By Tom Ryan
On March 3rd, Petco held its first-ever Spring Pet Fashion show nationwide. During the event, pets - mostly dogs but a few cats and iguanas as well - scampered down catwalks (dogwalks) across the chains' 850 stores wearing the latest pet fashion trends.
"Spring tees with attitude are our top sellers," said Therese Helmer, a Petco merchandise VP. "The black and white 'Security' tee is the hottest new item for 2007 and the 'Diva,' 'Little Princess' and 'Spoiled' collections are also among our pet fashionistas' top picks."
Pet fashion is just part of a "pet pampering" trend driving multiple sales opportunities across pet products. According to Mercanti Group, a Minneapolis-based investment bank, the pet industry has been growing at a healthy six percent annual clip per year. But in some segments - such as natural and organic food, veterinary care, and pet boarding and grooming - are expanding at a 10 to 15 percent rate.
"In the last ten years, consumer expenditures on their pets have more than doubled and we believe the pet industry is a 'lifestyle' industry, benefiting from important trends that will facilitate above average returns," said Jim D'Aquila, managing director at Mercanti, which just released a report on the industry entitled: Are You Barking Up the Right Investment Tree?
What's primarily driving pet product opportunities is a trend toward "humanizing" pets, or viewing Fido or Tabby as a member of the family. Pets are finding themselves increasingly being fed better food, sporting fancier collars and dog beds, and even included on family vacations.
Healthy demographics also help. According to the Department of Labor, in 2005, 60 percent of the pet products were brought by consumers without children. In that same year, 50 percent were bought by consumers making over $70,000 a year. Combined, that means relatively well-off pet owners without children are left splurging on their furry companions.
This has created both a 'premium' and a 'health' opportunity, according to Mercanti.
At the upper end, this supports demand for luxury accessories such as $18,000 Polo Ralph Lauren pet carriers and Burberry pet apparel as well as for grooming and boarding services, including PetSmart's nearly 60 luxurious air-conditioned pet hotels. But their health-conscious parents are also creating a strong market for organic, natural or age-specific premium dog food, herbal shampoo and non-toxic toys. Finally, pet care is expanding to include chemotherapy, organ transplants, dialysis and MRIs and a recently FDA-approved drug for obese pets.
Beyond Petsmart and Petco, Saks, Nordstrom, Gap, Ikea, Lowe's and Kroger are all exploiting the opportunity by expanding pet assortments. Target and Wal-Mart recently introduced premium food lines on the hopes that pet owners coming in for the food scoop up some higher-margin pet accessories. But Mercanti also noted that thousands of mom & pops serving niche markets are thriving.
Looking ahead, demographics should continue to improve as aging Baby Boomers, with children leaving the household, turn more of their attention to their furry friends.
"There are no signs that the pet segment of the consumer industry is going to slow down in the near or distant future," said Mr. D'Aquila. "There are more dogs and cats in more homes and they are living longer, and the demographic, psychological and socio-economic trends that are fueling this growth are not likely to subside in the foreseeable future.”
Discussion question: What is your assessment of the opportunity associated with the premium health and luxury segments of the pet products market? How much of an opportunity is there for specialty stores and mom & pops operating in this space?