the five years to 2019, 2019. Rising profitability and primarily driven by more single-person expanding pet ownership levels will also households and the aging population, continue to bring new entrants to the two demographics that increasingly own industry. Consequently, the number of pets. IBISWorld projects that the number companies is projected to increase at an of pets will increase at an average annual average annual rate of 0.5% to about rate of 2.1% during the five-year period, 13,488 in 2019.
Premium products will IBISWorld expects that natural and foods were once a niche segment; however, remain popular organic foods and treats will continue to major food manufacturers such as Nestle’s gain popularity over the five years to 2014, Purina, Mars’s Pedigree and Del Monte as households continue to view their Foods all now market natural products animals’ diets as a means of improving that are sold at major retailers. These their pets’ overall health. According to high-margin products will be lucrative research firm Mintel, nutritional value and sources of revenue and profit for pet store flavor are two of the top reasons owners operators over the next five years. cite for choosing food for their pets, just With improving economic conditions, after price and value. Natural and organic demand for specialized pet services is WWW.IBISWORLD.COM Pet Stores in the US March 2014 9
Industry Performance
Premium products will expected to continue. During the past five grow at an annualized rate of 2.3% in the remain popular years, pet services have served as primary five years to 2019. As unemployment continued drivers of growth within the industry, a declines, more consumers will use their trend that will likely continue as per extra income to pamper their pets with capita disposable income is expected to services such as grooming and boarding.
Changing During the recession and its aftermath, competition mass merchandisers and supermarkets Smaller pet stores will attracted many budget-conscious consumers by offering a limited selection increasingly target niche of low- to medium-quality goods at markets in order to set discounted prices. However, as themselves apart disposable income levels increase in line with the economic recovery in coming years, customers are expected to loosen increasingly important as each operator their budgets and splurge on higher- attempts to set itself apart from other quality items. As a result, consumers will stores. For example, personalized diets for seek options based on factors other than pets are expected to serve as a potential low prices and return to smaller niche market for industry operators, operators that offer higher-quality including special food catered to obese services at higher prices. Despite these animals. According to the latest American favorable conditions, however, Pet Products Association’s 2013/2014 competition from supermarkets and National Pet Owners Survey, 12.0% of mass merchandisers is expected to dogs and 14.0% of cats are considered remain strong for basic pet supplies like overweight. Since many pet owners have dry pet food and cat litter. Because these become concerned with their pets’ health, products show little differentiation the creation of options to improve pet among brands, consumers will likely health presents a potential opportunity for continue to shop at large retailers to take industry operators. Several pet food advantage of discounted prices and the manufacturers have identified potential convenience of one-stop shops. growth in customized food options, taking Since much of the industry consists of a into consideration pet breeds, life stages, high number of smaller stores, niche daily activities, amount of time indoors product marketing will become and specific medical conditions. WWW.IBISWORLD.COM Pet Stores in the US March 2014 10
Industry Performance Life Cycle Stage The industry’s contribution to the economy is expected to slow over the 10 years to 2019 Product innovation is slowing Pet ownership is continuing to rise steadily, expanding the industry’s target market
20 Maturity Quality Growth Key Features of a Mature Industry Company High growth in economic consolidation; importance; weaker companies Revenue grows at same pace as economy level of economic close down; developed Company numbers stabilize; M&A stage importance stable technology and markets Established technology & processes Total market acceptance of product & brand 15 Rationalization of low margin products & brands % Growth in share of economy in share % Growth
10
Quantity Growth Many new companies; E-Commerce & Online Auctions minor growth in economic importance; substantial 5 technology change
Veterinary Services Animal Food Production 0 Pet Stores
Mail Order Toy, Doll & Game Manufacturing
-5 Decline Shrinking economic importance
-10 -10 -5 0 5 10 15 20 % Growth in number of establishments
SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Pet Stores in the US March 2014 11
Industry Performance
Industry Life Cycle The Pet Stores industry is in a mature which displays consolidation of stage of its life cycle. While there are industry operators. some product introductions taking place During the five years to 2014, the This industry within the industry and a rising number industry has posted strong sales driven by is Mature of services are being provided by pet owners increasingly humanizing their operators, the industry has not pets. To this point, American Pet Products undergone fundamental changes. Association indicated that a tipping point Industry valued added (IVA), which was reached in 2005 and 2006 when measures the industry’s contribution to people began rewarding pets in human the US economy, is expected to terms. Consequently, new products and increase at an annualized rate of 2.3% services have emerged in this industry to in the 10 years to 2019. In comparison, cater to this trend. For example, an US GDP is projected to grow at an increasing number of pet stores have annualized rate of 2.7% during the started to offer premium pet food and same period. This indicates that the treats as well as services such as industry is growing at a slightly slower grooming, training, walking and full- rate than the economy, which is a sign service boarding. This trend of rapid that it is in the mature phase of its life product introductions indicates that the cycle. In addition, the number of Pet Stores industry is in the developing companies in the industry is expected to stage; however, new product introductions decline marginally over the 10 years to are expected to slow down in the five years 2019, at an annualized rate of 0.1%, to 2019 as product saturation is reached. WWW.IBISWORLD.COM Pet Stores in the US March 2014 12 Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
Supply Chain KEY BUYING INDUSTRIES 99 Consumers in the US The Pet Stores industry relies on consumers to purchase pet products and to utilize industry services.
KEY SELLING INDUSTRIES 31111 Animal Food Production in the US This industry supplies pet stores with a vast array of pet food. 33993 Toy, Doll & Game Manufacturing in the US This industry supplies pet toys and accessories to industry operators. 54194 Veterinary Services in the US This industry provides veterinary care services such as vaccinations to industry operators.
Products & Services Products and services segmentation (2014) 6% Live animals 13% Pet services
52% Pet food 29% Pet supplies
Total $16.5bn SOURCE: WWW.IBISWORLD.COM
Pet food foods are available to pets. Examples Because food is a necessity for all pets, it include the raw diet for dog and cat foods, is not surprising that pet foods make up weight control food for obese animals, the largest product segment for the specialized formulas for sensitive industry. This segment covers a wide stomachs, and freshly baked cakes and range of products such as dry and wet cookies as treats. However, the segment food for dogs and cats, bird feed, crickets faces a high degree of competition from and worms for reptiles, and other treats supermarkets and mass merchandisers, and supplements for a number of which sell competitively-priced pet food different household pets. In the five years products. Consequently, the segment’s to 2014, retailers have increasingly share of revenue has declined slightly provided all-natural and organic food over the past five years. products. These premium pet foods tend to be higher priced with larger markups, a Pet supplies factor which has benefited industry Products in this segment include over- revenue. Today, a variety of premium pet the-counter medicines, food bowls, WWW.IBISWORLD.COM Pet Stores in the US March 2014 13
Products & Markets
Products & Services collars and leashes, pet clothing, brushes brushing. This excludes veterinary continued and combs, shovels and scoopers, cat services. Other services may include litter, cages birds and reptiles, travel activities such as training, boarding and carriers and any other various accessories day camps. Much of the rise of this for pets. During the past five years, this segment has been driven by a greater segment’s share of revenue has increased interest in pet pampering. As more pet largely due to rising spending on over- owners consider animals as members of the-counter medicine products. Spending their families, demand for specialty pet on pet medicine has increased due to the services has also increased. soaring cost of pharmaceuticals, as well as higher standards of routine care. Other Live animal purchases pet supplies and accessories sold by The live animal segment of the industry industry retailers also face competition is the industry’s smallest segment. This from supermarkets and grocery stores, product segment is small because a pet is namely because there are no regulations normally a one-off purchase, while that limit their sale. To this point, pet products in other segments, such as pet supplies are being increasingly sold at a supplies and pet foods, need to be variety of retail outlets such as home purchased throughout the life of the pet, improvements stores. thus, requiring repetitive spending. Furthermore, major players in the Services industry only sell small animals and fish, Pet services have been the fastest- and partner with local pet programs for growing product segment for the industry cat and dog adoptions. On the other over the past five years. Pet services hand, smaller operations often sell all include full service grooming, haircuts, types of animals: cats, dogs, fish, rabbits, baths, toenail trimming and tooth birds, small animals and even reptiles.
Demand Demand for pets and pet supplies is Products Association, in 1998, 56.0% of Determinants affected by the rate of pet ownership, US households owned a pet. In 2014, food and supply prices, household however, about 68.0% of households are income and demographics. estimated to own a pet.
Pet ownership Income Pet ownership is a main driver for Households with higher incomes are able industry demand by definition, as to spend more on discretionary items and industry operators are retailers of pets. services sold at pet stores, leading to Thus, as pet ownership increases, the higher demand. As such, in the five years number of pets purchased also rises, to 2014, pet-owning households with high leading to higher demand and sales for disposable income have been the main the industry. In addition, a rise in this customers for luxury and trendy pet number also leads to higher demand for products, including premium pet food and products such as food, treats and toys designer pet toys. In addition, those with because these goods are needed every day higher incomes tend to travel frequently, for the well-being of pets. During the last so they are more likely to utilize pet 15 years, pet ownership has been on the boarding services or purchase products rise. According to the American Pet that allow their pet to travel with them. WWW.IBISWORLD.COM Pet Stores in the US March 2014 14
Products & Markets
Demand Demographics and lifestyle living in apartments are less likely to Determinants The change in demographics and have pets since many apartments do not continued lifestyle of households is an important allow pets. However, the aging determinant of demand. If households population may increase demand for are frequently relocating or working pets, since older demographics often longer hours, then these factors may purchase pets for companionship reduce a household’s willingness to after their children and grandchildren purchase a pet. In addition, households leave home.
Major Markets Major market segmentation (2014) 7% Consumers aged 65 and older 10% Consumers aged 25 and younger 28% Consumers aged 45 to 54
13% Consumers aged 55 to 64
18% 24% Consumers aged 25 to 34 Consumers aged 35 to 44
Total $16.5bn SOURCE: WWW.IBISWORLD.COM
The largest market for the Pet Stores The second-largest market consists of industry includes consumers between the consumers between the ages of 35 to 44, ages of 45 to 54, who account for an who represent about 24.0% of revenue. estimated 28.0% of total revenue. Many Consumers in this market typically have members of this age group look for pet children, and they often consider the companions to fill the empty space in health and behavioral benefits a pet can their households after their children have on their kids. According to the leave home. As such, a large proportion American Pet Products Association, of this segment can be considered pet about 38.0% of households with children enthusiasts, who consider pets family under 18 years old own at least one pet. members, according to PetSmart. Consumers between the ages of 25 and Furthermore, consumers in this product 34 are estimated to account for 18.0% of market are typically employed and have the market. This demographic group steady income streams, allowing them to accounts for a lower share as they are spend freely on pet supplies. Consumers often subject to busy schedules, making it between the ages of 55 and 64 are difficult for them to own pets. expected to represent 13.0% of the The two smallest markets are made of market; however, this figure is forecast to consumers under the age of 25 (accounting increase during the next five years as for 10.0% of the market) and consumers consumers aged 45 to 54 increasingly over the age of 65 (7.0%). Consumers in enter this age range. these categories have limited income, thus, WWW.IBISWORLD.COM Pet Stores in the US March 2014 15
Products & Markets
Major Markets decreasing their ability to own or spend on retirement homes, and many of these continued pets. In addition, these two demographics dwellings do not allow pets, hindering the tend to rent apartments or live in ability of these demographics to own pets.
International Trade International trade activity is accounted and supplies is not readily available, as at the manufacturing level by convention; they are categorized into broad segments as such, this retail industry does not that contain a large number of other technically have imports or exports. non-pet related products. However, However, products and supplies in the trends in pet food trade provide some Pet Stores industry are imported and insight into trends regarding overall exported at the manufacturing level and pet-product trade levels, and these are then sold in the domestic market. Precise included in the Animal Food Production export and import data on pet products industry (IBISWorld report 31111). WWW.IBISWORLD.COM Pet Stores in the US March 2014 16
Products & Markets
Business Locations 2014
West AK 0.2 New England
ME Great Mid- 0.5 Lakes Atlantic 1 2 NY 3 WA ND 7.6 4 MT 0.2 5 3.0 0.3 MN 1.7 WI Rocky 1.8 MI PA 6 SDPlains 3.6 4.5 OR 0.2 7 1.9 Mountains ID IA OH 9 8 0.5 WY 0.8 3.9 0.3 IN VA NE IL 1.8 WV 0.5 4.1 0.3 2.7 KY West NV 0.8 0.7 NC UT MO 2.6 0.6 CO KS 1.8 2.5 1.0 TN 1.5 SC CA 1.2 13.0 OK AR Southeast 0.8 0.5 GA AL 2.2 AZ MS 0.9 2.3 NM 0.4 0.6 Southwest LA TX 0.9 FL 5.5 8.1
West HI 0.4 Additional States (as marked on map) Establishments (%) 1 VT 2 NH 3 MA 4 RI Less than 3% 0.3 0.8 2.2 0.5 3% to less than 10% 10% to less than 20% 5 CT 6 NJ 7 DE 8 MD 9 DC 1.5 3.5 0.5 1.9 0.1 20% or more
SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Pet Stores in the US March 2014 17
Products & Markets
Pet stores are primarily located in the Business Locations Distribution of establishments vs. population Southeast, the West, the Mid-Atlantic and the Great Lakes regions of the United 30 States. Industry locations are based primarily on the number of households in
each region, as well as the median 20 income level of households. %
Southeast 10 The Southeast holds the highest number of industry establishments; 22.1% of pet stores are estimated to be in the region. 0 The Southeast is the most populated West region of the United States with one Plains Southeast quarter of the nation’s population. Given Southwest Great Lakes Mid-Atlantic the higher proportion of households, New England
there is a greater demand for industry Rocky Mountains retailers. Within the Southeast, Florida Establishments has the highest number of pet stores, at Population 8.1% of the nation’s total. SOURCE: WWW.IBISWORLD.COM
West higher-than-average income levels. Given The West has the second-highest that households within the region have a proportion of pet stores in the country; larger amount of disposable income, they the region is estimated to have 19.2% of are more able to afford to own a pet. industry stores. California has the highest number of pet stores in the country at Great Lakes 13.2%. The primary reasons for the The Great Lakes region is the fourth- higher-than-average number of pet stores most popular location for industry in the West are population density and establishments. 15.2% of pet stores are income levels. The West has 17.1% of the estimated to be located in the Great nation’s total population; furthermore, Lakes region. Illinois is the fifth-highest both California and Nevada have higher- populated state in the nation; therefore it than-average median incomes by state. is a popular center for industry operators. The state holds an estimated Mid-Atlantic 4.1% of pet stores. The Mid-Atlantic region has an estimated Other small participating regions in 18.1% of pet stores. The most popular the industry include: the Southwest, New states include New York and England, the Plains and the Rocky Pennsylvania, which account for a Mountains. Among the aforementioned respective 7.6% and 4.5% of the regions, the Southwest commands the industry’s locations. These states have largest share of industry establishments some of the highest populations in the at 9.2% of the total. These regions have United States due to their large smaller consumer markets, which lowers metropolitan centers. The region also has demand for pet stores. WWW.IBISWORLD.COM Pet Stores in the US March 2014 18 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Market Share More than one half of the Pet Stores Concentration industry’s revenue comes from two Companies by employment size specialty supply retailers: PetSmart and Number of employees Percentage of Companies (%) PETCO. The other portion of the Level 0-4 83.0 industry consists of family-owned 5-9 9.3 Concentration in this stores, small franchises and small chains 10-19 5.3 industry is Medium of pet stores. The industry has a 20-99 2.1 moderate level of concentration with the 100-499 0.3 top four companies generating an 500+ 0.1 estimated 64.4% of the industry’s revenue. Despite the moderate degree of SOURCE: US CENSUS BUREAU concentration, small operators are still able to find niche markets in their In the five years to 2019, major players geographical locations, and they rarely PetSmart and PETCO are expected to expand beyond those areas. grow their share of the industry. This is IBISWorld estimates that by the end of because these big-box retailers are able to 2014, the industry will have about 13,156 offer customers a “best of both worlds” firms. According to the latest available scenario, which includes providing broad data provided by the Census, about 59.1% and industry-specific product selections of pet stores are operated by a small while operating on such a scale that they business with no employees. About can purchase in bulk and pass savings on 83.0% of companies have fewer than five to consumers. Consequently, these stores employees, while only 7.8% have more are expected to grow at the expense of than 10 workers. small stores in the industry.
Key Success Factors Attractive product presentation locations, such as major shopping In order to appeal to customers and precincts, in order to maximize store encourage purchases, eye-catching traffic and sales. IBISWorld identifies promotions and displays are essential 250 Key Success for pet stores. Economies of scope Factors for a Successful operators need a range of the business. The most Experienced work force most popular pets and pet supplies at important for this It is important to employ a highly different levels of price and quality. capable staff with clear knowledge of Offering a wider variety of products will industry are: the pet industry to better assist attract a larger customer base. customers and boost sales. Effective quality control Proximity to key markets Operators must ensure that pet services Operators need to be located in are up to standards for each specific high-traffic and high-visibility animal and breed.
Cost Structure Profit in 2014, up from 3.1% in 2009. A Benchmarks Companies in the Pet Stores industry are growing pet population and an expected to obtain average profit increasing willingness of pet owners to margins equivalent to 3.6% of revenue spend on their pets, particularly on WWW.IBISWORLD.COM Pet Stores in the US March 2014 19
Competitive Landscape
Cost Structure premium or high-margin products, has Purchases Benchmarks driven this increase in profitability. Purchase costs will remain the single- continued Furthermore pet stores are increasingly largest expense for the industry in 2014, offering pet services, which typically accounting for an estimated 58.4% of have higher margins. It is important to revenue. Purchases include a range of pet note, however, that the actual level of food and pet supplies including collars, margins may vary considerably between leashes, medication, shampoos, dog industry participants. For instance, kennels and pet toys, and a range of pets larger players such as PETCO and including dogs, cats, birds, fish, small PetSmart typically purchase in large animals and reptiles. Purchase expenses quantities, which enables them to spend have increased slightly during the five less per item and improve margins. In years to 2014. According to Pet Business, addition, their large scale allows them to a publication for the pet and pet supplies sell in high volumes at discounted retailing industry, much of this growth prices. This enables them to afford lower has been due to higher prices from markups and to profit from larger sales upstream industries (i.e. manufacturing volumes. On the contrary, smaller and wholesaling industries) passed down players in this industry do not have such the supply chain. purchasing power; therefore, the cost of goods per unit tends to be higher for Wages these players, causing margins to be Due to the labor-intensive nature of the lower for smaller firms. retail sector, wages are estimated to make
Sector vs. Industry Costs
Average Costs of all Industries in Industry Costs sector (2014) (2014) 100 3.5 3.6 ■ P r o fi t 9.2 ■ Wages 13.3 ■ Purchases 80 ■ Depreciation ■ Marketing ■ Rent & Utilities ■ Other 60 58.4 73.7
40 Percentage of revenue Percentage 1.4 20 1.5 9.5 1.2 2.1 3.8 12.3 0 6.4 SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Pet Stores in the US March 2014 20
Competitive Landscape
Cost Structure up the second-highest expense item for typical for retailing industries, which are Benchmarks pet store operators, accounting for 13.3% very labor intensive and require minimal continued of the revenue in 2014. In pet stores, capital costs in operations. However, this employees are needed to provide care for figure is high compared with other pets, maintain stock levels and provide retailing industries because pet stores customer service. Furthermore, added must acquire special cages and tanks for focus has been placed on labor in the five animals in addition to shelving and cash years to 2014, as pet services have registers for stores. become one of the fastest-growing sources of industry revenue. Nonetheless, Other costs industry revenue has been growing at a In 2014, rental costs and utilities costs are faster rate than the number of employees expected to represent 8.0% and 1.5% of or wages; as such, wages as a share of total revenue respectively. Operators in revenue have declined slightly from this industry also incur a variety of other 13.9% in 2009. expenses including administrative, insurance, security and advertising costs. Depreciation In particular, both large and small Depreciation expenses are expected to operators invest about 1.5% of their account for about 1.4% of revenue in incomes toward marketing and advertising 2014. This low level of depreciation is to generate store traffic and boost sales.
Basis of Competition Due to medium barriers to entry and value-added pet services such as growing profitability from premium grooming and obedience training. products and services, there are a large Level & Trend number of pet store operations that give Internal Competition in the industry a medium level of Pet stores compete with each other based this industry is competition. This industry has been on price, product variety, customer High and the trend growing strongly during the past decade service, brand awareness, variety of pet is Increasing because of favorable demographic trends services and store location. Since product and the growing tendency of pet owners purchases make up the majority of sales to treat their pets as members of the for pet stores, their main basis of family. In recent years, industry competition is product range, quality and participants have taken advantage of price. Large players like PETCO and these trends and cashed in on higher PetSmart benefit from economies of margin products and services, such as scope and are able to provide broad premium pet food and high-quality ranges of pets, pet foods, pet supplies and grooming services. pet services with different levels of The players in this industry are quality across a range of prices. This protected from external competition in allows these stores to appeal to individual the premium pet food product segment consumer preferences. In addition, they because there are often manufacturer’s are capable of offering products through restrictions on the distribution of their private label brands at a lower price. premium products to supermarkets. Both of these players benefit from being Industry participants are also protected able to buy products in bulk and from external competition from producing their own products at lower supermarkets, grocery stores and cost, allowing them to offer products at a discount retailers in the growing area of low price and still attain a profit. As a WWW.IBISWORLD.COM Pet Stores in the US March 2014 21
Competitive Landscape
Basis of Competition result, smaller stores feel pressure to such as Walmart and Costco that stock a continued provide more products at a lower price, wide variety of products at competitive which results in lower mark-ups by and prices. However, mass merchandisers ultimately lower profit margins. and discount retailers do not sell ultra- However, smaller stores benefit from premium pet products because they are their ability to offer personalized limited by manufacturers’ restrictions. customer services and mold themselves Further competition comes from the to the specific needs of niche markets in E-commerce and Online Auctions their local areas. industry (IBISWorld report 45411a) and the Mail-Order industry (IBISWorld External report 45411b). These competing Historically, supermarkets have been the industries include companies such as primary sellers of pet food products. Petstore.com through which consumers Large supermarkets stock a wide variety can purchase products without physically of pet food and supplies. Bulk purchases having to visit a store; however, these by supermarkets generally enable them operators are not classified as part of this to offer lower prices than specialty industry. In addition, some competition retailers. In recent years, additional comes from veterinary services as they competition has come from mass also sell customized pet food and some merchandisers and discount retailers pet products.
Barriers to Entry High levels of competition and regulations associated with entering this Barriers to Entry checklist Level Level & Trend industry may deter some from entering Competition High the industry. Nevertheless, there are Barriers to Entry Concentration Medium various niche markets available for new in this industry are Life Cycle Stage Mature players to occupy, specifically those that Capital Intensity Low Medium and Steady specialize in premium and innovative Technology Change Medium food, products and services. Regulation & Policy Medium A significant factor that can hinder an Industry Assistance None operator from entering this industry is government regulations. There are SOURCE: WWW.IBISWORLD.COM federal and state laws regulating pet shops and the sale of animals. For in this industry and together they account example, the Pet Animals Act 1951 for more than one half of industry requires pet shops to get a license in revenue; smaller stores and franchises accordance with the act before they can account for the remaining portion. open. In addition, the Animal Welfare Although this industry is highly Act of 1966 dictates how pets sold in pet fragmented, there is intense price stores must be maintained. Pet shops competition from mass merchandisers, need to address a range of issues and online operators and catalog retailers, receive licenses based on federal and which may provide a barrier for new, state requirements before permission to independent retailers. operate is granted. Opening a new pet store and meeting The industry’s concentration can be licensing standards is expensive. In another barrier to potential entrants. addition, a significant share of funding There are only two national retail chains may be directed toward marketing to WWW.IBISWORLD.COM Pet Stores in the US March 2014 22
Competitive Landscape
Barriers to Entry build consumer interest and recognition. wholesalers and manufacturers may continued The initial cost of establishing or prove to be difficult. Existing and purchasing a retail outlet, in addition to well-established distribution purchasing and maintaining inventory relationships may deter potential levels, may be a barrier for new operators from entering this industry entrants. Barriers are greater for new, because they provide an advantage to smaller retailers because forming existing retailers, granting them access reliable supply relationships with to low-priced, high-quality goods.
Industry This industry is characterized by a owned; therefore, this industry has a Globalization large number of small players. Many of low level of globalization. The the smaller, independent pet supply industry’s largest player, PetSmart, does Level & Trend retailers are family-owned businesses have a network of stores in Canada, that operate within a local or regional however, international sales account for Globalization in this scope. In addition, the industry’s only about 5.0% of the company’s industry is Low and major companies are domestically annual revenue. the trend is Steady WWW.IBISWORLD.COM Pet Stores in the US March 2014 23 Major Companies PetSmart Inc. | PETCO Animal Supplies Inc. | Other Companies
Major players PETCO Animal Supplies Inc. 19.5% (Market share) 40.2% Other
PetSmart Inc. 40.3% SOURCE: WWW.IBISWORLD.COM
Player Performance Since its establishment in 1987, Phoenix- supervision, an on-site veterinarian, based PetSmart has become the top air-conditioned rooms and daily specialty specialty retailer of pet food and supplies. treats. About 196 PetSmart stores include PetSmart Inc. PetSmart operates 1,278 stores, typically PetsHotel boarding facilities and Doggie Market share: 40.3% located in regional shopping centers near Day Camps. Pet services are a growth other superstores and warehouse stores. segment for the company and currently The company employs about 52,000 account for 11.0% of revenue. PetSmart people in the United States and Canada. has also continued to expand its By offering more than 11,000 pet nationwide presence through store products and providing various pet expansions, growing by 166 stores since services, PetSmart aims to provide a 2008. In 2012 specifically, the company one-stop shopping experience. expanded its presence by 46 new stores. PetSmart categorizes its merchandise into three main categories: consumables, Financial performance hard goods and pets. Consumables In the five years to 2014, revenue from include pet foods, treats and litter, as well PetSmart’s US operations is expected to as premium products, many of which are increase at an average annual rate of not found in supermarkets or mass 6.9% to $6.7 billion, outpacing industry- merchandisers. Pet supplies such as wide growth. As the economy gains collars, leashes, health and beauty aids, traction and consumers have additional shampoos, medication, toys, pet carriers, disposable income to spend on their pets, dog kennels, cat furniture, equestrian IBISWorld anticipates that revenue will supplies, birdcages, aquariums and filters grow 4.7% in 2014, following a 9.4% make up the hard-goods category. Pets increase in 2013. Company growth has sold by the company include fish, birds, been aided by store expansions and rising reptiles and small pets. Larger animals sales of premium- and natural-food such as cats and dogs are not sold in products. In addition, its pet services line PetSmart; however, they are available for has experienced strong demand, which adoption through the PetSmart Charities’ has allowed this category to consistently Adoption Program, which was developed expand faster than its merchandise- with humane organizations. products category. In addition to selling products, During the recession, PetSmart posted PetSmart has expanded its service strong sales, with revenue rising a offerings to include in-store boarding respective 5.9% and 9.0% in 2008 and facilities, grooming services, obedience 2009. Such growth rates during the training and full-service veterinary recession were aided by resilient industry services. In 2002, PetSmart launched a demand; consumers barely scaled back complete pet boarding and day-care spending on their pets even when service called PetsHotel with 24-hour incomes fell. To this end, average same- WWW.IBISWORLD.COM Pet Stores in the US March 2014 24
Major Companies
Player Performance store sales increased 1.9% and 5.8% in margin has expanded from 7.3% to 10.2% continued 2009 and 2008, respectively, while in 2014. This has been primarily due to service sales increased 9.2% and 15.8% in higher margins from its pet-service 2009 and 2008, respectively. In the five offerings and the rising sales of premium years to 2014, the company’s profit food products.
PetSmart Inc. – (US-segment) – fi nancial performance* Revenue Operating Income Year** ($ million) (% change) ($ million) (% change) 2009 4,765.3 9.0 348.0 5.8 2010 5,036.4 5.7 348.4 0.1 2011 5,393.8 7.1 406.1 16.6 2012 5,813.3 7.8 478.4 17.8 2013 6,358.3 9.4 612.7 28.1 2014 6,656.0 4.7 678.8 10.8
*Estimates; **Year ended January SOURCE: ANNUAL REPORT AND IBISWORLD
Player Performance Established in 1965, PETCO Animal company’s reach into Ohio and the Supplies is the second-largest pet supply Southeast region. Also, in 2009, PETCO PETCO Animal specialty retailer in the United States. launched a smaller-store concept, The company is headquartered in San Unleashed, which now has more than 50 Supplies Inc. Diego, and has about 1,200 stores locations. Unleashed stores specialize in Market share: 19.5% throughout the country with locations in natural, organic and higher-end pet all 50 states. The company has more than products, which are a growth segment for 22,000 employees. the industry. In 2006, Texas Pacific PETCO stores carry up to 10,000 Group and Leonard Green & Partners different pet-related items, including pet took the company private for the second food, collars, leashes, grooming products, time; the deal was valued at $1.8 billion, toys, health and beauty aids, kennels and including assumed debt. The same group pet houses. Like other industry took PETCO private for $600.0 million in participants, PETCO offers a variety of 2000, but PETCO returned to the public grooming, veterinary and obedience domain in 2002. services for animals, but it does not sell cats or dogs. Rather, an adoption Financial performance program (the Think Adoption First Because the company went private in program) is used in partnership with 2006, PETCO’s financials are no longer local animal welfare organizations. available to the public. IBISWorld Throughout the past decade, PETCO estimates that in the five years to 2014, has been subject to several major changes the company’s revenue has risen at an in its business. In 2011, PETCO acquired average annual rate of 3.6% to $3.2 Complete Petmart, an Ohio-based pet billion. This is based on the latest annual specialty chain. The acquisition, estimates provided by Forbes. Strong consisting of 29 stores, expanded the sales of premium products have been WWW.IBISWORLD.COM Pet Stores in the US March 2014 25
Major Companies
Player Performance one of the company’s main drivers of launched Unleashed, a specialty store continued growth. PETCO invested heavily in this for premium, natural, organic and raw product segment in 2009 when it pet foods.
PETCO Animal Supplies Inc. – fi nancial performance* Revenue Employees Year ($ million) (% change) (People) (% change) 2009 2,700.0 5.9 23,200 5.5 2010 2,750.0 1.9 23,400 0.9 2011 2,800.0 1.8 23,500 0.4 2012 3,020.0 7.9 22,000 -6.4 2013 3,130.0 3.6 22,600 2.7 2014 3,227.0 3.1 23,000 1.8
*Estimates SOURCE: FORBES.COM
Other Companies PetSmart and PETCO are the top dogs in Pet Supplies has 94 company-owned the Pet Stores industry, accounting for locations and 164 franchise locations. more than one half of the industry’s Pet Supplies differentiates itself by revenue. While the industry is providing all-natural food products. In concentrated at the top, the rest of the addition, it offers a range of different industry is characterized by a large services, such as grooming, self-service number of small and privately owned pet pet wash stations and adoptions. Pet stores. In fact, 59.1% of companies are Supplies Plus stores are generally located nonemployers. Furthermore, about 83.0% in high-traffic areas and are limited to of companies employ fewer than five about 5,000 to 6,000 square feet in size workers, while only 7.8% have more than for smaller markets and 7,000 to 9,000 10 workers. Due to the fragmented nature square feet in larger metropolitan areas. of the industry, the majority of players do The smaller store concept is designed to not individually account for a considerable keep operating costs to a minimum in an share of the industry’s revenue. effort to offer pet food and supplies at competitive prices. IBISWorld estimates Pet Supplies Plus that Pet Supplies Plus will generate about Estimated market share: 3.2% $506.0 million in 2014, accounting for Pet Supplies Plus is a franchise business about 3.1% of the market. with 258 stores throughout 23 states that was founded in 1988 in Redford, MI. Pet Pet Supermarket Inc. Supplies Plus offers franchises in selected Estimated market share: 1.4% states to single store owner-operators Pet Supermarket Inc. is a small, family- and also to area developers who own all owned retailer of pet supplies and stores in a designated market region. medicines that was founded in 1973 in According to company information, the Fort Lauderdale, FL. Pet Supermarket purchase of a Pet Supplies Plus franchise operates about 127 stores primarily in costs between $623,300 and $1.4 million. Florida but also in Alabama, California, WWW.IBISWORLD.COM Pet Stores in the US March 2014 26
Major Companies
Other Companies Georgia, Kentucky, Nevada and North of high-value pet products and luxury pet continued Carolina. The company employs about items. According to company 1,400 associates. Pet Supermarket sells information, it has experienced strong more than 8,000 pet care products, growth during the past five years, including food, toys, medicine and increasing from $184.0 million in 2010 to clothing, as well as small animals such as $213.0 million in 2011. IBISWorld hamsters, guinea pigs, rabbits and estimates that Pet Supermarket will tropical fish. The company offers a range generate about $238.0 million in 2014. WWW.IBISWORLD.COM Pet Stores in the US March 2014 27 Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Capital Intensity The Pet Stores industry, similar to most other retail industries, has a low level of Capital intensity capital intensity. For every dollar spent on Capital units per labor unit Level wages, about $0.11 is invested in the store 0.5 The level of capital and equipment. Most capital costs are intensity is Low related to shelving, store, computers, 0.4 cashier equipment and other equipment 0.3 such as caging for animals, which do not need to be constantly replaced. On the 0.2 other hand, this industry is labor 0.1 intensive because employees are needed 0.0 to operate and manage the stores, provide Economy Retail Trade Pet Stores customer service and support, restock the
merchandise and provide care for pets. Dotted line shows a high level of capital intensity The level of capital intensity has SOURCE: WWW.IBISWORLD.COM remained steady in the last five years, reflecting the labor-intensive nature of high compared with that experienced by the retail industry. To this point, the cost competitors such as supermarkets, mass of labor within this industry is relatively merchandisers and online pet supply
Tools of the Trade: Growth Strategies for Success
New Age Economy Investment Economy Recreation, Personal Services, Information, Communications, Health and Education. Firms Mining, Finance and Real benefi t from personal wealth so Estate. To increase revenue stable macroeconomic conditions fi rms need superior debt are imperative. Brand awareness management, a stable and niche labor skills are key to macroeconomic environment product differentiation. and a sound investment plan. Capital Intensive
E-Commerce & Online Auctions
Labor Intensive Veterinary Services Pet Stores Toy, Doll Mail Order Animal Food Production Traditional Service Economy & Game Old Economy Wholesale and Retail. Reliant Manufacturing Agriculture and Manufacturing. on labor rather than capital to Traded goods can be produced sell goods. Functions cannot using cheap labor abroad. be outsourced therefore fi rms To expand fi rms must merge must use new technology or acquire others to exploit or improve staff training to economies of scale, or specialize increase revenue growth. in niche, high-value products.
Change in Share of the Economy SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Pet Stores in the US March 2014 28
Operating Conditions
Capital Intensity retailers. This is because the other stores industry-specific knowledge. For online continued do not retail pets directly which retailers, labor costs are exceptionally low inherently requires a smaller staff. In as they are not required to outlay addition, these stores do not incur costs expenditure on customer service, nor are associated with employee training, since they required to have shelving, displays workers at these retailers do not require or cash registers.
Technology Technological advances in this industry higher labor productivity that increases & Systems have included computer scanning cash the speed at which information is passed, registers and automated inventory greater control over the distribution of Level equipment. The introduction of this goods and reduced errors along the technology has enabled retailers to better supply chain. New improvements will The level of manage efficiency of operations and boost revenue for the larger stores who Technology Change inventory. Technology at checkout has can afford to invest in the technologies. is Medium led to computerized point-of-sale For example, larger retailers benefit from equipment, which controls and records Radio Frequency Identification (RFID), merchandising, distribution, sales and which provides real time information on stock markdowns. Furthermore, bar code inventory and help to reduce shrinkage scanning has offered the advantages of problems as well as improve efficiency.
Revenue Volatility Pet stores sell discretionary (e.g. pets and medicine. To provide a breakdown, pet toys) and nondiscretionary products (e.g. food makes up about 51.4% of industry pet food). While purchasing a pet is revenue, pet supplies and medicine Level generally discretionary, a large account for 32.0%, while new pet The level of proportion of expenditure on a pet is purchases represent for only 5.6%. As Volatility is Low nondiscretionary; these include food and such, the nondiscretionary component of
A higher level of revenue Volatility vs Growth volatility implies greater industry risk. Volatility can 1000 Hazardous Rollercoaster negatively affect long-term strategic decisions, such as 100 the time frame for capital investment. 10 When a fi rm makes poor investment decisions it may face underutilized 1 Pet Stores
capacity if demand (%) volatility* Revenue suddenly falls, or capacity 0.1 Stagnant Blue Chip constraints if it rises –30 –10 10 30 50 70 quickly. Five year annualized revenue growth (%)
* Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Pet Stores in the US March 2014 29
Operating Conditions
Revenue Volatility industry merchandise accounts for the the volatility of this industry low. To this continued majority of industry revenue. This high point, revenue volatility averaged 0.8% level of nondiscretionary demand keeps over the five years to 2014.
Regulation & Policy There are industry specific and general be provided for certain animals that are competitive regulations that apply to this bred for commercial sale, used in research, industry. The transportation, handling transported commercially or exhibited to Level & Trend and sale of small pets are governed by the public. Retail pet shops are not covered The level of various federal, state and local under the Act unless the shop sells exotic Regulation is regulations. In addition, industry or zoo animals or sells animals to Medium and the participants are subject to environmental regulated businesses. Pets owned by trend is Steady regulations imposed by federal, state and private citizens are not regulated. local authorities in relation to the Regulated businesses are required to keep generation, handling, storage, accurate records of acquisition and transportation and disposal of waste and disposition and a description of animals biohazardous materials, and the sale and that come into their possession. distribution of products. Many state and local governments The Pet Animals Act 1951 deems it an have passed additional animal welfare offense to open a pet shop unless it is legislation. About 20 states have granted a license in accordance with the regulations governing the sale of dogs Act. When deciding to grant a license, and 15 states govern the sale of cats. district councils need to consider whether These regulations stipulate the there is suitable accommodation and information that sellers must provide at enough food and water, whether the the time of purchase and various options animals are sold at too young an age and buyers have if the purchased pet is sick. whether reasonable precautions have been These states have regulations that allow taken to curb the spread of disease. The consumers to obtain a reimbursement Animal Welfare Act (AWA) protects when a sick animal is purchased from a certain animals from inhumane treatment pet store. This is known as a “lemon law” and neglect. The AWA requires that which is designed to protect consumers minimum standards of care and treatment that buy animals from pet shops.
Industry Assistance The Pet Stores industry does not receive industry. Most notable among them is any specific government support, in the the American Pet Association which form of subsidies or otherwise. promotes pet ownership and Level & Trend However, there are several trade disseminates industry-related The level of associations which represent the information to members. Industry Assistance is None and the trend is Steady WWW.IBISWORLD.COM Pet Stores in the US March 2014 30 Key Statistics
Industry Data Industry Number of pets Revenue Value Added Establish- Wages Domestic - cats and dogs ($m) ($m) ments Enterprises Employment Exports Imports ($m) Demand (Mils) 2005 11,801.4 2,347.2 16,813 14,483 98,384 -- -- 1,592.0 N/A 163 2006 12,685.6 2,181.3 17,130 14,558 101,237 -- -- 1,826.1 N/A 154 2007 13,368.0 2,338.3 17,644 14,804 109,870 -- -- 1,883.8 N/A 163 2008 13,690.1 2,568.0 17,110 14,115 106,460 -- -- 1,965.7 N/A 165 2009 14,089.6 2,760.9 16,650 13,632 109,167 -- -- 1,957.8 N/A 171 2010 14,671.4 2,554.6 16,400 13,305 105,327 -- -- 1,982.4 N/A 165 2011 15,286.7 2,843.3 16,072 13,026 106,819 -- -- 2,048.4 N/A 169 2012 15,869.0 2,967.5 16,265 13,039 109,569 -- -- 2,110.6 N/A 173 2013 16,285.0 2,960.4 16,216 13,104 112,555 -- -- 2,162.4 N/A 177 2014 16,518.8 3,022.9 16,362 13,156 114,356 -- -- 2,197.0 N/A 181 2015 17,030.9 3,133.7 16,493 13,196 120,146 -- -- 2,265.1 N/A 185 2016 17,507.7 3,203.9 16,609 13,262 124,170 -- -- 2,311.0 N/A 189 2017 17,752.9 3,270.0 16,791 13,328 128,701 -- -- 2,346.9 N/A 193 2018 18,480.7 3,396.5 16,993 13,381 132,267 -- -- 2,435.5 N/A 197 2019 18,887.3 3,478.6 17,214 13,488 136,525 -- -- 2,496.4 N/A 201 Sector Rank 49/144 51/144 56/144 52/144 49/144 N/A N/A 50/144 N/A N/A Economy Rank 456/1304 594/1304 291/1303 278/1303 328/1304 N/A N/A 529/1304 N/A N/A
Annual Change Industry Establish- Domestic Number of pets Revenue Value Added ments Enterprises Employment Exports Imports Wages Demand - cats and dogs (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2006 7.5 -7.1 1.9 0.5 2.9 N/A N/A 14.7 N/A -5.5 2007 5.4 7.2 3.0 1.7 8.5 N/A N/A 3.2 N/A 5.8 2008 2.4 9.8 -3.0 -4.7 -3.1 N/A N/A 4.3 N/A 1.2 2009 2.9 7.5 -2.7 -3.4 2.5 N/A N/A -0.4 N/A 3.6 2010 4.1 -7.5 -1.5 -2.4 -3.5 N/A N/A 1.3 N/A -3.5 2011 4.2 11.3 -2.0 -2.1 1.4 N/A N/A 3.3 N/A 2.4 2012 3.8 4.4 1.2 0.1 2.6 N/A N/A 3.0 N/A 2.4 2013 2.6 -0.2 -0.3 0.5 2.7 N/A N/A 2.5 N/A 2.3 2014 1.4 2.1 0.9 0.4 1.6 N/A N/A 1.6 N/A 2.3 2015 3.1 3.7 0.8 0.3 5.1 N/A N/A 3.1 N/A 2.2 2016 2.8 2.2 0.7 0.5 3.3 N/A N/A 2.0 N/A 2.2 2017 1.4 2.1 1.1 0.5 3.6 N/A N/A 1.6 N/A 2.1 2018 4.1 3.9 1.2 0.4 2.8 N/A N/A 3.8 N/A 2.1 2019 2.2 2.4 1.3 0.8 3.2 N/A N/A 2.5 N/A 2.0 Sector Rank 106/144 92/144 90/144 96/144 78/144 N/A N/A 94/144 N/A N/A Economy Rank 993/1304 802/1304 729/1303 739/1303 632/1304 N/A N/A 778/1304 N/A N/A
Key Ratios Imports/ Exports/ Revenue per Share of the IVA/Revenue Demand Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%) 2005 19.89 N/A N/A 119.95 13.49 5.85 16,181.49 0.02 2006 17.20 N/A N/A 125.31 14.40 5.91 18,037.87 0.01 2007 17.49 N/A N/A 121.67 14.09 6.23 17,145.72 0.02 2008 18.76 N/A N/A 128.59 14.36 6.22 18,464.21 0.02 2009 19.60 N/A N/A 129.06 13.90 6.56 17,933.99 0.02 2010 17.41 N/A N/A 139.29 13.51 6.42 18,821.38 0.02 2011 18.60 N/A N/A 143.11 13.40 6.65 19,176.36 0.02 2012 18.70 N/A N/A 144.83 13.30 6.74 19,262.75 0.02 2013 18.18 N/A N/A 144.68 13.28 6.94 19,211.94 0.02 2014 18.30 N/A N/A 144.45 13.30 6.99 19,211.93 0.02 2015 18.40 N/A N/A 141.75 13.30 7.28 18,852.90 0.02 2016 18.30 N/A N/A 141.00 13.20 7.48 18,611.58 0.02 2017 18.42 N/A N/A 137.94 13.22 7.66 18,235.29 0.02 2018 18.38 N/A N/A 139.72 13.18 7.78 18,413.51 0.02 2019 18.42 N/A N/A 138.34 13.22 7.93 18,285.30 0.02 Sector Rank 64/144 N/A N/A 102/144 54/144 40/144 107/144 51/144 Economy Rank 1058/1304 N/A N/A 935/1304 845/1304 860/1303 1175/1304 594/1304
Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data. SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Pet Stores in the US March 2014 31
Jargon & Glossary
Industry Jargon HUMANIZATION A trend where pet owners treat pets PET PARENTS Pet owners who are enthusiastic about as humans, providing them with services such as pet their pets and treat them as members of their family. hotels and grief counseling. PET BOARDING AND DAY-CARE Long- and short-term options for owners who need assistance looking after their pets. Services include feeding, walking, grooming and lodging.
IBISWorld Glossary BARRIERS TO ENTRY High barriers to entry mean that INDUSTRY CONCENTRATION An indicator of the new companies struggle to enter an industry, while low dominance of the top four players in an industry. barriers mean it is easy for new companies to enter an Concentration is considered high if the top players industry. account for more than 70% of industry revenue. CAPITAL INTENSITY Compares the amount of money Medium is 40% to 70% of industry revenue. Low is less spent on capital (plant, machinery and equipment) with than 40%. that spent on labor. IBISWorld uses the ratio of INDUSTRY REVENUE The total sales of industry goods depreciation to wages as a proxy for capital intensity. and services (exclusive of excise and sales tax); subsidies High capital intensity is more than $0.333 of capital to on production; all other operating income from outside $1 of labor; medium is $0.125 to $0.333 of capital to $1 the firm (such as commission income, repair and service of labor; low is less than $0.125 of capital for every $1 of income, and rent, leasing and hiring income); and labor. capital work done by rental or lease. Receipts from CONSTANT PRICES The dollar figures in the Key interest royalties, dividends and the sale of fixed Statistics table, including forecasts, are adjusted for tangible assets are excluded. inflation using the current year (i.e. year published) as INDUSTRY VALUE ADDED (IVA) The market value of the base year. This removes the impact of changes in goods and services produced by the industry minus the the purchasing power of the dollar, leaving only the cost of goods and services used in production. IVA is “real” growth or decline in industry metrics. The inflation also described as the industry’s contribution to GDP, or adjustments in IBISWorld’s reports are made using the profit plus wages and depreciation. US Bureau of Economic Analysis’ implicit GDP price INTERNATIONAL TRADE The level of international deflator. trade is determined by ratios of exports to revenue and DOMESTIC DEMAND Spending on industry goods and imports to domestic demand. For exports/revenue: low is services within the United States, regardless of their less than 5%, medium is 5% to 20%, and high is more country of origin. It is derived by adding imports to than 20%. Imports/domestic demand: low is less than industry revenue, and then subtracting exports. 5%, medium is 5% to 35%, and high is more than EMPLOYMENT The number of permanent, part-time, 35%. temporary and seasonal employees, working proprietors, LIFE CYCLE All industries go through periods of growth, partners, managers and executives within the industry. maturity and decline. IBISWorld determines an ENTERPRISE A division that is separately managed and industry’s life cycle by considering its growth rate keeps management accounts. Each enterprise consists (measured by IVA) compared with GDP; the growth rate of one or more establishments that are under common of the number of establishments; the amount of change ownership or control. the industry’s products are undergoing; the rate of technological change; and the level of customer ESTABLISHMENT The smallest type of accounting unit acceptance of industry products and services. within an enterprise, an establishment is a single physical location where business is conducted or where NONEMPLOYING ESTABLISHMENT Businesses with services or industrial operations are performed. Multiple no paid employment or payroll, also known as establishments under common control make up an nonemployers. These are mostly set up by self-employed enterprise. individuals. EXPORTS Total value of industry goods and services sold PROFIT IBISWorld uses earnings before interest and tax by US companies to customers abroad. (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding IMPORTS Total value of industry goods and services interest and tax. brought in from foreign countries to be sold in the United States. WWW.IBISWORLD.COM Pet Stores in the US March 2014 32
Jargon & Glossary
IBISWorld Glossary VOLATILITY The level of volatility is determined by WAGES The gross total wages and salaries of all averaging the absolute change in revenue in each of the employees in the industry. The cost of benefits is also continued past five years. Volatility levels: very high is more than included in this figure. ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%. www.ibisworld.com | 1-800-330-3772 | [email protected]
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