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General Investing

With a Little Help From Martha Stewart, Specialty Pet Retailers Fend Off Big-Box Competition

June 16, 2010

As the usual set of large, discount retailers roll out more diverse pet supply offerings, specialty retailers, like PetSmart (PETM), are sharpening their competitive edge with more targeted merchandising initiatives and exclusive, brand-name products.

“The recession has had a definitive impact on spending on hard goods and as such, a lot of the retailers – again, I’ll use PetSmart as an example – are very much focused on merchandising in that category,” said Joan L. Storms, a vice president and research analyst at Wedbush Securities, Inc. In addition to reorganizing its in-store hard goods linear footage, PetSmart has also sealed strategic partnership agreements with two popular brands to sell exclusive products in PetSmart stores.

“For example, they are rolling out Martha Stewart (MSO) pet products by the end of Q2, and they also just announced an exclusive agreement with GNC to make animal vitamins and supplements,” said Storms. “[PetSmart] introduced for the first time nationally branded flea and tick products and advertised it heavily on national television, i.e., Frontline and Advantix.”

Storms attributes PetSmart‘s positive hard goods comps, which are up for the first time in four years, to the introduction of these branded flea and tick products in the most recent quarter.

“People are still buying high-nutrition-content food, so it seems like it’s more of consumers cutting back on hard goods,” she said.

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