NEW YORK (AP) - It's been a dog-eat-dog world lately for pet retailers as
U.S. consumers scale back on spending, and big-box retailers emerge as stronger
competitors.
Falling home prices, higher energy costs and job cuts have Americans paying
close attention to how they spend their money. And while pet owners love their
animals, recent outlooks from pet-focused retailers and veterinary service
companies suggest that some consumers are trying to cut corners.
"The economy is definitely having an impact," said Morningstar analyst John
Owens, who covers Phoenix-based PetSmart Inc. "Declining home values and rising
gas prices are putting a squeeze on consumer spending."
The market for pet care and supplies in the U.S. is huge. Around 63 percent
of American households own a pet, according to the American Pet Products
Manufacturers Association. The group estimated spending on pets at $40.8 billion
in 2007, up nearly 6 percent from $38.5 billion last year.
Bob Vetere, president of the association, said while ownership has leveled
off slightly, spending on pets has been on the rise, as Fido is considered part
of the family.
Such is the case for Kim Wolff, who watches her three-year-old Japanese
Chins via Webcam while she's at work. "It's really boring because they lay
around all day, but it makes me feel like I get to be at work with my dogs,"
said Wolff, who lives in Brooklyn's Dumbo neighborhood.
Wolff, 30, not only keeps an eye on her dogs, but she also tries to keep her
spending from going overboard.
"You go in these pet stores, and the dog really wants to play with this
stuff. Then all of a sudden, you have a bunch of $8 to $12 items in your bag,"
Wolff said. "I still have the urge to get new things, but it's got to stop
because it's too much."
Blaming sluggish sales, pet specialty retailer PetSmart last month lowered
its fourth-quarter profit. The company reports results on March 5, and analysts
wonder to what extent consumers doted on their pets during the all-important
holiday season when retailers record a large portion of sales.
"We believe that sales fell off during the holidays," Deutsche Bank analyst
Mike Baker said.
Also, as Morningstar's Owens notes, PetSmart faces competition from Wal-Mart
Stores Inc. and Target Corp., which sell pet food and other items, like collars
and leashes.
Animal health care has also showed signs of weakness. Last week, Los
Angeles-based VCA Antech, the largest pet-health provider in the U.S., forecast
fourth-quarter sales below expectations.
VCA Antech has turned its focus on diagnostic testing for animals, where it
has been making a good chunk of money, according to Morningstar analyst Debbie
Wang. "It's their 'crown jewel,' a super high-margin business for them," Wang
said.
However, as the economy slows, pet owners may delay treatments to cut back
on expenses. "If it's not absolutely necessary, I suspect people are going to
either postpone it or not do it at all. But if the need is acute, it will
happen, and people will pony up the money," Wang said.
Long-term, Wang offered a bright outlook in an industry dominated by
empty-nesters and single people wanting to become pet owners.
"If economic conditions are good and people feel like they're getting ahead,
I would predict that folks will be happy to spend money on their pets," Wang
said.
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