By EMILY GLAZER September 11, 2012
As family dogs are increasingly treated as family members, PetSmart Inc., the largest U.S. pet-supply retailer, is profiting by treating pet owners as pet parents. The company recently logged its 10th quarter in a row of double-digit profit growth, and it has opened 1,000 stores since 2007, with plans to add about 50 stores each year for the next eight to 10 years.
That success hasn’t gone unnoticed by retailers like Wal-Mart Stores Inc., WMT +0.30%which recently announced its own line of premium pet goods.
While competitors focus on products, PetSmart’s chief executive, Bob Moran, has broadened the store offerings, going beyond pet supply into pet services, such as its Doggie Day Camps and its hotels for pets, an upgrade from traditional kennels. The company is also targeting niche market segments, such as gay pet owners and second-generation Hispanic customers.
The 62-year-old Mr. Moran—who has two dogs: Bruno, a Rottweiler, and Sophie, a border collie—became CEO in 2009 after executive posts at Toys “R” Us Inc. and Sears, Roebuck & Co. Surrounded by pet toys, roving dogs and screeching birds at a downtown Manhattan store, he discussed pets, profits and how cat people and dog people differ.
WSJ: How have customers’ closer bonds with pets changed how you stock your shelves?
Mr. Moran: There’s a close correlation between human and pet trends. Humanization of pets has become more like that feeling you have for your kids; that type of bonding. The whole basis of services is special needs, like pet hoteling when you’re away. We don’t say, “How can I help you?” We say, “Tell me about your pet.”
Pets have naturally shorter life cycles and [we] want them to live a lot longer. So you have natural, organic foods. That has been a big evolution in the pet industry. It was kick-started by a pet-food recall [in 2007], which made educated pet parents look at the ingredients. If [specialized products are] good enough for humans in our world, they must also be good enough for pets.
WSJ: How do you pick new store locations?
Mr. Moran: We have about 1,270 stores today. Right now we can build 50 stores a year for the next eight to 10 years. We have a tremendous amount of knowledge of how customers spend, the size of [their] wallets, types of uses and services. We look at shopping patterns, number of cars going through intersections. We can probably pinpoint the corner where we want to locate a store, and then we’ll put in the appropriate-size store, from 12,000 square feet up to 27,000 square feet, which includes a pet hotel. Our core format is about 20,000 square feet, which includes a pet hospital.
WSJ: How do stores differ geographically?
Mr. Moran: The way we look at it is: “Is it a cat store or a dog store?” A lot of communities [are] smaller dogs versus larger dogs. There are a lot of cats in urban areas because of space. I would say the majority of our stores are dog stores. We start off with that, so it’s finding the cat stores.
Cat customers are geared more toward grocery because of the food they have to buy. Dog customers will look for solutions, such as odor destroyer.
WSJ: How did PetSmart transition from a pet-supply store to a pet-service center?
Mr. Moran:We added customer service in a world where customer service didn’t exist, in pet hoteling, grooming, Doggie Day Camp and vet hospitals.
We have tried to make every single PetSmart store a local store. Our pet-parent customers come in with their pets and just want to talk about their pets. This becomes sort of a Starbucks; it ends up being a great meeting place.
WSJ: What products are hot right now?
Mr. Moran: The natural, organic trend is going to keep on getting bigger and bigger. We’re also matching up with new vendors, new assortments, even proprietary brands…. We have product partnerships with Martha Stewart, [Poison lead singer and reality-TV star] Bret Michaels, GNC, Marvel Comics, Toys “R” Us. About 3½ years ago, about 15% of product sales came from exclusive PetSmart products. Today, they’re around 23%.
WSJ: There’s more online competition. What are you doing to distinguish PetSmart?
Mr. Moran: [We] have not been impacted by any of the online players. We’ve been running at north of 7% comparable same-store sales this year.
Online, we’re improving the Web experience by changing pages, ease, maneuverability, pricing. For example, we’re letting customers reserve pet rooms and services online starting next year. It’s a little bit different than making a hotel reservation. You’re looking for time, special needs for your pet… and asking for a specific person, like a hairdresser.
WSJ: What new market segments are you trying to reach?
Mr. Moran: In 2009, we recognized we really wanted to invest in diversity. Obviously [LGBT is] a very important segment, part of the population that loves pets. Pets are very important [to] their life, and that’s important for us. Lines from Martha Stewart and Bret Michaels appeal to LGBT. Also, second-generation Hispanics, because as they become more Americanized, pets become more important in their households.
WSJ: Has Halloween become a big part of your business?
Mr. Moran: Halloween used to be just products. Now we’re creating events out of it, not only in store but in the community. Our Halloween selection has grown 15%. We have not only Halloween toys but costumes. We’re getting into different colors, different makes. I think Halloween has taken on a life of its own.