PETsMART, Inc. History

Address:

19601 North 27th Avenue
Phoenix, Arizona 85027
U.S.A.

Telephone: (623) 580-6100
Fax: (623) 580-6502

Website: www.petsmart.com

Public Company
Incorporated: 1986 as The Pet Food Warehouse
Employees: 19,825
Sales: $2.2 billion (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: PETM
NAIC: 45391 Pet and Pet Supplies Stores; 54194 Veterinary Services

Company Perspectives:

PETsMart Inc. strives to offer services and solutions to help you be a responsible pet owner by fulfilling the total lifetime needs of your pet. Key Dates:

Key Dates:

1987:: The Doughertys open two stores under the name The Pet Food Warehouse.
1988:: Five additional stores are established in Arizona, Colorado, and Texas.
1989:: Samuel J. Parker joins the firm and pet grooming services are offered for the first time in its Colorado store.
1990:: A total of 29 stores are now in operation under the new name, PETsMART.
1991:: Sales reach $106.6 million and the firm records its first profit.
1993:: The company goes public.
1994:: The company acquires the PetZazz chain of stores and PETsMart Charities Inc. is established.
1995:: The company purchases Petstuff Inc., ten of The Pet Food Giant's superstores, Sporting Dog Specialties Inc., and State Line Tack Inc.
1997:: The company reports a loss of $34.4 million and stock price falters.
1999:: A national campaign is launched and PETsMart.com begins operation.
2000:: The firm sells its U.K. operations.
2001:: The company begins a new advertising campaign entitled 'PETsMART: All You Need for the Life of Your Pet.'

Company History:

The largest operator of pet food, pet supplies, and pet services superstores in the United States, PETsMART, Inc., stands atop a roughly $29 billion industry it helped to create. With nearly 530 mammoth stores scattered throughout the United States and Canada in 2001, PETsMART was recognized as an industry leader and pioneer, having originated the concept of a pet food and supply superstore. 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 12,000 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 1999, PETsMart.com, in which the firm owns an 81 percent stake, was launched and quickly became the leading provider of pet products and information available on-line. Through its subsidiaries, PETsMart, Inc. is also the largest direct marketer of pet supplies and equine products.

Company Origins

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 1988 in Arizona, Colorado, and Texas, 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.

Samuel J. Parker Heading Up Expansion Efforts: Early 1990s

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 also had 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 he 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 for which antsy investors hoped, 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. In addition, Parker established grooming and veterinary centers at PETsMART stores and 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.

Going Public: 1993

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 also would 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. Although 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.

Growth Through Acquisition: Mid-1990s

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, '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, and State Line Tack, Inc., a global catalog retailer of equine supplies. The year's most important acquisition, however, 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. Later that year, Parker retired as CEO, naming Mark Hansen as his predecessor; Parker remained chairman of the firm.

Having successfully secured a leading position in both the retail and catalog sectors of the industry, the company began to focus on internal growth. In 1996, management planned to open 50 new stores, each with a pet hospital attached to it. Operating under the name VetSmart, the pet hospitals ranged from 1,850 to 3,500 square feet and offered services from pet grooming, shots, spaying, neutering, and a variety of other services.

Financial Woes in the Late 1990s

The firm's aggressive growth strategy began to catch up with it however, and in 1997, financial problems arose. Costs related to the recent acquisitions, restructuring costs, problems with a new merchandising system, dropping sales in the flea-and-tick control products market, and a lackluster advertising campaign, all factored into a dismal financial performance. Hansen left the firm that year, and Parker returned to the CEO position. After reporting a $35.72 million loss in the second quarter of 1997, stock price languished. In August, the company initiated a poison pill plan--one that would make them less attractive to potential takeover bids by issuing a new series of preferred stock--in response to its faltering stock price.

Despite its net loss of $34.4 million in 1997, PETsMART continued to aggressively pursue internal expansion. The firm planned to open 75 new stores in 1998, and under the leadership of Parker, the firm restructured its management team as well as its corporate strategy. Philip Francis was hired to take over the CEO position and a new focus on employee training and providing high levels of customer service was initiated along with a new inventory strategy that would ensure that key products would remain in stock while slower-moving items would be discontinued.

Francis became chairman of the firm in 1999 upon Parker's retirement. In March of that year, a new $20 million national ad campaign was launched that spotlighted the firm as a one-stop shop offering pet supplies, pet adoption, and vet services. The company also opened its 500th store in Washington as well as a new distribution center in Texas.

Launching PETsMART.com in 1999

In June 1999, PETsMART.com began operation. Owned by PETsMart Inc., idealab! Capital Partners, and Global Retail Partners, the web site offered the largest assortment of pet-related products on the Internet, customer service, and expert pet advice. Tom McGovern, the CEO of the new venture, stated in a company press release, 'Not only will our product selection, customer value, and service be unmatched, but through our compelling content, expert advice, and entertaining feature articles, PETsMART.com will deliver an overall superior consumer experience.' Sales for the year reached $2.11 billion, a small increase over 1998 sales results of $2.10 billion.

PETsMART entered the new millennium with a strong focus on expanding its North American growth. The firm sold its U.K. operations, which had posted a loss of $10.3 million in 1999. The company also changed the VetSmart name to Banfield, The Pet Hospital. It purchased a controlling interest--81 percent--of PETsMART.com. Stock price continued to remain low, however, and the company continued to post losses due to a general slowdown in consumer spending, increased competition from discounters and grocery stores, and high costs related to warehousing and distribution. Although sales were up by 5.4 percent in fiscal 2000, the firm recorded a $30.9 million loss for the year.

PETsMART started a new ad campaign in 2001 that replaced the tagline 'Where pets are family' with 'PETsMART: All you need for the life of your pet.' The company also outlined a three-year plan that focused on providing a high level of service to customers and pet enthusiasts by expanding its product and services offerings. With a secure position as the United States' largest retail supplier of pet-related products and services, management remained hopeful that the company was on the right track to securing financial gains.

Principal Subsidiaries: PETsMART Direct Inc.; PETsMART Charities Inc.

Principal Competitors: Kroger Co.; Petco Animal Supplies Inc.; Wal-Mart Stores Inc.

PETsMART, Inc. History

Company Perspectives:

Key Dates:

Company History:

Further Reading: