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PETsMART, Inc.

 


Address:
10000 North 31st Avenue, Suite C-100
Phoenix, Arizona 85051
U.S.A.

Telephone: (602) 944-7070
Fax: (602) 395-6502


Statistics:
Public Company
Incorporated: 1986 as The Pet Food Warehouse
Employees: 7,900
Sales: $601 million
Stock Exchanges: NASDAQ
SICs: 5999 Miscellaneous Retail Stores, Not Elsewhere Classified; 0742 Veterinary Services Specialties


Company History:

The largest operator of pet food, pet supplies, and pet services superstores in the United States, PETsMART, Inc., stands atop a roughly $15 billion industry it helped to create. With nearly 200 mammoth stores scattered throughout 24 states in 1995, PETsMART was recognized as an industry leader and pioneer, having originated the concept of a pet food and supply superstore eight years earlier. By aggressively pursuing expansion and stocking substantially more products in considerably larger stores than its competition, PETsMART quickly emerged as the dominant company of its kind. Although much of the chain's success was attributed to the size of its stores--all were larger than 18,000 square feet--and its vast selection of products--more than 11,000 items--PETsMART became the dominant force it represented during the mid-1990s through the astute leadership of Samuel J. Parker, the company's chairman of the board and chief executive officer. Under Parker's stewardship, PETsMART evolved into a one-stop pet shopping center offering pet grooming, adoption, and veterinary services, as well as sundry food and accessory products.

In 1987 a new concept in retailing pet food was born when Jim and Janice Dougherty opened the first store of their new company, The Pet Food Warehouse. As its corporate title suggested, The Pet Food Warehouse sold huge bags of pet food in a large, sparsely decorated, cement-floored store, giving consumers the opportunity to purchase food for their pets in bulk at discount prices. The warehouse retail concept was not new at the time, but it was the first time the high-volume, low-priced approach of retailing products to consumers had carried over to the pet industry, a roughly $7 billion-a-year industry during the mid-1980s that was dominated by supermarkets and mass merchandisers, with myriad small pet stores snatching what little was left. The Doughertys, however, were intent on adding a new type of competitor to the industry, one that could take advantage of a burgeoning trend among consumers during the 1980s and fuel the growth of their fledgling enterprise.

Jim and Janice Dougherty incorporated their company in August 1986, using $1 million in start-up investment from Phillips-Van Heusen Corporation and other investors to open their first two stores in Phoenix, Arizona, the following year. Venture capitalists continued to fund the company's expansion after the first two stores were established, providing the financial support to establish five additional stores by 1989, as The Pet Food Warehouse began to take on the qualities of a retail chain. Although there was evidence that The Pet Food Warehouse was performing well--seven stores had been established in less than two years, and annual sales had risen to nearly $16 million--there was one important financial statistic that tinctured its success, particularly in the minds of the company's all-important investors: the regional chain was losing money. In 1989 The Pet Food Warehouse lost $1.8 million, prompting the group of investors supporting the company to make a dramatic change. That year, the board of investors voted for the removal of the Doughertys, retaining the two founders as consultants but excluding them from direct control over the company they had started less than two years earlier.

Although the Doughertys were gone, the concept of selling pet supplies in a large retail store at discount prices remained alive, at least in the hearts of the investors who still hoped The Pet Food Warehouse approach could yield a return on their investments. To replace the Doughertys, the company's financial supporters wanted someone with more retail management experience, and in Samuel J. Parker they gained a leader with considerable experience. A 19-year veteran of the Jewel supermarket chain, Parker had also served as president of Frame-N-Lens Optical and the GEMCO division of Lucky Stores, accruing sufficient executive management experience to attract the attention of The Pet Food Warehouse's anxious controlling investors.

Parker was hired as chairman of the company shortly after the removal of the Doughertys in 1989 and immediately began to exert his managerial control over the seven-unit chain. Although the Doughertys had originated the warehouse retail concept in the pet supply industry, Parker's refinement of the concept would produce the results that antsy investors hoped for, and he soon transformed the money-losing Pet Food Warehouse into PETsMART, Inc., one of the fastest growing companies of any kind in the United States during the early 1990s.

Once Parker was brought on board, sweeping changes were made: cement floors were replaced with tile floors, aisles were widened, and in-store lighting was brightened, creating a more hospitable environment for customers. Instead of merely selling pet food, Parker stocked the company's stores with a full array of pet accessories and supplies, attempting to beat the competition by offering a far greater selection of products at substantially reduced prices. What emerged early under Parker's reign was a hybrid version of the concept first developed by the Doughertys, a retail approach that incorporated the design of a warehouse store with the more conventional trappings of a retail store. In the rear of a PETsMART store, pet food was sold in austere surroundings; pet accessories were displayed on retail racking in the front, giving the customers who frequented each location the benefits of both worlds. Additionally, Parker established grooming and veterinary centers at PETsMART stores then set up a pet adoption service called "Luv-a-Pet," creating a one-stop pet store that offered services and supplies even the largest mass merchandiser or supermarket could not match.

As these important changes were being made, engendering an entirely different type of retail competitor, the need to add additional stores became paramount for Parker. Aggressive expansion across the nation would become an integral component of the success PETsMART enjoyed during the early 1990s, enabling the chain to saturate markets before competitors could establish a foothold and also positioning the Phoenix-based company as the strongest acquisitive force in an industry that would begin to consolidate in earnest between 1993 and 1994. To finance this expansion Parker relied on the same financial source as the Doughertys, urging the venture capitalists backing PETsMART to provide the capital for the establishment of PETsMART stores throughout the southwestern United States. By the end of 1989 five additional units had been opened, giving PETsMART a total of 12; by the end of 1990, the chain comprised 29 stores, averaging 25,000 square feet and stocking roughly 7,500 products.

As the number of stores increased, so did PETsMART's annual sales, recording prodigious leaps that testified to the public's willingness to frequent a pet supply superstore. During the first five years of Parker's stewardship, PETsMART recorded annual sales growth of 85 percent, quickly securing the company's ranking as the largest operator in its industry. From 1989's total of $15.9 million, annual sales surged to $29.3 million in 1990 and nearly doubled in 1991, when the company operated 48 stores by year's end, reaching $58.2 million. That the company demonstrated such robust growth during the economically recessive early 1990s was most impressive. While the PETsMART chain blossomed many businesses, particularly retail businesses, suffered mightily in the anemic economic climate. Thus, PETsMART's surge during the early 1990s testified to the soundness of the entire concept and encouraged Parker to continue his strategic expansion across the country and bolster the chain's market position.

In 1992 annual sales jumped to $106.6 million and for the first time the company registered a profit, generating $400,000 in net income after recording a series of financial losses. PETsMART's net income leaped to $2.4 million the following year on sales of $188 million, but when these financial figures were announced they were applauded by a considerably larger group of people than PETsMART employees, management, and the company's controlling investors. In July 1993 PETsMART made its first public offering, opting to become a public company after years of relying on investors to shoulder the burden of financing the company's expansion. At the time, plans for the development of additional stores were ambitious, dwarfing the rate of expansion recorded during the previous years, as Parker and PETsMART management set sights on establishing a host of new PETsMART stores in new locations. In mid-1993 the company operated 71 stores in 13 states; by the end of the year Parker hoped to operate a total of 106 stores and broaden the chain's geographic coverage to include 20 states, then add 40 additional stores in 1994, as the race to blanket the country with PETsMART stores accelerated.

To finance this prodigious expansion the company needed capital, which the public offering would provide. Becoming a public company would also enable PETsMART to pay down its debt and give the company's controlling financiers a return on their investments, which had fueled PETsMART's expansion throughout its existence. The initial public offering yielded $125 million, giving the company the financial means to forge ahead and grab a larger share of the pet food and supplies industry.

By the time PETsMART went public in mid-1993, U.S. consumers were spending $8.5 billion annually on pet food and supplies, mostly in large supermarkets and mass-merchandising outlets. This had been true when The Pet Food Warehouse first emerged in Phoenix in 1987 and continued to characterize the industry as PETsMART battled to maintain supremacy, but the company had secured its place in the vast market by stocking products the industry's largest competitors did not. Nearly 50 percent of PETsMART's food sales were derived from items such as Science Diet and Iams, brands previously available only through veterinarians and small pet shops. And though this move alone distinguished the company from its competition, that distinction began to blur as the pet food industry entered the mid-1990s.

PETsMART's success had spawned a host of imitators across the country, each trying to capture a share of the pet food and supplies market with an approach similar to that pioneered by the Doughertys and refined by Parker. During the early 1990s each of these companies had broadened their geographic reaches, establishing new stores in new locations much like PETsMART, but as the mid-1990s neared, these companies and their respective expansion plans began to collide, creating a contentious environment within the industry that pitted one company against another. It was either acquire or be acquired in the pet food and supplies industry, with only the strongest competitors likely to withstand the ensuing battle for dominance.

As the largest operator of superstores specializing in pet food, supplies, and services, PETsMART occupied an enviable position for the acquisitive years ahead. Parker had pursued a plan of rapid expansion from the beginning of his tenure at PETsMART. Now, as competition became more intense in the wake of the company's initial public offering, his plans for growth would include swallowing competing companies as well as establishing PETsMART stores in new locations. Succinctly framing the company's attitude for the future, Parker informed Forbes at the end of 1993 that "we're in a race," but even as he uttered those words the fix was in.

The company opened 41 stores in 1993, lifting annual sales from $106.6 million to $187.9 million, and acquired Phoenix-based Pet Food & Supply and its five superstores. PETsMART subsequently folded the Pet Food & Supply chain, retaining one store, then entered 1994 looking to expand wherever the best real estate deals could be had. In January 1994 PETsMART announced its intentions to acquire the 31-unit Petzazz chain from the Weisheimer Companies through an $81.3 million stock swap, an acquisition expected to add $50 million in new business and facilitate PETsMART's entry into the Chicago market, where Petzazz already operated.

In 1995 PETsMART continued to make pivotal acquisitions, including the May purchase of Sporting Dog Specialties, Inc., the world's largest catalog retailer of pet and animal supplies and accessories, but the year's most important acquisition was the purchase of the company's closest rival, Atlanta-based Petstuff, Inc., and its 56 superstores. Announced in February, the acquisition of Petstuff further solidified PETsMART's commanding lead in the industry, giving the company control over much of the nation's pet food and supply market. As the company prepared for the late 1990s and expected growth in the market it already dominated, projections for the future were deservedly sanguine, raising hopes that the years ahead would be as successful as the early 1990s.





Further Reading:


Helverson, Richard, "PETsMART: Teaching an Old Pet Care Business New Tricks," Discount Store News, December 6, 1993, p. 81.
Hooper, Amy, "Retailers Greet Petstuff Demise with Mixed Feelings," Pet Product News, August 1995, p. 22.
Perez, Janet, "Phoenix-Based PetSmart's Superstores Offer One-Stop Shopping for Pets," Phoenix Gazette, September 9, 1993, p. 9.
"Pet Consolidation in Offing: PETsMART Buys Petzazz; Enters Chicago, Portland, Ore.," Discount Store News, March 21, 1994, p. 3.
"PETsMART Inc.," Wall Street Journal, February 8, 1995, p. B4.
Reagor, Catherine, "PetSmart Will Survive Attack on Pet Food Line by Wal-Mart," Business Journal--Serving Phoenix and the Valley of the Sun, September 30, 1994, p. 7.
Roth, Steve, "PETsMART Plans to Open String of Metroplex Stores," Dallas Business Journal, August 24, 1990, p. 11.
Roush, Chris, "Cash Squeeze Forced Petstuff to Sell Out to Petsmart," Knight-Ridder/Tribune Business News, May 3, 1995, p. 50.
Shepherd, Kim, "Huge Pet Stores Cater to Booming Number of Animal Owners," Knight-Ridder/Tribune Business News, September 12, 1994, p. 9.
Sullivan, R. Lee, "Puppy Love," Forbes, December 20, 1993, p. 138.
Swenson, Steve E., "Bakersfield, Calif. Pet Supply Store Sues PETsMART for Deceptive Ads," Knight-Ridder/Tribunes Business News, September 20, 1995, p. 92.
Taub, Stephen, "Diamond in the Ruff," Financial World, September 1, 1993, p. 16.

Source: International Directory of Company Histories, Vol. 14. St. James Press, 1996.




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