Pet Stores in The US Industry Report

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PetStoresintheUS October 2011
Lucky dog: Pet owners will invest in premium products as disposable income rises
IBISWorld Industry Report 45391
Pet Stores in the US

October2011
2 AboutthisIndustry
2 2 2 2 Industry Definition Main Activities Similar Industries Additional Resources 16 International Trade 17 Business Locations
JanetShim
30 Industry Assistance
32 KeyStatistics 19 CompetitiveLandscape

19 Market Share Concentration 19 Key Success Factors 19 Cost Structure Benchmarks 21 Basis of Competition 32 Industry Data 32 Annual Change 32 Key Ratios
3 IndustryataGlance 4 IndustryPerformance
4 4 5 9 Executive Summary Key External Drivers Current Performance Industry Outlook
33 Jargon&Glossary
22 Barriers to Entry 23 Industry Globalization
24 MajorCompanies
24 PetSmart Inc. 25 PETCO Animal Supplies Inc.
11 Industry Life Cycle
13 Products&Markets
13 Supply Chain 13 Products & Services 14 Demand Determinants 15 Major Markets
28 OperatingConditions
28 Capital Intensity 29 Technology & Systems 29 Revenue Volatility 30 Regulation & Policy
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AboutthisIndustry
IndustryDefinition
Pet stores sell a variety of pets, including dogs, cats, fish and birds. Stores also sell pet foods and pet supplies, such as collars, leashes, health and beauty aids, shampoos, medication, toys, pet containers, dog kennels and cat furniture. Some stores offer pet services, such as grooming and training.
MainActivities
Theprimaryactivitiesofthisindustryare Retailing pets Retailing pet food and supplies Providing pet grooming and boarding services
Themajorproductsandservicesinthisindustryare Live animals Pet food Pet services Pet supplies
SimilarIndustries
54194 VeterinaryServicesintheUS Establishments in this industry provides veterinary services. 81291 PetGrooming&BoardingintheUS Operators in this industry provide pet grooming and boarding services. 45411a E-Commerce&OnlineAuctionsintheUS Businesses in this industry retails pet foods and pet supplies via the internet. 45411b MailOrderintheUS Establishments in this industry retail pet foods and pet supplies via mail-order or catalogs.
AdditionalResources
Foradditionalinformationonthisindustry www.americanpetproducts.org/ American Pet Products Association www.petage.com Pet Age Magazine www.petbusiness.com Pet Business www.hsus.org The Humane Society
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IndustryataGlance
PetStoresin2011 KeyStatistics Snapshot
Revenue
$14.6bn 4.4%
Profit Wages
Revenue vs. employment growth
10 8
AnnualGrowth06-11
AnnualGrowth11-16
$597.2m $1.9bn
MarketShare
4.2% 15,769
Businesses
8 6 4 2 0
Number of pet cats and dogs
PetSmart Inc. 41.8%

% change
4 2 0
% change
PETCO Animal Supplies Inc. 20.2%
2 4
Year 03 Revenue
p. 24
05
07
09
11
13
15
17
Year
04
06
08
10
12
14
16
Employment
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Products and services segmentation (2011)
KeyExternalDrivers
Numberofpet catsanddogs Percapitadisposable income Competitionfrom supermarketsand grocerystores Numberofhouseholds
Pet supplies
Pet services
10.2%
Live animals
4.5%
27.3%
58%
Pet food
p. 4
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IndustryStructure
Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level
Growth Low Low None Medium
Regulation Level Technology Change Barriers to Entry Industry Globalization Competition Level
Medium Medium Medium Low Medium
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 32
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IndustryPerformance
Executive Summary
The Pet Stores industry is ahead of the pack when it comes to sales. Even during the Great Recession, which slowed most of the retail sector, the industry performed strongly with positive revenue growth. This trend was mainly driven by an increasing number of pet parents pet owners that began to treat their four-legged friends as family members. During the economic downturn, when consumers of all income levels tightened
ExecutiveSummary | KeyExternalDrivers | CurrentPerformance IndustryOutlook | LifeCycleStage
Indulgent pet parents will drive up demand for organic pet food and services like grooming
their belts, pet parents cut back on their personal discretionary spending first before scaling down on their spending for their pets. Due to such resilient demand for pet products, revenue is estimated to increase at an average annual rate of 4.4% to $14.6 billion in the five years to 2011. From 2010 to 2011, revenue is expected to increase 3.8%. The emerging trend of pet parents has also brought about high demand for
premium pet products and services. Since pets are often considered family members, pet owners frequently indulge them with all-natural and organic pet foods and treats, in addition to services such as grooming, day care and even grief counseling. These positive drivers, combined with rising sales, have increased profit margins for industry players in the five years to 2011; IBISWorld estimates that margins have increased from about 3.6% of revenue in 2006 to about 4.1% in 2011. Higher margins also led to new entrants in the Pet Stores industry. Over the five-year period, the number of enterprises has grown at an average annual rate of 1.6% to 15,769 businesses. IBISWorld projects that these favorable conditions will continue into the five years to 2016. As the economic recovery gains traction and consumers become equipped with heavier wallets, revenue from premium products and services is projected to increase. From 2011 to 2016, revenue is forecast to rise at an average annual rate of 4.2% to total $17.9 billion by 2016.
KeyExternalDrivers
Number of pets (cats and dogs) As households adopt more cats and dogs, demand for industry goods such as pet foods, medicine and accessories will increase. Dog and cat owners spend about $250 annually just on food, according to the American Pet Product Associations (APPA) National Pet Owners Survey. This driver is expected to increase over the next year, creating a potential opportunity for the industry. Per capita disposable income Consumers increasingly perceive pets as members of the family, so products for pets can be considered nondiscretionary. A decrease in disposable income has little effect on demand, since households
typically reduce spending on other household and leisure products before cutting down on pet food and toys. A rise in per capita disposable income, though, increases the propensity for households to purchase a greater quantity of goods and more premium items that are higher in price. This driver is expected to increase slowly over the next year. Competition from supermarkets and grocery stores Pet food, toys and accessories supplied by this industry compete with comparable products offered by supermarkets and grocery stores. Supermarkets and grocery stores often sell the same products or very similar products alongside groceries,
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IndustryPerformance
KeyExternalDrivers continued
providing consumers with added convenience. This driver is expected to remain flat but high over next year, posing a potential threat to the industry. Number of households According to the APPAs most recent
Number of pet cats and dogs
8 6 4
National Pet Owners Survey, 62.0% of US households own a pet. Consequently, an increase in the number of households will likely lead to growth in pet ownership levels in the United States, supporting industry demand. This driver is expected to increase slowly over the next year.
Per capita disposable income
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.5
% change
2 0 2 4
Year
% change
04 06 08 10 12 14 16
Year
05
07
09
11
13
15
17
Current Performance
Despite the economic downturn that undermined most of the retail sector, sales for the Pet Stores industry have remained strong in the five years to 2011. Financial resilience in this industry has been powered by owners tendencies to treat their pets like family members; by offering more innovative, specialized and premium products and services, pet stores have been able to cash in on pet owners desires to pamper their pets. In addition, growth in pet ownership in the United States has led to higher demand for pet food and supplies overall. Consequently, revenue for the Pet Stores industry is estimated to increase 4.3% annually to $14.6 billion over the five years to 2011. In particular, the industry is expected to post an additional 3.8% growth in sales from 2010 to 2011 as
higher disposable income encourages further spending on pets. With strong demand and rising sales, pet stores have experienced increasing profit margins over the five-year period. Sales of premium pet food and supplies in particular have driven up profitability because they typically have higher markups. IBISWorld estimates that in 2011, the industry will reach margins of 4.1% of total revenue. Positive industry conditions have also welcomed new entrants. By the end of 2011, the number of enterprises is estimated to total 15,769, marking annual growth of 1.6% over the past five years. The number of employees has also increased at an average annual rate of 2.1% over the five years to 2011 to an estimated 112,513 workers.
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IndustryPerformance
Growthduringthe recession
Industry growth over the past five years is largely attributable to higher pet ownership and accompanying demand for pet products. According to the 2011/2012 National Pet Owners Survey published by the American Pet Products Association (APPA), about 62.0% of US households own a pet, which equates to 72.9 million homes. Pet ownership has been growing slowly but steadily over the past two decades. The APPA reports that in 1998, about 51 million homes owned at least one pet; 64 million owned a pet in 2002; and 69 million owned one in 2005. Such growth rates have translated into rising demand for pet supplies in the five years to 2011, even during recessed economic conditions. Because supplies such as food and treats are required for the well-being of pets regardless of household income, demand for the Pet Stores industry has proved resilient against the headwinds of low confidence in the economy and decreased disposable income. To this end, pet food, which accounts for about 58.0% of industry sales, has been the leading contributor to strong sales during the recession. According to APPA data, sales for pet food increased 3.7% in 2008, 4.5% in 2009 and 6.8% in 2010, in line with 2.8%, 4.3% and 4.4% respective revenue growth during those years. Nonetheless, the Pet Stores industry was not left completely untouched by the
Rising pet ownership led to high industry demand despite the recession
economic downturn. While many pet owners sheltered their spending on pets from otherwise drastic cutbacks on household and leisure items during the recession, the endurance of these poor economic conditions has adversely affected the industry to some extent. According to a survey of pet owners in 2010 conducted by Pet Business, a publication dedicated to the pet supplies retailing industry, the majority of respondents (68.0%) indicated that they had reduced their spending on pet supplies compared with the previous year. With such declines in overall spending, operators have been actively adding pet services to capture more of the consumer dollar. Pet Business reported in another survey that in 2010, 22.0% of retailers added pet-related services, such as grooming and pet boarding, to improve sales and margins. IBISWorld expects that in 2011, the continued emphasis on pet services will be a primary driver for sales. As the unemployment rate slowly subsides and households gain more disposable income, consumers will likely increase their spending on these discretionary pet services.
Partofthefamily
In the five years to 2011, the pet humanization trend has benefitted the Pet Stores industry. According to the APPA, a tipping point was reached in 2005 and 2006 when people began rewarding their pets in human terms. As such, the name pet parents was coined to describe enthusiastic pet owners (especially of dogs and cats) who treat their pets as members of the family. With such humanization, the interest in pet
pampering has gained popularity over the five-year period, leading to thriving demand for industry pet services. In fact, more than $6.0 billion was spent on nonmedical pet services in 2010, according to consumer research website Packaged Facts. Examples of pet services go beyond the traditional grooming, dog walking and training; today, premium services like grief counseling and petonly flights are available for four-legged
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IndustryPerformance
Partofthefamily continued
family members. Additionally, doggy hotel services have emerged, equipped with heated beds and flat-screen TVs that show high-definition DVDs in private suites. The rise in demand for pet services has positively affected the industry over the years. Since there are few variable costs associated with these services, any increase in revenue directly improves stores bottom lines. As such, industry major players are increasingly adding
services to their pet stores and reaping additional revenue. For instance, PetSmart has expanded its offerings to include grooming, obedience training and full-service veterinary capabilities in more than half of its stores. In 2002, the company also launched a 24-hour pet boarding and day-care service called PetsHotel. These changes have driven the companys success, with service sales increasing 13.3% annually from 2006 to 2010.
Productinnovation
In 2007, melamine-contaminated dog and cat food reportedly caused the death of more than 3,500 animals, prompting a nationwide recall and hurting the industrys reputation and sales. At the same time, this incident accelerated the trend toward premium pet foods with natural and organic ingredients. According to Pet Business, natural and holistic pet food sales reached $15.0 billion in 2008 and have been growing 20.0% annually since. The rising popularity of this food has brought in additional sales while providing pet stores with an advantage over external competitors. Industry operators hold this advantage because many premium pet food brands are not typically sold in supermarkets, warehouse clubs or mass merchandisers due to various restrictions placed by pet food manufacturers. Rather, these high-end goods are primarily sold through specialty pet stores and other niche retailers. As a result, premium products have provided a degree of guaranteed sales for industry operators and have shielded them from direct competition. With the ongoing humanization of pets, a strong push towards innovating higher-quality and personalized pet products has occurred in the industry. Examples of such products include monogrammed sweaters, digitized collar
Eco-friendly products and pet pampering services are key to widening profit margins
tags, handmade treats and designer pet clothes and accessories. To further support this trend, big companies such as Paul Mitchell, Omaha Steaks, Harley Davidson and Old Navy have also invested in pet supplies, now offering products such as dog shampoo, pet attire and name-brand toys. Over the five years to 2011, the trend toward pet indulgence has been a significant contributor to the growth of industry revenue. Another trend within this industry is the increased use of eco-friendly and natural pet supplies. With rising concerns about the environment, pet owners have grown more concerned about the negative effects of chemicals in pet products, including cat litter. Consequently, an increasing number of owners have been turning to allnatural litter and pet cleaning products, such as shampoos that are phosphate-free or made with vegetable enzymes. This trends benefits are twofold: these products are both healthier for pets and eco-friendly.
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IndustryPerformance
Competitionfrom biggerstores
Pet stores are traditionally small and independently owned operations, with about 53.2% of industry players being non-employers (stores without paid employees). Even among businesses that have employees, the majority employs fewer than four workers, while only 19.9% of total operators have more than 20. Because of their predominantly small size, industry enterprises have faced external competition from supermarkets and mass merchandisers, while fending off big-box specialty stores from within the industry. In recent years, supermarkets have lured away customers from smaller specialty stores by offering the convenience of one-stop shopping. While many smaller pet stores retail a limited selection of pet products, grocery stores allow consumers to shop for a wide range of household products in one location. Time-poor consumers have turned to this type of store to streamline and simplify errands. To make matters worse, mass merchandisers have also emerged as major retailers of pet products. Due to their significant sizes, stores such as Walmart and Costco have been able to exert higher buying power and purchase in bulk from wholesalers. Cost savings achieved during this process have been passed down to consumers in the form of bargain prices. These deals featured by discount stores attracted many consumers who became increasingly price-sensitive in the wake of the recession. As such, grocery stores and mass merchandisers have become
Big-box pet stores like PetSmart and PETCO are pressuring smaller operators on price
leading retailers for pet supplies over the five years to 2011. According to Pet Business, these external retailers represented 57.0% of the pet-care market and 61.0% of the pet food market in 2010, whereas specialty stores accounted for 17.0% and 14.0% of the markets, respectively. As external competitors have edged in on market share, smaller operators have also felt the pressure from big-box specialty stores such as PetSmart and PETCO. Big-box stores have been able to offer customers the best of both worlds by providing a broad selection of pet products while operating on a scale large enough to pass cost savings down to consumers in the form of lower prices. Furthermore, these large stores have also provided premium products, a factor that protected small specialty stores from external competition. As a result, the big-box strategy has been a sweeping success in the Pet Stores industry. PetSmart alone increased its market share from 39.2% in 2006 to 41.0% in 2010, and it is expected to grow to 41.8% in 2011. This internal competition has placed incredible price pressures on small specialty stores, many of which were forced to find niche markets to remain competitive.
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IndustryPerformance
Industry Outlook
The five years to 2016 look positive for the Pet Stores industry. Rising pet ownership is expected to serve as a strong driver for demand and boost sales growth for pet stores. In addition, slowly improving economic conditions will likely boost consumer spending, allowing customers to splurge even more on premium pet products and services. As such, revenue is projected to increase at an average annual rate of 4.2% to $17.9 billion over the five-year period, beginning with 4.1% growth from 2011 to 2012. However, the Pet Stores industry will continue to face strong competition from grocery stores and mass merchandisers, which to some extent will place a cap on the industrys growth. The number of pets owned by households in the US is the primary driver for pet store demand. Because the industry sells pets, including cats, dogs, birds, hamsters and guinea pigs, an increase in ownership generally translates to higher revenue. In addition, a rise in pet ownership leads to higher demand for products such as food, treats and toys, since these goods are needed every day for pets general well-being. Fortunately for industry players, demand for pets, especially cats and dogs, is expected to rise over the five years to 2016, primarily driven by more common single-person households and
Industry revenue
10 8
% change
6 4 2 0
Year 03
05
07
09
11
13
15
17
the aging population, demographic segments seeking companionship. IBISWorld projects that the number of pets will increase 3.6% over the five-year period, contributing to the industrys growing revenue. With rising sales volumes, the industrys profitability will likely increase as well in the five years to 2016. IBISWorld forecasts profit margins to increase from 4.1% of revenue in 2011 to 4.3% in 2016. Rising profitability will also continue to bring new entrants into the industry. The number of enterprises is projected to increase at an average annual rate of 1.9%, from an estimated 15,769 operators in 2011 to about 17,364 in 2016.
Premiumproductswill Since the devastating pet food recall of 2007, which is suspected to have caused remainpopular
more than 3,500 animal deaths, pet owners have become increasingly conscious of the food that they give their four-legged companions. As a result, many natural and organic foods and treats have gained popularity, proving to be lucrative sources of revenue over the past five years. IBISWorld projects that the 20.0% growth rates of previous years will continue over the five years to 2016.
As households continue to review their animals diet as a means of improving pets overall health, demand for natural pet food will likely remain strong. With improving economic conditions, demand for specialized pet services is expected to continue. Over the past five years, pet services have served as primary drivers of growth within the industry, a trend that will likely continue as per capita disposable income is expected to grow 1.6% annually from
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IndustryPerformance
Premiumproductswill 2011 to 2016. As now-rampant unemployment declines over the later remainpopular part of the five-year period, more continued Changing competition
Over the five years to 2016, competition from external operators such as supermarkets and mass merchandisers is expected to decline slightly but remain strong. As consumers find themselves armed with additional spending capital, they will likely pursue higher-quality pet supplies like premium food. During the recession, external retailers have attracted many budgetconstrained consumers by offering a limited selection of low- to mediumquality goods at discounted prices. However, as disposable income levels increase in line with the economic recovery in coming years, customers are expected to loosen their budgets and splurge on higher-quality items for everyday use. As a result, consumers will seek options based on factors other than low prices and thereby return to patronizing smaller operators that offer higher quality and services. It is important to note that despite these favorable conditions, competition from supermarkets and mass merchandisers is expected to remain strong for basic pet supplies like dry pet food and cat litter. Because these products show little product differentiation, consumers will likely continue to shop at large retailers to take advantage of
consumers will use their extra income to pamper their pets with services such as grooming and boarding.
Smaller pet stores will need to set themselves apart by targeting niche markets
discounted prices and the convenience of one-stop shops. Since much of the industry consists of a high number of smaller stores, niche product marketing will become increasingly important as each operator attempts to set itself apart from other stores. For example, personalized diets for pets are expected to serve as a potential niche market for industry operators, including special food catered for obese animals. According to the American Pet Products Associations 2009/2010 National Pet Owners Survey, 13.0% of dogs and 21.0% of cats are considered overweight. Since many pet owners have become health-conscious regarding their pets, options to improve pet health presents a potential opportunity for industry operators. Several pet food manufacturers have identified potential growth in customized food options, taking into consideration pet breeds, life stages, daily activities, amount of time indoors and even specific medical conditions.
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IndustryPerformance
LifeCycleStage
The industrys contribution to the economy is expected to grow over the 10 years to 2016 New products, such as premium pet food and services, are being introduced New firms are entering the industry
%Growthofprofit/GDP
30
25
Company consolidation; level of economic importance stable
Maturity
QualityGrowth
High growth in economic importance; weaker companies close down; developed technology and markets
KeyFeaturesofaGrowthIndustry Revenue grows faster than the economy Many new companies enter the market Rapid technology & process change Growing customer acceptance of product Rapid introduction of products & brands
20
15
QuantityGrowth
10
Many new companies; minor growth in economic importance; substantial technology change
E-Commerce&OnlineAuctions
5
AnimalFood Production
PetStores
VeterinaryServices MailOrder
Shake-out
5
Toy,Doll&Game Manufacturing
Shake-out
Decline
10 10 5
Crash or Grow?
PotentialHiddenGems
Future Industries 5 10 15 20
TimeWasters
Hobby Industries 25 30
%Growthofestablishments
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IndustryPerformance
IndustryLifeCycle T his industry is Growing
The Pet Stores industry is in a growth stage of its life cycle, typified by new product introductions and rising number of enterprises. In fact, industry valued added, which measures the industrys contribution to the US economy, is expected to increase 3.4% per year in the 10 years to 2016. In comparison, US GDP is projected to grow by 2.0% annually over the same period. This indicates that the industry is growing at a faster rate than the economy, a sign that it is in the growth phase of its cycle. Over the five years to 2011, the industry has posted strong sales driven by pet owners increasingly humanizing their pets. To this point, American Pet Products Association indicated that a tipping point was reached in 2005/2006, whereby people began rewarding pets in human terms. Consequently, new products and services have emerged in this industry to cater to this trend; increasing number of pet stores began to offer premium pet food and treats, in
addition to services such as grooming, training, walking and full-service boarding. This trend of rapid product introductions indicates that the Pet Store industry is in the developing stage. However, new products introductions are expected to slow down in the five years to 2016, as product saturation is reached. With strong sales, the number of businesses is expected to increase at an average annual rate of 1.6% over the five years to 2011. This growth has been primarily driven by smaller firms targeting niche markets such as premium pet food. For instance, today, there are stores that exclusively offer all-natural and organic pet food, as well as special bakeries that sells treats for dogs. IBISWorld projects that the niche market will continue to remain popular to new entrants over the next five years. The number of businesses is forecast to further increase by 1.9% annually to 2016, further contributing to the industrys growing life cycle.
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Products&Markets
SupplyChain
KEYBUYINGINDUSTRIES
99
SupplyChain | Products&Services | DemandDeterminants MajorMarkets | InternationalTrade | BusinessLocations
ConsumersintheUS The Pet Stores industry relies on consumers to purchase pet products and to utilize industry services.
KEYSELLINGINDUSTRIES
31111 33993 54194 AnimalFoodProductionintheUS This industry supplies pet stores with a vast array of pet food. Toy,Doll&GameManufacturingintheUS This industry supplies pet toys and accessories to industry operators. VeterinaryServicesintheUS This industry provides veterinary care services such as vaccinations to industry operators.
Products&Services
Products and services segmentation (2011)
Pet services
10.2%
Live animals
4.5%
Pet supplies
27.3%
58%
Pet food
Total $14.6bn
Pet food Obviously food is a necessity for all pets, so it is not surprising that pet foods make up the largest product segment for the industry. This segment covers a wide range of products such as dry and wet food for dogs and cats, bird feed, crickets and worms for reptiles and other treats and supplements for household pets. In 2007, however, this segment was hurt by a nationwide recall of melaminecontaminated dog and cat food, which reportedly caused the death of more than 3,500 animals. This incident, however, has contributed to the trend toward premium pet foods with natural
and organic ingredients. These premium pet foods tend to be higher priced with larger markups; as a result, this segment share of revenue has been rising since 2007. Today, a wide variety of premium pet foods are available to consumers. Examples include raw diet for dog and cat foods, weight control food for obese animals, specialized formulas for sensitive stomach and freshly-baked cakes and cookies as treats. In 2011, this segment is expected to account for 58.0% of industry revenue. Pet supplies Products in this segment include food
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Products&Markets
Products&Services continued
bowls, collars and leashes, pet clothing, brushes and combs, shovels and scoopers, cat litter, cages birds and reptiles, travel carriers and any other various accessories for pets. Although this segment makes up the secondlargest product market for the Pet Stores industry, this segments share of revenue has been declining in the five years to 2011 primarily due to competition; because this segment encompasses a wide variety of goods and there are no regulations that limit their sale, competition is quite high. To this point, pet supplies are being increasingly sold at a variety of retail outlets (e.g. home improvement stores now retail doggie doors and yellow lawn spot removers). In 2011, pet supplies are estimated to account for 27.3% of total sales. Services Pet services have been the fastestgrowing product segment for the industry. It includes full service grooming, haircuts, baths, toenail trimming and tooth brushing, but excludes veterinary services. Other services may include such activities as training, boarding and day camp. Much of the rise of this segment has been driven by a greater interest in pet pampering. As increasing number of pet owners began humanizing pets and adopted them as members of their family, demand for indulging animals also increased. In 2011, this
Liveanimalownershipsegmentation (2010)
Animal Birds Cats Dogs Horse Freshwater Fish Saltwater Fish Reptiles Other Animals Share of total pets (%) 3.6 22.7 18.9 3.2 41.7 2.7 3.3 3.9
SOURCE: AMERICAN PET PRODUCTS ASSOCIATION
segment is expected to account for about 10.2% of revenue. Live animal purchases The live animal segment of the industry expected to represent 4.5% of total industry sales, and this share has remained stable over the past five years. This product segment is small because a pet is normally a one-off purchase, while products in other segments, such as pet supplies and pet foods, need to be purchased throughout the life of the pet thus requiring repetitive spending. Furthermore, major players in the industry only sell small animals and fish, and partner with local pet programs for cat and dog adoptions. On the other hand, smaller operations often sell all types of animals: cats, dogs, fish, rabbits, birds, small animals and even reptiles. Further breakdown of live animal purchases can be seen in the chart below.
Demand Determinants
Demands for pets and pet supplies are affected by the rate of pet ownership, food and supply prices, household income, demographics, and health awareness. Pet ownership Pet ownership is a main driver for industry demand by definition, as
industry operators are primary retailers of pets. Thus, as pet ownership increases, the number of pets purchased also rises, leading to higher demand and sales for the industry. In addition, a rise this number also leads to higher demand for products such as food, treats and
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Products&Markets
Demand Determinants continued
toys, since these goods are needed every day for the well-being of pets. Income Households with higher incomes are able to spend more on discretionary items and services sold at pet stores, leading to higher demand. As such, Pet owning households with high disposable income have been the main customers for luxury and trendy pet products, including premium pet food and designer pet toys, in the five years to 2011. In addition, those with a higher income tend to travel more. In turn, they are more likely to utilize pet boarding services or purchase products that allow more comfort for both them and their pet to travel together.
Demographics and lifestyle The change in demographics and lifestyle of households is also an important determinant of demand. If households are frequently relocating or working longer hours, then these factors may reduce a households willingness to purchase a pet. In addition, households living in apartments are less likely to have pets since many apartments do not allow pets. On a positive note, aging population may increase demand for pets, since older demographics often purchase pets for companionship after their children and grandchildren leave home.
MajorMarkets
Major market segmentation (2011)

Consumers over 65 years old Consumers under 25 years old
10%
7%
Consumers 45 to 54 years old
28%
13%
Total $14.6bn
18%

24%
The largest market for the Pet Stores industry is consumers between the ages of 45 to 54, accounting for 28.0% of total revenue. Many members of this age group look for pet companions to fill the empty space in their households after their children leave home. As such, a large proportion of this segment can be considered pet enthusiasts, who consider pets family members, according to PetSmart, a major player in
this industry. Furthermore, consumers in this product market are typically employed and have steady income streams, allowing them to spend freely on pet supplies. The second largest market consists of consumers between the ages of 35 to 44, who represent about 24.0% of revenue. Consumers in this market typically have children, and they consider the health and behavioral benefits a pet can have on
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Products&Markets
MajorMarkets continued
their children. According to the American Pet Products Association, about 38.0% of households with children under 18 years old own at least one pet. Consumers between the ages of 25 and 34 are estimated to account for 18.0% of the market. This demographic group accounts for a lower share as they are often subject to busy schedules, making it difficult for them to own pets. Consumers between the ages of 55 and 64 are expected to represent 13.0% of the market in 2011. However, this figure is forecast to increase over the next five years as
consumers in the 45-to-54 group ages and increasingly enters this category. The two smallest markets are made of consumers under the ages of 25 (accounting for 10.0% of the market) and consumers over the ages of 65 (accounting for 7.0%). This is because consumers in these categories have limited income, thus limiting their abilities to own or spend on pets. In addition, these two demographics often do not live in houses; rather, they rent apartments or live in retirement homes. Many such dwellings do not allow pets, further hindering this segments ability to own pets.
InternationalTrade
International trade activity is accounted at the manufacturing level by convention; as such, this retail industry does not technically have imports or exports. However, products and supplies in the Pet Stores industry are imported and exported at the manufacturing level and then sold in the domestic market. Precise export and import data on pet products and supplies is not readily available as they are categorized into broad segments that contain a large
number of other non-pet related products. Fortunately, trends in pet food trade provide some insight into trends regarding overall pet-product trade levels (IBISWorld report 31111). According to the latest official data provided by the International Trade Commission, imports for all kinds of pet food amounted to $818.5 million in 2010, while exports reached $2.3 billion. Canada is the leading partner in trade for both imports and exports.
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Products&Markets
BusinessLocations2011
West
AK
0.3
New England Great Lakes

MN
MidAtlantic
MI
3.7
ME
0.7
WA
2.9
OR
1.8
Rocky Mountains ID
0.3 0.5
MT
ND
0.2
SD
0.3
Plains
IA
0.9
1.8
1 2 3 NY 7.0 5 4 6 7 8
WI
1.8
PA
4.4
WY
0.3
West NV
1.0
NE
0.5
IL
4.2
IN
2.0
OH
4.0
UT
0.6
CO
2.5
KS
1.0
MO
1.7
KY
0.9
WV VA 2.5
0.4
NC
2.4
CA
13.8
OK AZ
2.2 0.8
AR
0.5
Southeast
1.5
TN
SC
1.4
NM
0.6
Southwest
TX
5.6
MS
0.4
AL
1.0
GA
2.2
LA
1.0
FL
7.5
West
HI
0.4
AdditionalStates(as marked on map) 1 VT

0.2 1.4
Establishments(%) Lessthan3% 3%tolessthan10% 10%tolessthan20% 20%ormore

2 NH
0.8
3 MA
2.0
4 RI
0.5
5 CT
6 NJ
3.3
7 DE
0.4
8 MD
1.9
9 DC
0.1
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Products&Markets
BusinessLocations
The number of establishments in each region correlates to the population level and consumer demand in each region, which in turn affects the employment level and aggregate wage costs of each region. In theory, the greater the number of residents, the higher number of pets owned, and therefore the stronger the demand for pet supplies. Business location information is only available for firms with one more employee. IBISWorld estimates that the Southeast region has the largest number of establishments, approximately 21.6% of the share of establishments in 2011. Accordingly, it is also estimated to have the highest population in the United States with 25.2%. The West, Mid-Atlantic and Great Lakes regions are projected to capture the next three highest shares of establishments in 2011, at about 20.2%, 17.1% and 15.7%, respectively. In turn, these regions also account for a high share of the US population, the West with 17.0%, Mid-Atlantic with 15.7% and Great Lakes with 15.3%. New England and the Rocky Mountains are expected to account for the smallest share of industry establishments in 2011, at about 5.6% and 4.2%, respectively. The proportion of the population is also low for New England with 4.7% and the Rocky Mountains with 3.5% Breaking it down further In 2011, the Southeast region is estimated to dominate the shares of industry establishments with 21.6%, along with the highest share of employees at 20.7% of the industry, and high industry wage share of 19.8%. The West is estimated to
Establishments vs. population

30
20
%
10 0 Rocky Mountains Great Lakes Mid-Atlantic New England Southeast Southwest Plains West
Establishments Population
tail behind the Southeast, with 20.3% industry share in establishments, share of employees at 19.8%, and an annual wage share of 21.7%. At the lower end of the scale the Rocky Mountains will account for the lowest share of industry establishments, employees, and wages of 4.2%, 4.1%, and 4.4% respectively. Accordingly, this region has the lowest share of population of 3.5%. While factors such as income and population concentration are important, a large number of unquantifiable factors also impact on the geographic spread of establishments. Wealth, demographics, housing density, and local fashions are going to impact on the demand for pets and pet supplies, influencing the type of pets purchased and the ongoing supplies needed. These types of factors may also explain why some regions have a greater share of establishments than population.
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CompetitiveLandscape
MarketShare Concentration
Level Concentration in this More than half (62.0%) of the Pet Stores industrys revenue comes from two specialty supply retailers: PetSmart and PETCO. The other portion of the industry consists of family-owned stores, small franchises and small chains of pet stores. Due to this fragmented nature of the industry, the concentration level is medium. Concentration is not high because many small operators are able to find niche markets in their geographical locations, and rarely expand beyond those areas. In addition, product transportation costs are high relative to the value of the product. IBISWorld estimates that by the end of 2011, the industry will have about 15,769 firms, of which about 53.2% of those firms will be operated by single owner
MarketShareConcentration | KeySuccessFactors | CostStructureBenchmarks BasisofCompetition | BarrierstoEntry | IndustryGlobalization
industry is Medium
small family businesses. Of businesses that have employees, about 56.4% enterprises are projected to employ fewer than 4 workers, while only 19.9% are expected to have more than 10 workers. In the five years to 2016, major players PetSmart and PETCO are expected to grow their share of the industry, with a steady stream of customers patronizing their stores. This is because these big-box retailers are able to offer customers a best of both worlds scenario, where they provide broad and industry-specific product selections, while operating on a scale such that they can purchase in bulk and pass on savings to the consumers. Consequently, these stores are expected to grow at the expense of small stores in the industry.
KeySuccessFactors I BISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
Attractive product presentation In order to draw customers and encourage purchases, eye-catching promotions and displays are essential for pet stores. Experienced work force It is important to employ a highly capable staff with clear knowledge of the pet industry to better assist customers and boost sales. Proximity to key markets Operators need to be located in high-traffic and high-visibility
locations, such as major shopping precincts, in order to maximize store traffic and sales. Economies of scope Successful operators need a range of the most popular pets and pet supplies at different levels of price and quality. Offering a wider variety of products will attract a larger customer base. Effective quality control Operators must ensure that pet services are up to standard for the specific type of animal and breed.
CostStructure Benchmarks
The Pet Stores industry is expected to obtain average profit margins equivalent to 4.1% of revenue in 2011, up from 3.6% in 2006. This increase in profitability has been driven by growing pet population and an increasing willingness of pet owners to spend on their pets, particularly on premium or high margin products. However, it is important to
note that the actual level of margins may vary considerably between industry participants. For instance, larger players such as PETCO and PetSmart typically purchase in large quantities, which enable them spend less per item and improve margins. In addition, the large scale allows major players to sell in high volume at discounted prices, which
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CostStructure Benchmarks continued
enables them to afford to lower markups but to profit from the frequent rate of purchases made by customers. On the contrary, smaller players in this industry do not have such purchasing power. Therefore, cost of goods per unit tends to be higher for these players, causing margins to be lower for smaller firms. Purchase costs will remain the single largest expense for the industry in 2011, accounting for approximately 70.1% of total sales. Purchases include a wide range of pet food and pet supplies such as collars, leashes, medication, shampoos, dog kennels and pet toys, and a range of pets including dogs, cats, birds, fish, small animals and reptiles. Unfortunately for the industry, purchase expenses increased slightly over the five years to 2011. According to Pet Business, a publication for the pet and pet supplies retailing industry, much of this has been due to price increases of goods from upstream industries (i.e. manufacturing and wholesaling industries) passed down the supply chain. Due to the labor-intensive nature of the retail sector, wages are estimated to make up the second highest expense item for pet store operators, accounting for 12.9% of the revenue in 2011. In pet stores, labor is needed to provide care for IndustryCostsandAverageSectorCosts
Industry Costs (2011) Average Costsofall Industries insector (2011)
pets, maintain stock levels and to provide customer service. Furthermore, added focus has been placed on labor over the five years to 2011, as pet services have become one of the fastest-revenue generators for the industry. Nonetheless, industry revenue has been growing at a faster rate than the number of employees or wages; as such, wages as a share of revenue has slightly declined in turn. Depreciation expenses are expected to account for about 1.6% of industry revenue in 2011. This low level of depreciation is typical for a retailing industry as is it very labor intensive and requires minimal capital costs in operations. Yet, this figure is high compared other retailing industries as pet stores must acquire special cages and tanks for animals, in addition to shelving and cash registers for stores. Rent costs and utilities costs are expected to represent 2.5% and 1.5% of total sales, respectively, in 2011. Operators in this industry also incur a variety of other expenses, including administrative, insurance, security and advertising costs. In particular, large and small operators both invest much of their income on advertising, in order to generate store traffic and boost sales of their products.
Profit Rent Utilities Depreciation Other Wages Purchases
Profit
2.5 7.3 4.1 1.6 12.9

0
100%
70.1 72.1
Profit
1.5 2.6 9.8 3.4 1.5 0.8
9.8
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BasisofCompetition
Level&Trend Competition
in this industry is Medium and the trend is Increasing
Due to medium barriers to entry and growing profitability from premium products and services, there are a large number of pet store operations, giving the industry a medium level of competition. This industry has been growing strongly over the past decade as a result of favorable demographic trends and the growing tendency of pet owners to treat their pets as members of the family. In recent years, industry participants have exploited these trends and cashed in on higher margin products and services, such as premium pet food and high-quality grooming services. The players in this industry are protected from external competition in the premium pet food product segment, because there are often manufacturers restrictions on the distribution of premium products to supermarkets. Industry participants are also protected from external competition from supermarkets, grocery stores and discount retailers in the growing area of value added pet services such as grooming and obedience training. Internal Pet stores are constantly competing with each other in price, product variety, customer service, brand awareness, variety of pet services, and store location. Since product purchases make up the majority of sales for pet stores, logically their main basis of competition is product range and quality, along with some influence by price. Large players like PETCO and PetSmart benefit from economies of scope and are able to provide broad ranges of pets, pet foods, pet supplies and pet services with different levels of quality across a range of prices to appeal to individual consumer preferences. In addition, they are capable of offering products through their private label brands at a lower price. Both of these players benefit from
being able to buy products in bulk and producing their own products at lower cost, which allows them to offer products at a low price and still attain a profit. As a result, smaller stores feel the pressure to provide more products at a lower price, which results in lower mark-ups by these stores and ultimately lower profits. However, smaller stores benefit from their ability to offer personalized customer services and mold to the specific needs of the niche market in their local area. The two major players in this industry also invest considerable resources toward brand awareness and loyalty. For example, PETCO is now the major sponsor of PETCO Park, the new home of the San Diego Padres. In addition, both PETCO and PetSmart are heavily involved in pet charities and animal welfare organizations. In 2004, PetSmart introduced a new customer loyalty program in order to improve repeat customer traffic. External Historically, the sale of pet food products has been primarily through the supermarket channel. Large supermarkets stock a wide variety of pet food and supplies. Bulk purchases by supermarkets generally enable them to offer lower prices than specialty retailers. In recent years, additional competition has come from mass merchandisers and discount retailers such as Walmart and Costco that stock a wide variety of products at competitive prices. However, mass merchandisers and discount retailers do not sell ultra-premium pet products as they are limited by manufacturers restrictions. Further competition comes from the E-commerce and Online Auctions industry (IBISWorld Industry Report 45411a) and the Mail-Order industry (IBISWorld Industry Report 45411b). These competing industries include
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BasisofCompetition continued
companies such as Petstore.com through which consumers can purchase products without physically having to visit a store; however, these operators are not
classified as part of this industry. In addition, some competition comes from veterinary services as they also sell customized pet food and some products.
BarrierstoEntry
Level&Trend Barriers to Entry
in this industry are Medium and Steady
High levels of competition and stringent regulations associated with entering this industry may deter some from entering the industry. Nevertheless, there are various niche markets available for new players to occupy, specifically those that specialize in premium and innovative food, products and services. A significant factor that can hinder an operator from entering this industry is government regulations. There are federal and state laws regulating pet shops and the sale of animals. For example, the Pet Animals Act 1951 requires pet shops to get a license in accordance with the Act before they can open. In addition, the Animal Welfare Act of 1966 dictates how pets sold in pet stores must be maintained. Pet shops need to address a range of issues and receive licenses based on federal and state requirements before permission to operate is granted. The industrys concentration can be intimidating as well. There are only two national retail chains in this industry and together they account for over half of industry revenue; smaller stores and franchises account for the remaining portion. Although this industry is highly fragmented, there is also intense price competition from mass merchandisers, online operators and catalog retailers,
BarrierstoEntrychecklist
Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance
Level
Medium Medium Growth Low Medium Medium None
which may provide a barrier for new, independent retailers. Opening a new pet store and meeting licensing standards is expensive. In addition, a significant share of funding may be directed toward marketing to build consumer interest and recognition. The initial cost of establishing or purchasing a retail outlet, in addition to purchasing and maintaining inventory levels, may be a barrier for new entrants. Barriers are greater for new smaller retailers because forming reliable supply relationships with wholesalers and manufacturers may prove to be difficult. Existing and well established distribution relationships may deter potential operators from entering this industry, as it provides an advantage to existing retailers by giving access to low priced high quality goods.
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Industry Globalization
Level&Trend Globalization
This industry is characterized by a large number of small players. Many of the smaller, independent pet supply retailers are local family-owned businesses. In
addition, the amount of foreign ownership in the major players is immaterial. Therefore, this industry has a low level of globalization.
in this industry is Low and the trend is Steady
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MajorCompanies
Majorplayers
(Market share)
PetSmartInc. | PETCOAnimalSuppliesInc. | OtherCompanies
PETCOAnimalSuppliesInc.20.2%
38.0%
Other PetSmartInc.41.8%
PlayerPerformance PetSmartInc. M arket share: 41.8%
Since its establishment in 1987, PetSmart (headquartered in Phoenix, AZ) has grown to become the top specialty retailer of pet food and supplies. PetSmart currently operates about 1,200 stores, typically in power centers located in regional shopping centers near other superstores and warehouse stores, and employs about 45,000 associates in United States and Canada. By offering over 10,000 pet products and providing various pet services, the retailer aims to provide a one-stop-shop experience with low prices for pet lovers. PetSmart categorizes its products into 3 main categories: Consumables, Hardgoods and Pets. The Consumables category includes pet foods, treats and litter, in addition to premium products, many of which are not found in supermarkets or mass merchandisers. Pet supplies such as collars, leashes, health and beauty aids, shampoos, medication, toys, pet carriers, dog kennels, cat furniture, equestrian supplies, birdcages, aquariums and filters make up the Hardgoods category. The Pets category includes fish, birds, reptiles, and small pets. Larger animals such as cats and dogs are not sold in PetSmart; however, they are available for adoption through the PetSmart Charities Adoption Program developed with humane organizations. In addition to selling products, PetSmart has expanded its service to include in-store boarding facilities, grooming services, obedience training and full-service veterinary services (offered in 769 PetSmart stores). In
2002, PetSmart launched a complete pet boarding and day-care service with 24-hour supervision, an on-site veterinarian, air-conditioned rooms and daily specialty treats called PetsHotel. Currently, about 185 of PetSmart stores include PetsHotel boarding facilities and Doggie Day Camps. Such emphasis on services has been a driving success for PetSmart; pet services as a share of company revenue increased from 8.8% in 2006 to 10.9% in 2010 (latest data available), and net sales from services increased from $376.0 million to $618.8 million during those years. However, news has not been perfect for the company. In 2008, PetSmart suspended the sale of birds in its stores nationwide after discovering that a high number of birds carried a bacterial infection that had the potential to spread to humans. In addition, the company was damaged by a large recall of pet foods (manufactured by Menu Foods) that was contaminated by melamine and melamine-related compounds. Financial performance In the five years to fiscal 2011 (end January 2012), PetSmarts revenue is estimated to increase an average annual rate of 7.4% to $6.0 billion. Especially as the economy gains traction and consumers gain additional disposable income to spend on their pets, IBISWorld anticipates that the company sales will grow 6.2% in fiscal 2011, following a 6.7% increase in 2010. In fiscal 2009 and 2008, PetSmart posted strong sales, with
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MajorCompanies
PlayerPerformance continued
revenue rising 5.4% and 8.4%, respectively. Such growth rates during the recession were aided by resilient industry demand; consumers rarely scaled back on their spending toward their four-legged companions even during times of low income. To this end, average same-store sales increased 1.9% and 5.8% in 2009 and 2008, while service sales increased 9.2% and 15.8%, respectively. With high sales, net income also remained strong over the years. In fiscal 2008, however, income decreased about $66.0 million due costs associated
with aggressive expansion (the addition of 104 new stores and 45 PetsHotels). Prior to the recession, the company performed even stronger, with a 10.4% revenue growth in fiscal 2007. Some of the growth was driven by 112 new store openings, as well as a 2.4% increase in comparable store sales. In addition, higher demand for pet services became an increasing important sales avenue. After PetSmart added 35 new PetsHotels that offered grooming, training, boarding and day camp, service sales rose 22.0% during the year.
PetSmartInc.financialperformance
Year* 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12** Revenue ($ million) 4,233.9 4,672.7 5,065.3 5,336.4 5,693.8 6,048.3 (% change) N/C 10.4 8.4 5.4 6.7 6.2 NetIncome ($ million) 185.1 258.7 192.7 198.3 239.9 266.1 (% change) N/C 39.8 -25.5 2.9 21 10.9 Employees 38,400 43,000 46,000 45,000 47,000 47,500 (% change) N/C 12.0 7.0 -2.2 4.4 1.1
*YearendJanuary;**Estimate
SOURCE: ANNUAL REPORT AND IBISWORLD
PlayerPerformance PETCOAnimal SuppliesInc. M arket share: 20.2%
Established in 1965, PETCO Animal Supplies is the second-largest pet supply specialty retailer in the United States. The company is headquartered in San Diego, CA and boasts about 1,100 stores across the country with locations in all 50 states, making it the only pet store to serve the entire nation. Its stores carry up to 10,000 different pet-related items at any time, including pet food, collars, leashes, grooming products, toys, health and beauty aids, kennels and pet houses. Like other industry participants, PETCO offers a variety of veterinary and obedience services for animals, but does not sell
cats or dogs. Rather, an adoption program (the Think Adoption First program) is used in partnership with local animal welfare organizations. Over the past decade, PETCO has been subject to several major changes in its business. In 2006, Texas Pacific Group and Leonard Green & Partners took the company private for the second time; the deal was valued at $1.8 billion. The same group took PETCO private for $600 million in 2000, but PETCO returned to the public sector in 2002. In 2005, PETCO first introduced a new Pisces store design, which positioned its aquatic center in the middle of a racetrack
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MajorCompanies
PlayerPerformance continued
walkway that allowed customers to easily navigate the store. Financial performance Because the company went private in 2006, PETCOs financials are no longer available to the public, limiting the ability to provide year-by-year analysis of financial performance. However, IBISWorld projects that, like the industry as a whole, the firm has experienced positive growth in the five years to 2011. IBISWorld estimates that PETCOs
revenue will total $2.9 billion in 2011, marking a 5.9% annual growth over the five-year period. Strong sales of premium products are expected to be the main driver for the growth. The company invested heavily in this product segment in 2009 by launching Unleashed, a specialty store for only premium, natural, organic and raw pet foods. PETCO operates 37 Unleashed stores in California, Maryland, Massachusetts, New York, Virginia and District of Columbia.
PetcoAnimalSuppliesInc.financialperformance*
Year 2006 2007 2008 2009 2010 2011
*Estimate
Revenue ($ million) 2,200 2,400 2,550 2,670 2,790 2,925
(% change) N/C 9.1 6.3 4.7 4.5 4.8
Employees 18,200 18,700 19,100 19,800 21,000 22,000
(% change) N/C 2.7 2.1 3.7 6.1 4.8
SOURCE: ANNUAL REPORT AND IBISWORLD
OtherCompanies
PetSmart and PETCO are the top dogs in the Pet Stores industry, accounting for more than half of total industry revenue in 2011. While the industry is concentrated at the top, the rest of the industry is characterized by a large number of small and privately owned pet stores. In fact, about 53.2% of total industry operators are estimated to be non-employers, which are stores without any paid employees. Furthermore, even among businesses that have employees, about 56.4% of enterprises are projected to employ fewer than 4 workers, while only 19.9% are expected to have more than 10 workers. Due to this fragmented
nature, the vast majority of industry players do not represent a considerable share of the industry.
Pet Supplies Plus
Estimated market share: 3.6% Pet Supplies Plus is a franchise business operating about 240 stores across 22 states. Pet Supplies Plus offers franchises in selected states to single store owneroperators and also to area developers who own all stores in a designated market region. According to company information, the purchase of a Pet Supplies Plus franchise costs between $500,000 and $750,000.
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MajorCompanies
OtherCompanies continued
Pet Supplies Plus stores are generally located in high-traffic areas and are limited to about 5,000 to 6,000 square feet in size for smaller markets and 7,000 to 9,000 square feet in larger metropolitan areas. The smaller store concept was designed to keep operating costs to a minimum in a bid to offer pet food and supplies at competitive prices. The company also utilizes just-in-time delivery system to be able to offer a wide variety of products without extensive store space to stock inventory. IBISWorld estimates that Pet Supplies Plus will generate about $530 million in 2011, accounting for about 3.6% of the total market.
Kentucky, Nevada and North Carolina. Pet Supermarket sells more than 8,000 pet care products, including food, toys, medicine and clothing, as well as small animals such as hamsters, guinea pigs, rabbits and tropical fish. IBISWorld estimates Pet Supermarket will generate about $230 million in 2011.
Pet Food Express
Pet Supermarket Inc.
Estimated market share: 1.6% With a market share of less than 2.0%, Pet Supermarket Inc. is a small, familyowned retailer of pet supplies and medicines. Pet Supermarket operates about 110 stores primarily in Florida but also in Alabama, California, Georgia,
Estimated market share: Less than 1.0% Pet Food Express is an independent retailer chain operating about 39 stores throughout Northern California. The company offers a range of pet supplies, including beds, bowls, feeders, carriers, cages, flea control, food, grooming, medication, sanitation, toys, leashes, harnesses and tanks. Many stores also feature self-service pet washes, adoptive services, dog-training classes and lowcost vaccination. The company also operates an online store at petfoodexpress.com. IBISWorld estimates that the firm will generate about $90 million in 2011.
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OperatingConditions
CapitalIntensity
Level The level The Pet Stores industry, similar to most other retail industries, has a low level of capital intensity. For every dollar spent on wages, about $0.12 is invested in the store and equipment. Most capital costs are related to shelving, store, cashier equipment and other equipment such as caging for animals, which do not need to be constantly replaced. On the other hand, this industry is labor intensive because employees are needed to operate and manage the stores, provide customer service and support, restock the merchandise and to provide care for pets. The level of capital intensity has remained steady in the last five years, reflecting the labor-intensive nature of the retail industry. To this point, the cost of labor within this industry is relatively
CapitalIntensity | Technology&Systems | RevenueVolatility Regulation&Policy | IndustryAssistance
Capital units per labor unit 0.5 0.4 0.3 0.2 0.1 0.0 Economy Retail Trade Pet Stores
Capital intensity
of capital intensity is Low
Dotted line shows a high level of capital intensity

high compared to that experienced by competitors such as supermarkets, mass merchandisers and online pet supply
ToolsoftheTrade:GrowthStrategiesforSuccess
NewAgeEconomy Recreation,PersonalServices, HealthandEducation. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation. InvestmentEconomy Information,Communications, Mining,FinanceandReal Estate.To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan.
CapitalIntensive
LaborIntensive
PetStores
Veterinary Services
E-Commerce&OnlineAuctions AnimalFoodProduction
OldEconomy
TraditionalServiceEconomy WholesaleandRetail. Reliant on laborrather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth.
MailOrder Toy,Doll&GameManufacturing
AgricultureandManufacturing. Traded goods can be produced using cheap labor abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.
ChangeinShareoftheEconomy
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OperatingConditions
CapitalIntensity continued
retailers. This is because the other stores do not retail pets directly. In addition, these stores do not incur costs associated with employee training, since workers at these retailers do not require industry-
specific knowledge. For online retailers, labor costs are exceptionally low as they are not required to outlay expenditure on customer service, nor are they required to have shelving, displays or cash registers.
Technology &Systems
Level The level
of Technology Change is Medium
Technological advances in this industry have included computer scanning cash registers and automated inventory equipment. The introduction of this technology has enabled retailers to better manage efficiency of operations and inventory. Technology at the checkout has led to computerized point-of-sale equipment, which controls and records merchandising, distribution, sales and stock markdowns. Furthermore, bar code scanning has offered the advantages of higher labor
productivity that increases the speed at which information is passed, greater control over the distribution of goods and reduced errors along the supply chain. New improvements will boost revenue for the larger stores who can afford to invest in the technologies. For example, larger retailers will benefit from Radio Frequency Identification (RFID), which provides real time information on inventory and help to reduce shrinkage problems as well as improve efficiency.
RevenueVolatility
Level The level
of Volatility is Low
Pet stores sell discretionary (e.g. pets and toys) and non-discretionary products (e.g. pet food). While purchasing a pet is generally discretionary, a large proportion of expenditure on a pet is non-discretionary because the animal needs food, medicine and certain supplies in order to survive. To provide a
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a firm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.
breakdown, pet food makes up about 58.0% of industry revenue, pet supplies and medicine account for 27.3%, while new pet purchases represent for only 4.5%. As such, the non-discretionary component of industry merchandise accounts for the majority of industry revenue. This high level of non-
VolatilityvsGrowth
1000
Hazardous
Rollercoaster
Revenuevolatility*(%)
100 10 1 0.1
PetStores
Stagnant
30 10 10 30 50
BlueChip
70
Fiveyearannualizedrevenuegrowth(%)
* Axis is in logarithmic scale
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OperatingConditions
RevenueVolatility continued
discretionary demand keeps the volatility of this industry low. To this point, the industry marked a volatility score of 1.5.
This indicates that industry revenue has fluctuated by 1.5% on average between the years of 2006 and 2011.
Regulation&Policy
Level&Trend The level of
Regulation is Medium and the trend is Steady
There are industry specific and general competitive regulations that apply to this industry. The transportation, handling and sale of small pets are governed by various federal, state and local regulations. In addition, industry participants are subject to environmental regulations imposed by federal, state and local authorities in relation to the generation, handling, storage, transportation and disposal of waste and biohazardous materials, and the sale and distribution of products. The Pet Animals Act 1951 deems it an offense to open a pet shop unless it is granted a license in accordance with the Act. When deciding to grant a license, district councils need to consider whether there is suitable accommodation and enough food and water, whether the animals are sold at too young an age and whether reasonable precautions have been taken to curb the spread of disease. The Animal Welfare Act (AWA) protects
certain animals from inhumane treatment and neglect. The AWA requires that minimum standards of care and treatment be provided for certain animals that are bred for commercial sale, used in research, transported commercially or exhibited to the public. Retail pet shops are not covered under the Act unless the shop sells exotic or zoo animals or sells animals to regulated businesses. Pets owned by private citizens are not regulated. Regulated businesses are required to keep accurate records of acquisition and disposition and a description of animals that come into their possession. Many state and local governments have passed additional animal welfare legislation. Approximately 16 states have regulations that allow consumers to obtain a reimbursement when a sick animal is purchased from a pet store. This is known as a lemon law which is designed to protect consumers that buy animals from pet shops.
IndustryAssistance
Level&Trend The level of
Industry Assistance is None and the trend is Steady
Tariffs apply to the import of goods, adding additional charges to their cost. In general, tariffs provide protection for the local manufacturers of these goods. However, the protection of the manufacturer is generally at the expense of the consumer who has to pay more for these goods. All things being equal, the higher the price of a retailers goods, the lower the demand for those goods. Tariffs can have the impact of causing consumers to choose to spend their money on other products, often from outside the
KeyTariffs
Goods Dog leashes, collars Saddlery and harness Pet toys, textile Pet food Rate (%) 2.4 2.8 4.3 0.0
SOURCE: US INTERNATIONAL TRADE COMMISSION
industry. In this case, it may make the cost of keeping a pet more expensive, causing less people to buy pets. Given the relatively small level of the tariffs (pet
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OperatingConditions
IndustryAssistance continued
food does not have a tariff), IBISWorld considers tariffs to have an insignificant negative impact on the industry.
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KeyStatistics
IndustryData
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SectorRank EconomyRank Revenue ($m) 9,728.9 10,234.7 11,064.5 11,486.7 11,725.2 12,537.5 12,894.8 13,444.1 14,029.0 14,564.9 15,159.1 15,850.4 16,549.4 17,196.5 17,875.7 40/63 407/706 Industry ValueAdded Establish($m) ments 1,926.2 15,756 1,987.3 15,835 2,102.1 16,541 2,078.9 16,813 2,330.0 17,130 2,400.4 17,638 2,442.9 17,076 2,516.9 17,776 2,604.2 17,879 2,701.9 18,035 2,803.5 18,269 2,920.2 18,569 3,040.9 18,867 3,137.3 19,269 3,252.0 19,691 40/63 39/63 506/706 207/705 Enterprises Employment 13,686 83,635 13,790 88,620 14,213 90,933 14,483 98,384 14,558 101,237 14,804 110,394 14,677 110,172 15,383 111,148 15,555 111,618 15,769 112,513 16,002 113,678 16,295 114,723 16,575 115,767 16,956 116,918 17,364 117,797 34/63 38/63 190/705 266/706 Exports ---------------N/A N/A Imports ---------------N/A N/A Wages ($m) 1,444.5 1,476.1 1,545.6 1,498.9 1,718.3 1,755.2 1,766.3 1,790.5 1,821.9 1,871.7 1,928.6 1,990.4 2,054.0 2,122.5 2,188.5 45/63 445/706 NumberofPets Domestic -CatsandDogs Demand (Million) N/A 137 N/A 143 N/A 153 N/A 163 N/A 154 N/A 163 N/A 165 N/A 171 N/A 175 N/A 180 N/A 184 N/A 187 N/A 191 N/A 195 N/A 199 N/A N/A N/A N/A
AnnualChange
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SectorRank EconomyRank Revenue (%) 5.2 8.1 3.8 2.1 6.9 2.8 4.3 4.4 3.8 4.1 4.6 4.4 3.9 3.9 19/63 291/706
Industry EstablishValueAdded ments (%) (%) 3.2 0.5 5.8 4.5 -1.1 1.6 12.1 1.9 3.0 3.0 1.8 -3.2 3.0 4.1 3.5 0.6 3.8 0.9 3.8 1.3 4.2 1.6 4.1 1.6 3.2 2.1 3.7 2.2 23/63 31/63 307/706 287/705
Enterprises Employment (%) (%) 0.8 6.0 3.1 2.6 1.9 8.2 0.5 2.9 1.7 9.0 -0.9 -0.2 4.8 0.9 1.1 0.4 1.4 0.8 1.5 1.0 1.8 0.9 1.7 0.9 2.3 1.0 2.4 0.8 20/63 40/63 183/705 343/706
Exports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Imports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Wages (%) 2.2 4.7 -3.0 14.6 2.1 0.6 1.4 1.8 2.7 3.0 3.2 3.2 3.3 3.1 22/63 249/706
Domestic NumberofPets Demand -CatsandDogs (%) (%) N/A 4.4 N/A 7.0 N/A 6.5 N/A -5.5 N/A 5.8 N/A 1.2 N/A 3.6 N/A 2.3 N/A 2.9 N/A 2.2 N/A 1.6 N/A 2.1 N/A 2.1 N/A 2.1 N/A N/A N/A N/A
KeyRatios
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SectorRank EconomyRank IVA/Revenue (%) 19.80 19.42 19.00 18.10 19.87 19.15 18.94 18.72 18.56 18.55 18.49 18.42 18.37 18.24 18.19 25/63 571/706
Imports/ Demand (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Exports/Revenue (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Revenueper Employee ($000) 116.33 115.49 121.68 116.75 115.82 113.57 117.04 120.96 125.69 129.45 133.35 138.16 142.95 147.08 151.75 46/63 518/706
Wages/Revenue (%) 14.85 14.42 13.97 13.05 14.65 14.00 13.70 13.32 12.99 12.85 12.72 12.56 12.41 12.34 12.24 36/63 459/706
Employees perEst. 5.31 5.60 5.50 5.85 5.91 6.26 6.45 6.25 6.24 6.24 6.22 6.18 6.14 6.07 5.98 28/63 497/705
AverageWage ($) 17,271.48 16,656.51 16,997.13 15,235.20 16,973.04 15,899.41 16,032.20 16,109.15 16,322.64 16,635.41 16,965.46 17,349.62 17,742.53 18,153.75 18,578.57 49/63 653/706
Shareofthe Economy (%) 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 40/63 506/706
Figures are inflation-adjusted 2011 dollars. Rank refers to 2011 data.
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33
Jargon&Glossary
IndustryJargon
HUMANIZATION A trend where pet owners treat pets as humans, providing them with services such as pet hotels and grief counseling.
PETBOARDINGANDDAYCARE Long- and short-term options for owners who need assistance looking after their pets. Services include feeding, walking, grooming and lodging. PETPARENTS Pet owners who are enthusiastic about their pets and treat them as members of their family.
IBISWorldGlossary
BARRIERSTOENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry. CAPITAL/LABORINTENSITY An indicator of how much capital is used in production as opposed to labor. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3 $8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation. CONSTANTPRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using 2011 as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the real growth or decline in industry metrics. The inflation adjustments in IBISWorlds reports are made using the US Bureau of Economic Analysis implicit GDP price deflator. DOMESTICDEMAND The use of goods and services within the US; the sum of imports and domestic production minus exports. EARNINGSBEFOREINTERESTANDTAX(EBIT) IBISWorld uses EBIT as an indicator of a companys profitability. It is calculated as revenue minus expenses, excluding tax and interest. EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees. ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry. ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates. EXPORTS The total sales and transfers of goods produced by an industry that are exported. IMPORTS The value of goods and services imported with the amount payable to non-residents.
INDUSTRYCONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 70% of revenue; Low is less than 40%. INDUSTRYREVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRYVALUEADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added). INTERNATIONALTRADE The level is determined by: Exports/Revenue: Low is 0 5%; Medium is 5 20%; High is over 20%. Imports/Domestic Demand: Low is 0 5%; Medium is 5 35%; and High is over 35%. LIFECYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each. NON-EMPLOYINGESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals. VOLATILITY The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than 20%; High Volatility is between 10% and 20%; Moderate Volatility is between 3% and 10%; and Low Volatility is less than 3%. WAGES The gross total wages and salaries of all employees of the establishment.
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Pet Stores in The US Industry Report

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Pet Stores in The US Industry Report

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PetStoresintheUS October 2011

IBISWorld Industry Report 45391