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Analyst Interview Excerpt
A Sharp Focus on Merchandising in Pet Retail - Joan L. Storms - Wedbush Securities, Inc.


Full article published: 06/14/2010


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TWST: Please start with a brief overview of your coverage universe.
Ms. Storms: I've been following the hardlines sector for 15-plus years or so, and I've covered most of the hardlines space, including the pet retailing area in the mid-1990s, when there was a march across the country to consolidate the highly fragmented pet retail industry, with PetSmart and Petco as the leaders. My sector is primarily basic hardlines. I also follow dollar stores, arts and crafts, home goods and a few select other names.

TWST: The retailers you cover sell a pretty diverse range of products. Are there any overall themes or trends that are applicable to PetSmart and Tractor Supply that are also applicable to the rest of the companies in the space, or are there significant differences?
Ms. Storms: There are significant differences. The category-killers that emerged in the mid-1990s have very much refined their store shopping experience. It's not just bricks and mortar anymore; it's about customer service and helping customers make decisions about products and, in particular in the pet industry, about their pets. I would say that retail being a zero-sum game, the retailers that have the best customer service are the ones that are winning and gaining market share. Generally, the hardlines categories are their own industries, not like apparel. Dollar stores do sell some pet products, actually. Fred's is taking a focus on that area. They are based in the Southeast, and they are going to be expanding their pet food and supply merchandise. Of course, we know that Wal-Mart is also dedicating a larger square footage in their stores to the pet area, as they are doing a major remodel program. Target also came out a few years ago with more pet supplies. The pet retailing area has delivered excess returns and as such, it has been attractive to the competition. And with market share up for grabs, the specialty players have had to ante up.

 

Tickers included in this excerpt: FRED, MSO, PETM, PETS, TGT, TSCO, WMT

 

For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.