PetSmart Strategic Audit -...
Transcript of PetSmart Strategic Audit -...
PetSmart Strategic Audit A strategic audit of the PetSmart brand following the ideas and concepts learned in Competitive & Strategic Analysis. A class taught by Dr. Sean Jasso at the University of California, Riverside.
Business. 109
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Table of Contents Current Situation ............................................................................................................................. 3
History ..................................................................................................................................... 3
Current Performance ................................................................................................................ 3
Ratio Analysis.......................................................................................................................... 4
Competitor Comparison .......................................................................................................... 5
Industry Comparison ............................................................................................................... 6
Mission .................................................................................................................................... 7
Objectives ................................................................................................................................ 7
Strategic Posture ...................................................................................................................... 7
Corporate Strategy ................................................................................................................... 8
Business Strategy ..................................................................................................................... 9
Functional Strategy .................................................................................................................. 9
Polices .................................................................................................................................... 10
Alignment .............................................................................................................................. 11
Corporate Governance .................................................................................................................. 11
Board of Directors ................................................................................................................. 11
Top Management ................................................................................................................... 12
David Lenhardt | Chief Executive Officer ................................................................................ 12
External Environment: Opportunities and Threats (SWOT) ........................................................ 15
Natural Physical Environment: Sustainable Issues ............................................................... 15
Societal Environment ............................................................................................................ 17
Task Environment.................................................................................................................. 20
EFAS Table ........................................................................................................................... 22
Internal Environment: Strengths and Weaknesses (SWOT) ......................................................... 22
Core Competencies ................................................................................................................ 22
VRIO Analysis ...................................................................................................................... 23
Business Model...................................................................................................................... 25
Value Chain ........................................................................................................................... 25
Corporate Structure ................................................................................................................ 27
Corporate Culture .................................................................................................................. 28
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Corporate Resource ............................................................................................................... 29
IFAS Table ............................................................................................................................ 33
Analysis of Strategic Factors (SWOT) ......................................................................................... 34
Situational Analysis (SFAS Table)........................................................................................ 34
Review of Mission and Objectives ........................................................................................ 34
Strategic Alternatives and Recommended Strategy ...................................................................... 35
TOWS Matrix ........................................................................................................................ 35
Strategic Alternatives ............................................................................................................ 35
Recommended Strategy ......................................................................................................... 38
Implementation ............................................................................................................................. 42
Implementation Program & Action Plan ............................................................................... 42
What Must Be Done .............................................................................................................. 43
Organizing for Action ............................................................................................................ 46
Evaluation and Control ................................................................................................................. 48
Measuring Performance: Balanced Score Card ..................................................................... 48
Appendix ....................................................................................................................................... 56
Works Cited .................................................................................................................................. 65
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Current Situation
History PetSmart founded by Jim and Jane Dougherty in 1986 was originally a distribution and
warehouse center for pet products. From the beginning, the company was dedicated to helping
save pet lives along with supporting the adoption of pets. In 1987, they opened “PetFood
Warehouse,” located in Arizona. Jim and Jane first started with two locations and were up to
seven by 1988i with the support of local animal welfare groups. The company however,
experienced many changes in 1989, the first being a name change switching to “PetSmart.”
Shortly after, the company introduced full-service grooming, sale of birds, fish and other small
animals all in-store, along with needed supplies and food required to keep these pets healthy and
active. By 1992, the company began implementing veterinarian clinics inside of 50 of their
stores. The company became public in June 1993 with shares closing on the first day at $8.75, an
847% increase in regards to the current trading value of $83 a share. Just a year later, PetSmart
develops an independent nonprofit organization known as PetSmart Charities focused on saving
as many pet lives as possible. Between the years 2002 and 2004,ii the company introduced
PetsHotel’s in a select number of locations and introduces a companywide loyalty program
known as “PetPerks.” 2005 becomes a rebranding year for the company in which they move
from a “mart” mentality to a “smart” solutions mentality focused more on addressing the
customer’s needs. This leads the company in changing their name to PetSmart. Over the past ten
years since the company became PetSmart, the brand has expanded into Canada and Puerto Rico.
The company along with PetSmart Charities has successfully aided in an estimated five million
pet adoptions. PetSmart now prepares for the future as it finalizes a deal to be acquired by BC
Partners, a private foreign investment firm
Current Performance PetSmart currently operates 1,387 locations in the United States, Canada and Puerto
Rico. in recent years, however, PetSmart has been struggling financially, losing their market
shares. In July of 2014, PetSmart’s largest shareholder, JANA Partners LLC, wrote a long letter
to David Lenhardt (PetSmart CEO), explaining their frustration at the company’s
underperformance. JANA Partners LLC specifically stated PetSmart was outperformed by
competitors due to “weak e-commerce presence, suboptimal pricing structure, inadequate cost
management, failure to develop new store formats, and lack of product innovation.” JANA
Partners concluded the letter by advising the company to begin a full strategic review.
Essentially, PetSmart used to be a dominant force in the pet care industry, but has recently seen a
2% loss in market share since 2012.iii
PetSmart shares are currently at a record high of $81.50 per share. In 2011, the shares
were at $52.09 and between 2012 and 2014, the shares have been steadily fluctuating around
$70.iv
The beta of the company is at 0.24 meaning that PetSmart is a very low risk company and
could be a good investment for people trying to make decent returns with very little risk.
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Financial Overview
Report Date Jan 2014 Jan 2013 Jan 2012 Jan 2011 Jan 2010
Scale Thousand Thousand Thousand Thousand Thousand
Revenue 6,916.63 6,758.24 6,113.30 5,693.80 5,336.39
Profit 2,115.94 2,062.14 1,804.42 1,654.53 1,519.22
Income 402.10 373.56 279.32 229.50 191.78
Profit Margin 30.59% 30.51% 29.52% 29.06% 28.47%
Growth Rate 2.34% 10.55% 7.37% 6.70% 5.36%
Stock Price 67.76 68.18 52.10 40.02 26.30
EPS 4.02 3.55 2.55 2.01 1.59
ROI (Operating) 42.63 38.1 29.24 24.7 21.3
Dividends Per Share 0.72 0.64 0.55 0.48 0.33
PetSmart has seen a steady growth rate over the past five years with the largest growth
being in 2013. Distribution of dividends over the past five years is due to the companies
continued growth in profit. Unfortunately, within the last year, PetSmart has seen a substantial
decrease in the company’s growth rate, with the end of 2014 coming in at only 1.1%.v
PetSmart’s decreasing growth rate can traced to a number of reasons, the largest being increased
competition from online retailers and big box supermarkets/warehouse clubs such as: Walmart,
Target and Costco. The only aspects keeping PetSmart open and profitable are the services it
provides in store, which includes pet hotels, day camps for dogs, grooming services, training for
dogs and in-store pet hospitals providing checkups and shots from certified veterinarians. These
services differentiate PetSmart from its competition and are the overall reasons why PetSmart’s
revenues have continued to increase year after year.
Ratio Analysis
2014 2013 2012 2011
Current Ratio 1.66 1.74 1.86 1.96
Quick Ratio 0.44 0.55 0.61 0.62
Inventory to Net Working Capital 6.76 7.09 6.84 6.85
Cash Ratio .45 .55 .64 .63
Net Profit Margin 30.59% 30.51% 29.51% 29.05%
Gross Profit Margin 31% 31% 30% 29%
Return on Investment 42.63% 38.1% 29.24% 24.7%
Return on Equity 37.94% 33.65% 25.04% 20.53%
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Earnings Per Share $4.23 $4.02 $3.55 $2.55
Inventory Turnover Ratio 6.76 7.09 6.84 6.85
Days of Inventory 56 52 54 55
Net Working Capital Turnover 5.24 5.62 5.83 5.50
Asset Turnover 2.74 2.62 2.45 2.32
Current Liabilities to Equity 30.12% 31.50% 29.76% 26.78%
Price/Earnings Ratio 19.27 17.85 19.61 20.11
Dividend Payout Ratio 18.43% 17.91% 18.02% 21.56%
(Information Retrieved from Morningstar)
PetSmart’s strong financial position has enabled the company to be the leader in its
industry and has demonstrated competitive ratios in regards to the industry’s averages. The
company’s current ratio is at 1.66, meaning that for every dollar of liability there is a $1.66 in
current assets to cover the company if it became flooded with a large number of collectors.
PetSmart’s current net profit margin is 30.59%, meaning the company makes 30 cents for every
dollar of sales. PetSmart’s earnings per share have been steadily increasing over the past five
years with 2014’s ending EPS being $4.23 along with an ending share price of $81. This EPS is
higher than industry competitors and has enabled PetSmart to distribute dividends to
shareholders over the past five years. These dividends have a current payout ratio of 18.43%,
meaning PetSmart has roughly paid out 18% of their overall share price in dividends to
shareholders.
PetSmart’s ratio analysis highlights one area of concern in regards to PetSmart’s
inventory turnover ratio. The company’s days of inventory are also an area of concern. For 2014,
PetSmart turned their inventory over 6.76 times and held inventory for an average of 56 days.vi
A
higher inventory turnover ratio means PetSmart would be more efficient in selling their
inventory. PetSmart held inventory for an average of 56 days last year, creating a concern,
considering the retail average is between 30 to 60 days. This high number of inventory days is
costly because the storage and administration costs correlate with the numbers of days. Through
an implementation of our recommended strategies for growth, PetSmart will be able to maintain
and increase its positive financial position within the industry.
Competitor Comparison PetSmart has a few major competitors including Target, Walmart, PetCo and PetMed,
which is an online pharmacy where owners can buy prescriptions and medications for their pets.
PetCo, however, is PetSmart’s biggest competitor considering due to how identical it conducts
business. Both companies are large retail stores that focus on supplying the essentials for most
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household animals. Target and Walmart, on the other hand, differ by providing only products for
pets and services like PetSmart and PetCo. Target and Walmart are competitors because these
stores provide convenience for owners. Customers cannot only purchase their desired pet
products, but they can also pick up grocery items and appliances without having to drive to
another destination.
Over the years, PetCo’s inability to retain customer loyalty has provided PetSmart with
the ability to control 41.9% of the market. This has created a possibility for PetSmart to end 2015
with revenue of $6,570 million, doubling that of PetCo’s average yearly revenue of $3,200
million.vii
Industry Comparison
According to spending
statistics gathered through market
research by the American Pet Products
Association (APPA), the total industry
expenditures for pet products in 2014
was $58.51 billion, a $2.79 billion
increase from just a year before.viii
The
graph to the right is a breakdown of
what U.S. pet owners spent their
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money on in 2014. PetSmart’s yearly sales follow a similar breakdown and provide the firm with
insight into what areas to specialize in along with what areas they can improve on to maintain a
competitive advantage. Through an expansion of PetSmart’s services and strategic partnerships
we believe the firm will maintain its position as an industry leader and continue to deliver on its
mission of providing lifetime care to every pet, every parent, every time.
Industry Comparison (2014)
Thousands PetSmart Walmart PetCo Costco Target Industry Median
Revenue (in millions) $6,50 $476,29 $3,22 $112,46 $72,60 -
Profit Margin 30.33% 24.77% N/A 12.64% 28.76% 30.45%
Return on Equity 34.83% 20.76% N/A 18.06% 9.37% 11.55%
Price / Earnings Ratio 19.27 18.25 N/A 29.07 31.45 48.54
Price / Sales Ratio 1.17 0.58 N/A 0.54 0.65 1.12
Revenue Per Share $69.55 $149.07 N/A $258.77 $115.42 $13.53
(Retrieved From Hoover’s Inc.)
Mission PetSmart’s mission is “to provide lifetime care to every pet, every parent, every time.”
The firm aims to achieve this mission through establishing deep relationships with customers
along with the added services it provides its customers, compared to the competition. These
services include in store grooming, on site veterinarians, K9 training camps and an overall
employee force educated on the different pet products sold within the market. PetSmart believes
pets make us better people, which is why the firm focuses on creating opportunities for owners to
be inspired. The firm also offers customers a wide variety of pet consumables. PetSmart’s 1,387
locations in the US, Canada and Puerto Rico enables the firm to reach a wide audience of
potential consumers to achieve the company’s mission of providing care to every pet.
Objectives
The company’s objective is to, “Offer superior products, unmatched services and superb
customer service to pet parents and their pets.” The objectives extend beyond the customers to
include satisfying shareholders demands. Each of PetSmart’s services aims to reach the
company’s overall mission to provide care for every pet, through philanthropic endeavors such
as weekly adoption events in every location.
Strategic Posture Strategic Posture is, “an approach company leaders take in applying a business' strengths
to the current and long-term needs of the marketplace.”ix
There are three strategic postures for
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management to elect as the one they want to follow: shaping the future, adapting to the future or
reserving the right to play. PetSmart falls into the category of a firm that shapes the future and is
evident through their strategies, direction and portfolio.
Corporate Strategy Corporate strategy focuses on the direction of a firm and the choices it makes in regards
to management of the business, as well as their portfolio of products. Corporate strategy also
focuses on directional strategy, portfolio analysis, and parenting strategy to align the three
functions with the company’s mission and vision. PetSmart’s corporate strategy is service
oriented, providing pet owners with solutions to their pet issues, as well as facilitating loving
relationships between pets and their owners.
Directional
Within directional strategy, there are three areas PetSmart can focus their attention on:
growth, stability or retrenchment. PetSmart currently delegates most of their efforts on growth
specifically in operations, both geographically and in regards to expanding the number of
potential customers. In most situations, a firm can achieve growth through innovation, mergers
and acquisitions. PetSmart follows a horizontal growth approach on expanding the firm’s
presence in fields and markets the company already occupies. The firm’s strategy on growth, to
satisfy shareholders demands, has proven unsuccessful over the past five years, however, this is
more of a stability approach and would need to change if the company wants to remain relevant
in the pet retail industry.
Portfolio Analysis
PetSmart operates in three distinct segments: products, services and the sale of live pets.
The product’s segment offers a diversified portfolio containing products from numerous brands.
Specifically in the areas of consumables, vitamin supplements, toys, expressionery accessories
and housing units. The services segment portfolio includes grooming, on site veterinarians, pet
hotels and pet training. The last segment, sale of live pets, entails aquatics, rodents, reptiles, and
birds. This diversified portfolio of products strengthens PetSmart’s position within the market
and provides a competitive advantage over the competition.
Parenting Strategy
Parenting strategy is the manner in which management coordinates activities and
cultivates capabilities among product lines and business units.x The parenting strategy is divided
into a three-step process: (1) examine business units in regards to strategic factors (2) define
areas of needed improvement (3) analyze whether the parent company fits with the business unit.
PetSmart is currently leading the industry for pet retailers because of top management's
commitment to improving the three areas.xi
Banfield Pet Hospitals are also the leaders in the
veterinary industry. Therefore, combining these two companies is a parenting strategy in which
PetSmart’s management cultivates the firm’s capabilities of resolving all pet owners’ demands.
Acquiring Banfield adds value to the parenting company (PetSmart) through the expansion of the
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firm’s business unit, regarding services. In conclusion, this buyout would expand PetSmart’s
already diversified portfolio of partnerships and embraces the three steps of the parenting
strategy defined by Hunger and Wheelen.
Business Strategy Business strategy divides into two categories: competitive and cooperative strategy.
These strategies focus on the improvement of the firm’s competitive position through product
and services offered by that company. This competitive advantage can be broken down into two
strategies where companies compete on price or differentiation. PetSmart follows the business
strategy of differentiation by offering numerous pet services and products under one roof. The
company’s low prices, compared to PetCo, support the firm’s strategy for competing on price.
The firm offers a price-match guarantee on any items purchased from a physical store making
PetSmart a strong competitor in their industry. Lastly, PetSmart’s 28 years in the market has
enabled the company to establish strong brand recognition with consumers and has ultimately
granted them the position of being the industry leader.
Functional Strategy Functional strategy is the approach a functional area such as Marketing or Human
Resources takes to achieve corporate and business maximization of resource productivity.
Research and Development
The R&D functional strategy focuses on product/process innovation and improvement.
PetSmart’s R&D goal currently focuses their efforts on studying customers purchasing behaviors
to develop an offering of in-store products they believe will sell the quickest due to high
consumer demand. The resources allocated to reach this goal include, but are not limited to,
analysis of specific product sales and overall store sales.
Marketing
The marketing functional strategy deals with the firm’s 4 P’s: product, price, promotion
and place. PetSmart’s recent marketing efforts have received negative feedback due to the firm’s
inadequate execution. This recent campaign created a strong slogan supporting PetSmart’s vision
of pets inspiring their owners, but lacked a clear and concise connection between the brand and
the services they offer. PetSmart’s most burning strategic issue is improving their overall
marketing to better inform consumers of the diverse portfolio of services the firm has to offer.
Human Resource
PetSmart’s store associate training is quite rigorous compared to most retail positions.
The company requires hours of online training along with in-store training under the watch of the
assistant and head store managers. The training process is even more rigorous for employees
who are in direct contact with pets such as the groomers. According to Philip, an assistant store
manager at the Moreno Valley PetSmart, groomers are required first to spend 30 days at an
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offsite-grooming academy learning how to groom all types of pets. Following the successful
completion and graduation of this academy, groomers must complete 160 hours of grooming
services under the watch of a manager or head groomer. The time and education HR dedicates to
every employee explains why PetSmart’s turnover rate is only between one and two percent.
Operations & Logistics
Aside from PetSmart’s services, the company's operations and logistics are their strongest
business unit. PetSmart operates two types of distribution centers: forward and combination. The
forward distribution centers primarily handle the distribution of products that require rapid
distribution such as consumables and cleaning supplies. On the other hand combination
distribution centers distribute the rest of their products and have proven to drive efficiencies in
transportation costs and store labor. The firms overall operations have become more
technologically oriented with signs of continued growth. Investors, however, have voiced
concerns regarding PetSmart’s store locations and market concentration. The firm has the
opportunity to expand their market share by developing new store formats tailored to the
surrounding demographics.
Finance
PetSmart recently invested $130 million in acquiring Pet360.com. This acquisition
provided the company with control of nine e-commerce sites serving more than 12 million pet
owners a monthxii
. The deal was a step toward PetSmart’s overall goal of increasing the firm's
online presence. PetSmart’s ability to purchase Pet360 through an all cash acquisition defines the
firm’s financial stability and potential to acquire other strategic partnerships.
Information Systems
PetSmart relies on their information systems to effectively manage their financial and
operational data, process payroll, manage the supply chain, and maintain their in-stock positions.
The firm possesses a disaster recovery capability for key information systems, and takes
measures to prevent security breaches and computer viruses. In order for the firm to maintain
their industry position and deliver products on time, they must continue yearly investments into
the development of their information system.
Polices PetSmart stands by two major policies regarding privacy and returns. The firm’s privacy
policy is evident on the company’s website and explains the information customers are agreeing
to share when signing up for the loyalty program or making a purchase online. This information
includes but is not limited to the customer’s name, mailing address, phone number and email.
PetSmart does provide customers the ability to opt-out of sharing certain pieces of private
information and even allows customers to update this information online or toll free through
PetSmart’s customer service hotline.
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The company’s generous return policy demonstrates PetSmart’s overall dedication to
their mission of providing pets and their parents with lifetime care. The 60 day, hassle free return
policy allows customers to receive a full monetary refund or store credit at any PetSmart
location. This policy expands even further, allowing customers to bring in receipts from a
competitor and still receive a full refund or trade in for a recommended product employees
believe will resolve the customer’s issue.
Alignment Every functional area of PetSmart’s business model aligns with the company’s mission
and vision while also providing shareholders with positive returns on investment. The firm
constantly focuses on improving the alignment of these functional areas in regards to the
numerous different business units. For example, PetSmart’s IT, logistics and operations teams
have all collaborated in an effort to integrate technology into each store's inventory models. As a
result, store associates now carry iPads linked to a database that can provide customers with real
time information for what stores have their desired products in stock. The alignment of
PetSmart’s functional areas can expand even further with one recommendation for the IT and
marketing teams to collaborate in an effort to create digital advertisements targeted towards
specific customers. These ads would target through the analysis of big data collected from the
company’s loyalty program or other online sources, such as web searches and previously visited
sites. Through a strategic alignment of PetSmart’s functional areas, business units, top
management and new owners, the firm can continue to achieve its mission and vision of offering
superior service while providing shareholders a positive return on investment.
Corporate Governance
Board of Directors Dr. Angel Cabrera President
George Mason University
Rita Foley Retired President
Consumer Packaging Group
Rakesh Gangwal Former Chairman, President and Chief Executive Officer
Worldspan Technologies, Inc.
Joseph Hardin Retired President and Chief Executive Officer Kinko's Inc.
Gregory Josefowicz Chairman of the Board
Retired Chairman, and Chief Executive Officer Borders Group, Inc.
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David Lenhardt Current PetSmart CEO
Richard Lochridge President
Lochridge & Company, Inc.
Barbara Munder Senior Advisor
Euromoney Institutional Investor PLC
Elizabeth Nickles Executive Director
Herman Miller Foundation
Thomas Stemberg Managing General Partner
Highland Capital Consumer Fund
Top Management
David Lenhardt | Chief Executive Officer
David Lenhardt became president and CEO (chief executive officer) of
PetSmart in April 2014. He began his career at PetSmart in 2000, where he
served as the senior vice president of Services, Strategic Planning and
Business Development. Lenhardt became Senior Vice President of Store
Operations and Services in 2007, and later became Senior Vice President of
Store Operations and Human Resources. He became Executive Vice President
of Store Operations, Human Resources and Information Systems in 2011.
Lenhardt served on the board of directors for Banfield Pet Hospitals from 2013
to 2015. Before Lenhardt joined PetSmart, he served as the consulting leader for retail,
technology and e-commerce at Bain & Company Inc. from 1996 to 2000. Prior to Bain &
Company, Lenhardt worked in corporate finance at Merrill Lynch.
Phil Bowman | Executive Vice Present of Customer Experience
Bowman joined PetSmart in June 2014 and began to serve as Executive Vice
President of customer experience. He has previous experience in other fields,
including brand-building, digital marketing, and e-commerce. Bowman also
worked at TD Ameritrade (online securities brokerage firm) and served as the
chief executive officer. Before working at TD Ameritrade, he was leader for
other companies such as TC Bank Group, H&R Block, Sprint, and Pepsi. Co.
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Matt McAdam | Executive Vice President, Merchandising and Real Estate
McAdam began his career in PetSmart in 2008 and began serving as the Vice
President of Hardgoods Merchandising. In 2012, he got promoted to senior vice
president of Merchandising and later in April 2014, he became executive vice
president of Merchandising and Real Estate. He has had experience with
merchandising for over two decades and have worked with department stores
including Kohl’s and Macy’s. Before beginning his career in PetSmart, McAdam
served as vice president of Planning and Allocation at Kohl’s and served as vice
president of Merchandising at Bon Ton Department Stores.
Carrie Teffner | Executive Vice President and Chief Financial Officer
Teffner began her career at PetSmart in June 2013 and served as Senior Vice
President and chief financial officer. In 2014, she was promoted to Executive
Vice president and Chief Financial Officer. Teffner has worked in management
for over 20 years and was Executive Vice President and chief financial officer at
Weber-Stephen Products. She was also vice president of treasury and FPA and
Senior Vice President and chief financial officer for Sara Lee Corporation.
Bruce Thorn | Executive Vice President, Store Operations, services and Supply Chain
Thorn began his career in PetSmart in 2007 and was the vice president of
Supply Chain Solutions. In 2009, he began to serve as Senior Vice President
under the Supply Chain department. Then in 2012, he became senior vice
president of store operations and finally, in April 2014, he became Executive
Vice President of supply chains and store operations. Before beginning his
career in PetSmart, he was COO (Chief Operating Officer) at LESCO Inc and
had other leadership roles in Gap Inc and Cintas Corporation.
Eddie Burt | Senior Vice President, Real Estate and Development
Eddie Burt joined PetSmart in 2007, serving as the vice president of
Distribution. In 2009, he also served as the vice president of Transportation. In
2011, he became the head of Supply Chain. Then in April 2014, he became
Senior Vice President of Real Estate and Development. Burt has had 23 years of
experience working in supply chain and has worked for retailers including
Target and Home Depot
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Paulette Dodson | Senior Vice President, General Counsel and Secretary
Dodson began her career in PetSmart in 2012, where she served as the Senior Vice
President, general counsel and secretary. She has had over 25 years of experience in
serving as Senior Vice President, general counsel and corporate secretary at Sara
Lee Corporation. Before working at Sara Lee, she worked for the Tribune Company
for 14 years.
Erick Goldberg | Senior Vice President, Human Resources
Erick Goldberg started his career in PetSmart in 2001 where he was the manager
of services recruiting. In 2004, Goldberg became director of talent acquisition and
associate relations. Later in 2013, he became senior vice president of Human
resources. Before his career at PetSmart, he was director of Human Resources at
Distribution Architects International for eight years. He also had other HR
leadership position at Management Technology America and Triad Systems
Corporation.
Michael Goodwin | Senior Vice President and Chief Information Officer
Goodwin joined PetSmart in June 2014 as the Senior Vice President and chief
information officer. He has over 20 years of experience in the information
technology field. Goodwin worked at Hallmark, where he served as Senior Vice
President and Chief Information Officer of Technology and Business
Enablement. During his time at Hallmark, he worked as an end-user technology
analyst in 2006, he was promoted to CIO (Chief Information Officer).
Chris McCurdy | Senior Vice President, Supply Chain
McCurdy began his career at PetSmart in November 2006 where he was the
president of transportation. He had other leadership roles within Supply
Chain, and was vice president of Replenishment and Vendor Management.
Later in 2014, he was promoted to being the Senior Vice President of Supply
Chain. Before he joined PetSmart, he worked in Supply Chain roles in Gap
Inc. for nine years. McCurdy also held Supply Chain and customer service
positions while working at Andersen Windows.
Brock Weatherup | Senior Vice President and Chief Digital Officer
Weatherup started working at PetSmart in September 2014 and was Senior Vice
President and Chief Digital Officer after PetSmart’s acquisition of Pet360 Inc. He
also has previous experience in a variety of positions including strategic
leadership, online commerce, direct marketing, brand building, and digital media.
Prior to Pet360 acquisition, he serviced the chief executive officer. Before
Pet360, Weatherup was CEO of Fathead LLC.
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External Environment: Opportunities and Threats (SWOT)
Natural Physical Environment: Sustainable Issues PetSmart ranked within the top 300 of Newsweek’s list, “America’s Greenest
Companies”.xiii
As a company specializing in the well-being of pets in the environment,
PetSmart aims to maintain reputable response to the increasing number of environmental issues.
The image of the company’s sustainability record reflects their brand identity and an investment
into improving the environment will be indirectly affecting PetSmart’s customer relations.
PetSmart has expressed their vision for sustainability is “to ensure every action we take supports
the long-term economic, social, and environmental health of the communities and world around
us”.xiv
PetSmart initiated a new campaign on environment sustainability called Think Twice in
2008 to help implement its strategy for sustainability. Since the development of Think Twice,
PetSmart has evaluated the effects of its manufacturing on the environment annually and targeted
its efforts to minimizing its carbon footprint. In 2010, they began to release their findings in a
Annual Environmental Sustainability report to create connections between its associates, its
partners, and their ability “to Illuminate, Inspire and Involve associates in environmental
sustainability”.xv
Think Twice outlines the six areas that PetSmart is to target in its efforts:
Recycling, Energy, Waste, Engagement, Water, and Green Products and Partnerships.
Recycling
PetSmart aspires to “work toward ‘Zero Waste’ across our corporate and field
operations”.xvi
Plastic Bag Recycling is an effort to counter ordinances or bans on Since 2009,
PetSmart has been tracking the number of plastic bags used in its operations and determined that
over 165.4 million were used throughout the year. In an effort to reduce the impact on the
environment, PetSmart raised recycling rates by 500%. E-waste, or the waste taken on from
electronic items, has been a growing issue as older technology becomes obsolete. As more and
more new technologies are being implemented into the workplace, there is an increase of e-waste
taken on by the environment. PetSmart recycled over 7,500 pounds of e-waste in 2009 and
intends to increase its e-waste recycling rate every year for the next five years. Approximately
12,500 pounds of e-waste were recycled in 2010.
Energy
PetSmart’s overall aspiration in energy consumption sustainability is to “reduce average
energy consumption across all PetSmart stores.”xvii
In an effort to reduce energy consumption,
there has been emphasis on improving efficiencies in lighting, chemicals used in store, and
emissions. PetSmart has upgraded stores to a Skylight system, using florescent lighting to lower
energy costs and brighten the atmosphere of the store. These fluorescent lights can be installed at
all stores to maximize cost savings. They have also realized to clean the Vinyl Composition Tile
(VCT) Flooring, the cost of floor wax and stripper would exceed that of investing into the
remodeling into diamond ground polished and stained concrete. This investment is meant to save
$7,000 a year and eliminates the need for harmful, acidic cleaning products.
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Waste
PetSmart views the issue of waste as “any opportunity to remove items from our waste
stream reduces the number of hauls required from our stores, diverts unnecessary waste from
landfills and reduces cost.” A major concern is to reduce the amount of paper processing.
PetSmart Human Resources have worked to utilize paperless methods in all matters with
employees including hiring applications, background checks, drug screens, assessments, and
work opportunity tax credit qualifications. Along with the paperless effort, Human Resources
also take advantage of online software’s to eliminate the waste with status change forms, car
allowance, and I-9 processing. Through online functions, PetSmart has estimated a savings of
over 40,000 pages a year. Since the implementation of Direct Deposit, PetSmart has saved over
$1.2 million by foregoing the expense of printing and mailing paper check.
Engagement
Think Twice is a program implemented by PetSmart that helps connect associates with
ways they can “Illuminate, Inspire, and Involve” themselves to be accountable for the
environment. PetSmart has created the “Use Twice Supply Exchange” to promote recycling and
sustainability. Employees can use this program to reuse office supplies and, at designated areas
on campus, can allow others to use their unused materials to avoid having to purchase new ones.
This can help save PetSmart money and energy.
Water
PetSmart understands a clear analysis of how water is being consumed from each of their
fish systems, Banfield locations, Pet Hospitals, and Pet Hotels will help in evaluating how
consumption can be minimized. Each store has made an effort in lowering the overall water
consumption. One of the main efforts involved decreasing water flow to the fish systems.
Despite avoiding the increase of fish loss, PetSmart has an estimate of 71 million gallons of
water to be saved. Flowmeters to measure the amount of water being consumed were installed in
multiple stores. With 87% of the total water being consumed at non-hotel locations, we want to
understand consumption rates within each part of the business. The evaluation of this will help
managers understand which parts of the store consume the most water and can implement a plan
to eliminate some of the unnecessary cost. Stores have the opportunity to filter and reuse
wastewater from the fish systems. The wastewater connects to an underground 10,000-gallon
tank that can help eliminate this waste of water. xviii
Green Products
PetSmart has maintained its strategy of “Broadening our selection to include recycled
content, reduced packaging, and organic ingredients addresses a growing segment of
consumers”. Since many consumers are becoming environmentally conscious, the increase in
recycled packaging of products and foods, as well as the conservation of energy has become a
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major trend in society. Plastic bags that are not recycled end up in landfills where they last for a
thousand years before decomposing. Shopping for groceries and other types of items have made
an imminent amount of usage in plastic bagging that does not get recycled, thus the creation of
recycled and reusable bags. The production and usage of reusable shopping bags and the
spreading fees on plastic bagging has made many cities and states to realize the need to engage
in environmental sustainability, including PetSmart. PetSmart created the PetSmart Reusable
Tote, which is made out of unbleached cotton and is natural and biodegradable. They have sold
more than 395,077 reusable bags nationwide and have donated ten percent of those sales to
PetSmart Charities.xix
Societal Environment
Economic
As part of the four pillars of sustainability, PetSmart’s economic sustainability section
states, “We believe in doing the right things to delight our customers, improve store productivity
and drive differentiation to promote financial value to the business.”
Economic Downturn
In the case of an economic downturn, PetSmart faces a threat when disposable income
decreases in the average consumer. While the bulk of the revenues come from necessary
products, like pet food, 11% of the total revenues come from pet services.xx
These services are
viewed as disposable and luxury spending. In economic downturns, these expenditures are the
first to be cut from the individual’s budget. Due to the lack of spending on pet services,
economic downturn poses a threat to the company’s financial position due to a potential drop in
sales revenue. An increase in economic stability would strengthen the customer’s spending
power and would increase disposable spending, including expenditures on pet services
expenditures on pet services.
Federal Minimum Wage
As of July 24th 2009, The United States rose the minimum wage rate to $7.25 for all
covered employees.xxi
The United States Department of Labor issued a statement saying that it a
Notice of Proposed Rulemaking (NPRM) to review the current minimum wage labor laws.
United States Senator, Tom Harkin, and Congressman George Miller have introduced legislation
to raise the current minimum wage rate from $7.25 to $9.00 an hour. Adjusting for inflation, this
will increase minimum wage to $10.10 an hour in 2016.xxii
This poses a threat to PetSmart,
seeing as the entry-level employees will all increase from an annual salary of $15,000 to
approximately $21,000. An additional expense will come from adjusting current employee
salaries to have a premium above what the entry-level employees are paid. This increase in
salary expense will lower profits and potentially raise the risk of job loss throughout the
company.
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Unemployment Rate
In February 2010, the United States had an unemployment rate of 9.8% and in February
of 2014, it had decreases by a factor of 0.32 to 6.7%. During the same period, PetSmart’s store
increased by a factor of 0.17.xxiii
These statistics highlight PetSmart has less elasticity of job loss
than the United States average We find opportunity in maintaining fewer highly-trained
employees to reduce the risk of turnover. This, in turn, means PetSmart would be less susceptible
to unemployment trends.
Currency Markets
BC Partners, a private equity firm based in London, England, are currently buying out
PetSmart. BC Partners holds value and maintains presence throughout the United States and
Europe. PetSmart intends to branch out into foreign markets and, with the help of their potential
parent company, will have resources to penetrate into new markets. The weakening of the power
of the U.S. dollar poses a threat for PetSmart. If expectations for overseas profit are to make up
25% of PetSmart’s overall revenues, a 1% decrease in the value of the U.S. dollar can increase
the operating expense
Lower Income Communities
Urban communities labeled as economically disadvantaged typically have pet product
consumers that purchase from small, local businesses. PetSmart has the opportunity to enter into
these niche markets by place a “micro-store” layout, or a PetSmart store that sells mainly pet
food, medicines, and a much smaller variety of miscellaneous products. Local businesses will not
be able to compete with the prices of PetSmart and would not be have the online store and
website supported by their large distribution chain. Due to this, PetSmart would be able to enter
into these niche markets and gain a larger portion of the pet food market.
Technological
PetSmart has 35 million individuals signed up as customers and has 6 million of those
signed up for PetSmart updates via email. Individual shoppers percent of transactions and sales
account for a total of eighty and ninety, respectively. PetSmart maintains databases of its
customers and can attempt to better understand the needs of their market. The purchasing trends
can be analyzed and use to optimize store production and efficiency. They split this customer
contact by three methods: through their stores, the online site, and through the Pet Perks
Program. Combined, these methods of communication contact the 10 million customers every
week.xxiv
In-store PetSmart associates have access to each one of the 90% of transactions with the
front end registers connecting to the customer database. To optimize efficiency, PetSmart has
been analyzing the effects of switching from IBM desktop registers placed in the front of the
store, to Apple iPads for each employee. This way, a customer could ask for help with a product
and the floor associate can look up any Pet Perks profile, purchase history, store availability, and
even help the customer check out.
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To align their in-store technological advances, PetSmart has the opportunity to improve
their online presence. Updates could be made to their website to maximize efficiency, simplicity,
and availability. PetSmart has seven clicks to make a transaction and can be reduced to
streamline efficiency. Returning customers can configure their account to allow one-click
transactions to reorder past purchases. Customers can also maintain recurring orders, where food
and other products can be sent on a regular basis, online for convenience. These changes can
contribute to a stronger online presence for PetSmart and strengthen the technological connection
to in-store solutions.
Political Legal
In 2012, PetSmart's past and current grooming employees had filed a class action lawsuit
that claimed PetSmart had not provided sufficient compensation for their grooming services. In
2014, PetSmart settled to pay employees $10 million to reimburse 16,000 employees across 132
store in the United States for their unfair treatment of employee wages. This was due to
mismanagement and failure to adhere to the regulations set by the corporate office. In these
select stores, the managers brought upon this threat by failing to properly compensate for meal
break violations, company grooming tool purchase reimbursements, and improperly calculated
vacation pay. Lawsuits pose as much of a financial threat as they do a threat towards their human
resources. PetSmart can lose the trust of their employees and create a hostile work environment,
potentially increasing turnover rate and diminishing PetSmart human resource management
image.xxv
PetSmart faces the threat of potential lawsuits from any mistreatment of the pets that are in their
care. Allegations from pet owners bring a negative image on their pet services. On March 7,
2015, an English bulldog was asphyxiated to death in a PetSmart grooming center in Mishawaka,
Indiana.xxvi
The cause of death had not been concluded because of a mishandling of pets, a
disregard of company protocol, or a lack of well-trained employees. These allegations can
corrupt the image of PetSmart’s employees and the services they provide. They remain a threat
to the company since a cornerstone of the company is its ability to instill trust with its customers.
Socio-Culture
The core of PetSmart’s socio-culture lies in its total care beliefs and its commitment to
pets, pet-parents, and their employees. Given PetSmart’s emphasis on caring, the company is
structured to facilitate improvement for not only the company sales, but also on personal growth.
PetSmart does treat the workplace tasks as a team, often times promoting collaboration as an
asset to the company. PetSmart customers enjoy help from knowledgeable and caring staff,
creating a comfort and trust within the brand. Trust and reliability help grow the image of the
company and develops customer relationships. PetSmart finds opportunity in the culture trend of
treating pets as part of the individual’s family. They have established their new marketing
campaign, “Parents in Pethood,” to attract customers and reposition themselves to be the number
one provider for individuals that want what is best for their pet. A threat towards PetSmart is
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animal activists who strongly protest against the pet retailer with allegations of animal cruelty.
Mistreatment of animals has grown to an extremely negative stigma in today’s culture. Activist
organization including the People for the Ethical Treatment of Animals, or PETA, have started
movements against PetSmart called “Stop Cruel Animal Sales.”xxvii
These movements dissuade
potential customers from trusting PetSmart and can create a negative brand image between
PetSmart and their pet parents.
Task Environment
Threat of New Entrants (Low)
Since PetSmart has over 1,300 locations in both the United States and Canada, the threat
of new entrants is minimal because it takes a large amount of capital to establish a pet company.
Thus, it is difficult for other companies to establish pet stores similar to PetSmart’s.xxviii
The only
threat that PetSmart would face is if there is a store that focuses on selling organic pet products
and offers similar services to PetSmart. There has been an increase in organic pet food and health
demands that many companies have considered selling organic food.xxix
For example, Only
Natural Pet Store (online international store that sells organic food) is putting more emphasis on
selling organic food. This could potentially be a threat to PetSmart in that it can decrease their
market share and profitability.xxx
However, even though there has been an increase in the
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demand of organic food, it is not at the competitive level with the other pet products and services
that PetSmart offers.
Bargaining Power of Suppliers (Medium)
Although PetSmart buys its supplies from multiple vendors throughout the world,
PetSmart relies mainly on two suppliers, which constituted 19%, 20.5%, and 20.7% of their sales
for FY2014, FY2013, and FY2012. In addition, PetSmart does not have any long-term contract
with its suppliers. Since PetSmart is too reliant on their vendors, it faces vendor concentration
risk and any disruptions that may occur at supplier’s site. As a result, the power of suppliers
increases PetSmart’s business risk, reduces their profitability, and reduces their competitive
advantage.xxxi
Threat of Substitute Products or Services (Medium)
Consumer preferences are volatile so what makes the threat of substitute products and
services a medium risk, is that customers have a variety of retailers to choose from. For instance,
consumers may choose to buy a product that is not stocked by PetSmart, such as organic foods.
What factors into customer preferences are the value and price of a product. Consumers may
prefer another pet retailer if they are able to provide the higher quality product at a lower price.
Another threat of substitute for PetSmart are grooming vans and mobile doggy services which
can substitute for PetSmart’s grooming services. Grooming vans can come to the owner’s
residence and groom their pets at home. In addition, a major substitute would be local businesses
such as veterinary services and grooming salons, where pet owners can take their pets to
alternate grooming salons and veterinary hospitals. A substitution for PetSmart’s boarding
services is that instead of owners taking their pet to the PetsHotel, they can ask a neighbor or
friend to watch their pet.xxxii
Online competition from Amazon.com, eBay.com, and Wag.com is another threat of substitute
to PetSmart as less people would buy from their brick-and-mortar store and more can shop for
their products online.xxxiii
Overall, these substitutions can damage PetSmart’s sales and value as
more customers will spend more on products and services from other stores.
Bargaining Power of Buyers (High)
Buyers have many options in terms of what they want to purchase. In regards to
PetSmart’s bargaining power of buyers for PetSmart is that pet owners can choose whether they
want to own a pet or not. Because of low switching costs, consumers can shop at different stores
that sell products for lower prices. If economic conditions were to change to the point that it
affects consumer’s buying power, they would stop buying healthy organic food from PetSmart
and buy cheaper/lower-quality food that can be found at Wal-Mart, Target, and Costco. When
consumers have limited spending, they focus less on the quality of the product and more on the
price.xxxiv
The presence of consumers having bargaining power increases competition, thus,
PetSmart has to lower its prices, bargain to improve quality or services, and compete against its
competitors. As a result, PetSmart’s profitability decreases.
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Rivalry Among Existing Firms (Moderate-High)
PetSmart’s main competitors are PetCo Animal Supplies, Walmart, Target, Costco, and
Safeway, as they all offer a variety of pet products and services. Rivalry amongst larger discount
stores such as Wal-Mart, Target and Costco compete on convenience, price, product variety, and
the overall shopping experience. Customers can shop at any competitor store where they can
pick up their food while shopping for their personal items. This would be the case for Target and
Wal-Mart. As a result of rising competition, PetSmart is pressured to offer lower prices to remain
competitive to lower cost stores such as Walmart and Target, which negatively affects
PetSmart’s margins and profitability. Within the pet market, the competition is small since there
are a few pet stores, making PetSmart the leading store of pet products and services.xxxv
PetSmart
controls 42% of the pet market, PetCo owns 20%, and 38% is owned by smaller indirect rivals.
The overall industry for pets is growing and shows signs of continuous growth. According to
industry estimates, the overall spending on the pet industry increased from $55.7 billion by the
end of 2013 to $58.5 billion in 2014, an increase of 4.9%.xxxvi
The 6Th
Force – Relative Power of Stakeholders (Medium)
The relative power of stakeholder’s deals can greatly affect how PetSmart is run. An
example of this is how its shareholders demanded a sale of the company due to low sales and low
shareholder value. JANA Partners LLC, who owns 9.8% of PetSmart’s outstanding shares,
recommended PetSmart to sell itself to a private-equity firm (BC
Partners) because it would offer them a 25% premium-priced takeover, which will increase
PetSmart’s value.xxxvii
Another PetSmart shareholder, Longview Asset Management LLC (owns
9% of PetSmart’s outstanding shares) was also in favor of PetSmart of selling itself to BC
Partners as it would benefit its shareholders.xxxviii
PetSmart’s shareholders, JANA Partners LLC
and Longview Asset Management LLC, have power over PetSmart because they were successful
in demanding the sale of the company to BC Partners.
EFAS Table Refer to Appendix
Internal Environment: Strengths and Weaknesses (SWOT)
Core Competencies The purpose of core competencies is to help a corporation gain competitive advantage
and allow a corporation to be dominant in the industry. This should allow a business to expand to
new markets and provide benefits to customers. What differentiates PetSmart from its
competition is in its store services, human resources and PetSmart charities. PetSmart offers a pet
hotel, pet training, hospital and grooming service. Some of these services are offered at other
competitors locations but none are offered all at the same location. There are many privately
owned pet hotels; one of the most accomplished is the Ruff house pet resort. Ruff house opened
in 2006 and since then has serviced over 7500 dogs.xxxix
PetSmart has trained its employees
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through its human resources division to handle pets with love and care. PetSmart’s specialized
employees train pets to be obedient, smart and responsive. Pet owners can shop around the store
while there pet is being trained and properly educated.
PetSmart is currently in a partnership with Banfield hospitals and owns over 20% of its
shares. Banfield provides an onsite veterinarian, prescription drugs and over the counter
medications for all pets. They also will give pets the necessary vaccinations. Owners can make
appointments for their pets needs or come in from 8 am to 10 pm if there is an emergency.
Banfield operates in over 1,075 stores and 800 of them are in a PetSmart. Banfield and PetSmart
have collaborated to make sure the customer’s pet stays healthy and lives longer. Banfield is one
of the largest pet hospitals and many other private pet hospitals cannot compete. Many private
pet hospitals like Riverside animal hospital compete through location and convenience of a
shorter drive. PetSmart offers professional grooming for dogs and are committed to making pets
look good. The employees are trained to be able to trim pets, while handling them with care. The
pet stylist will offer a great look guarantee, or customers can get their money back if they are
dissatisfied.
PetSmart’s human resource department works to keep the customer connected and
informed by hiring knowledgeable employees. HR Connect is PetSmart’s human resource
program, and provides employees with the tools to manage their work-life. Employees can have
an emergency contact list, memberships, pay statements, benefits, requested time off and
automatic payroll deposit. HR Connect assists employees by balancing their work and their lives.
PetSmart charities are a philanthropic idea that gives back to the community. PetSmart
lets the public have the chance to adopt a pet and save a life. PetSmart charities have saved over
400,000 pets per year, vaccinated, and spayed 100 percent of those pets.
VRIO Analysis PetSmart’s VRIO analysis looks at four specific components: value, rareness, imitability, and
organization, and whether or not it can exploit their core competencies to meet these four standards.
If PetSmart is capable of meeting the standards for these four areas, they will be able to sustain a
competitive advantage and capture more consumers within their market. The less these four
standards are met, the more PetSmart is taking a risk at losing the upper hand in their market along
with their customers.
Competency Value Rareness Imitability Organization
In Store Services Yes Yes Yes Yes
Human Resources Yes No No Yes
PetSmart Charities Yes No No Yes
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Value
Does your company provide customer value and competitive advantage?
Yes, PetSmart definitely added customer value and created a competitive advantage for
themselves through their in-store services, human resources, and the PetSmart charities.
PetSmart’s most prominent core competence is their in-store services, which includes pet
grooming, hospitals, training and hotels. These in-store services are able to add customer value
to the company because while it draws in customers looking for a specific service, such as
grooming, it also gives the customer an opportunity to purchase a toy or a treat for their pet while
waiting. PetSmart’s HR does an excellent job at hiring employees that are very caring and
knowledgeable towards pets and their products. These employees are valuable to the company
and customers and give PetSmart a competitive advantage. PetSmart’s also occasionally hosts a
philanthropic charity where the public can visit a store location and possibly adopt a pet. This
also helps bring in customers and create a competitive advantage over their competitors
Rareness
Do no other competitors possess it?
Yes, PetSmart is currently the only company within the pet industry that offers pet
products along with the in-store services of grooming, hospitals, pet training and hotels. There
are existing competitors that will offer the same pet products, or the same services. However,
there is not a single competitor within the pet industry, not even PetCo, that is able to offer both
the pet products and all PetSmart’s distinct services in a single store location.
Imitability
Is it costly for others to imitate?
Yes, it would be extremely expensive for any of PetSmart’s competitors to try and mimic
any of their services that are currently being offered at their store locations. It would be a
possibility that a company like PetCo would attempt to copy PetSmart by offering grooming,
hospitals, and hotels in their storefronts; however, it is not very probable. PetCo would be taking
an enormous financial risk if they were to make an effort at implementing these services in their
stores. It simply would take up too much time and cost too much money for a competitor to
duplicate PetSmart’s in-store services.
Organization
Is the firm organized to exploit the resource?
Yes, PetSmart has effectively organized each of their existing services offered in their
store locations. Each department is managed and maintained in an efficient manner. For
example, the grooming department involves an extensive training program, which is followed by
a long period of shadowing done by a veteran employee. This ensures that PetSmart’s
competitive advantage and core competencies are sustained through exceptional management
and structure within the grooming department of PetSmart. This ties into the organization of
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PetSmart’s Human Resources department as well. Human Resources does an outstanding job at
hiring, training, and educating its employees in each department in the store. Once Human
Resources have properly educated their employees, they can then successfully assist and educate
the customer on any products or services in their particular department. Furthermore, PetSmart
hosts weekly or biweekly pet adoption days that act as their charitable philanthropies. By
organizing these adoption days, it gives the public a chance to come into a PetSmart, and not
only adopt a pet but also possibly buy some products for that future pet. By successfully
structuring and organizing each of these competencies, PetSmart is efficiently exploiting its
superior resources.
Business Model According to Wheelen and Hunger, a company’s method for making money in the current
business environment is the business model. Their two business models are customer solution based
and entrepreneurial. Customer solution based model is used to make money but not by selling; its
goal is to use employee expertise to improve its customers experience and purchase decisions.
PetSmart employees learn what products are best for specific animals and what is the best deal
customers can get for savings and quality. PetSmart employees are taught not to push a certain brand
of pet food or product but suggest which is best for the customer and what might be the best for that
customer’s budget. PetSmart relies on the employees to sell their knowledge to the customer, which
will lead them to purchase pet products.
PetSmart is also uses an entrepreneurial model because it offers specialized services to niche
markets that have the potential to grow quickly. PetSmart is the only company to offer every pet
service in one, including hospitals, training, hotels and grooming. PetSmart’s sells to a smaller
market but when all these services are combined it becomes a large revenue and large amount of
customers. Customers have convenience and efficiency when they can go into a PetSmart and get
their pet trimmed and then vaccinated. This differentiates PetSmart from its competition and keeps
them on top of the industry.
Value Chain Value chain is a linked set of value-creating activities that begins with basic raw
materials coming from suppliers, a series of value added activities involved in producing and
marketing a product or service, and ending with distributors getting the final goods into the
hands of the ultimate consumer.xl
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Primary Activities: Inbound logistics, outbound logistics, operations, marketing and
services. PetSmart mainly focuses on its outbound logistics, marketing, sales, and services.
Currently PetSmart has 18 distribution centers located in the USA. These centers deliver finished
products to all locations on a weekly basis or whenever needed. PetSmart control its own
distribution centers and delivers products from warehouses nationwide. PetSmart’s outbound
logistics could improve by having more convenient distribution centers, which could save on
time and costs. For their inbound logistic they utilize their bargaining power to strengthen their
company’s relationships with suppliers. Regarding their operations, PetSmart implements a just-
in-time inventory strategy by receiving goods only as they are needed which reduces waste,
inventory costs and increases efficiency. PetSmart’s marketing and sales are constantly
improving and helping the company move forward. PetSmart recently released a few
commercials on Youtube.com, which try to attract the pet parent and improve customer
awareness. In terms of sales, their sales team works based on commission and these employees
keep the pet owners informed, up to date and satisfied. For services, PetSmart offers a wide
variety that can be enjoyed by every pet. PetSmart offers pet training, hotels, hospitals, and
grooming which are all provided in one location for the convenience of the customer.
Support Activities: Procurement, HR management, technology development and firm
infrastructure. For procurement, PetSmart is trying to obtain the highest quality products and
services at the best cost for the customers. But PetSmart mainly focuses on HR management and
firm infrastructure. PetSmart has a strong hiring and training team. PetSmart groomers train 160
hours on styling and 30 days at an academy. PetSmart dedicates a lot of money, time and effort
to create problem solving and pet intelligent employees. Employees learn and become fully
developed. Regarding firm infrastructure PetSmart provides the company culture, management
and strategic planning so the company can perform on a consistent level. Under PetSmart’s
technology development, they have recently given store managers’ iPads to check inventories
and help customers find products. They are trying to become more innovative and use
technology to help the organization.
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PetSmart’s profit margin goal is to provide the best products and services with the highest
return trying to improve and beat the previous year’s revenues. Currently PetSmart’s weakness is
tech development because lack of innovation and e commerce. PetSmart have a weak internet
presence and their website is not consistently used. Their internet competitors like amazon and
ruff.com sell more pet products and sometimes at a cheaper price. In addition, their website and
sales online are yet to be fully developed. PetSmart’s strengths are its services and its marketing
and sales ideals. PetSmart offers many pet services and outstanding customer service to help the
customers have a better more memorable experience. PetSmart creates advertisements that are
specific for pet lovers and pet parents. PetSmart focuses on commercials, word of mouth and in
store promotions to sell and attract more customers.
Corporate Structure Out of the three types of corporate structures, PetSmart is under the Functional Structure,
which is a medium sized firm with several product lines in one industry. Employees tend to be
specialists in the business functions that are important to that industry such as finance,
marketing, human resources and sales. PetSmart is a medium sized firm because it has over 1387
stores in USA, Puerto Rico and Canada with over 10,000 products in stock. PetSmart has 195
stores with Pet hotels that are constantly under watch by an employee. Inside the pet hotels are
doggie day camps that give the customer more of an incentive to come to PetSmart. PetSmart
also established PetSmart charities in 1994 and customers adopt over 1,000 pets a day. They also
have funded more than $165 million in grants and programs benefiting animal welfare.xli
PetSmart also offers Banfield Pet Hospitals in 60% of their stores and employ over 1000
veterinarians who specify in medical services. PetSmart holds a 20% equity interest in Banfield.
PetSmart’s structure is decentralized. In this structure top management to middle and
lower level management delegate daily operations and decision-making. This allows top
management to focus more on major decisions. Decentralizing can help a business with growth
and efficient operations. This structure also involves participative decision-making and can
empower the employees by giving them a chance to give great ideas to the board. Decentralizing
also takes a lot of pressure of the CEO David K. Lenhardt since this allows others to perform
important business tasks. PetSmart is broken down into a board of directors followed by a
chairman of operations and a chairman of projects which then is divided into subdivisions
involving finance, HR, marketing, R&D and finally the district team. PetSmart made changes to
its structure in 2014 by adding new positions, EVP of Customer Experience, Strategic Planning
and Corporate Development. These additional positions “will focus on developing strategies for
creating an unmatched customer experience, both in stores and online, and on developing
organic and adjacent growth strategies across all platforms. Marketing, Strategic Planning and
Corporate Development will report to this new EVP.”xlii
This structure style keeps the
corporation organized and focused on the function, projects and services. Everyone in the
corporation knows their role and understands the ladder they have to climb to advance and who
they have to report to. Store managers are given a lot of responsibility and manage around 20
employees while keeping track of products on shelf, deliveries and pet services. PetSmart’s main
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competitor, PetCo uses this same structure to try and keep their company organized and goals
understood by all employees.
Corporate Culture For most top-level companies everything is unified around their mission statement. A
mission statement briefly defines an organization’s aims and values, and essentially supports
their reason of existence. For instance, PetSmart’s mission statement is to, “provide Total
Lifetime Care to every pet, every parent, every time”. This mission is evident in every aspect of
PetSmart, especially the corporate culture. As defined by Wheelen and Hunger, corporate culture
is the collection of beliefs, expectations, and values learned and shared by a corporation’s
members and transmitted from one generation of employees to another. It generally reflects the
values of the founders and mission of the company. In PetSmart’s code of ethics and integrity of
corporate culture, the company primarily focuses on the core value of caring in three main
categories; customers, associates, and communities.
PetSmart’s corporate culture follows a philosophy of producing moment-making
products, services, and experiences for their customers. As a company that puts an emphasis on
customer satisfaction, PetSmart wants to connect with all their pet parents in an authentic and
personalized manner. They really push to extend their brands and exclusive products and
services to all their consumers. PetSmart truly believes that pets make us better people, so that is
why they work continuously to create moments for people to be inspired by pets.
Along with customers, PetSmart stresses the importance of its associate’s roles in their
corporate culture. The PetSmart Corporation is like one enormous, pet loving family. In order to
keep its corporate culture in sync with their mission statement, PetSmart hires employees that
possess a core value of caring, a strong ethical and integrity background, and a diverse love for
all pets. PetSmart employees are offered a meaningful career that helps build a pet-inspired
world. They want to generate an environment where employees can be encouraged and
motivated by pets. One assistant general manager states, “Working at PetSmart, you get swept
away by the human-pet bond. You recognize how much pets enrich our lives, and driving that
bond is what excites me every day.xliii
PetSmart employees have a genuine love for their jobs and
love for the animals. PetSmart needs these caring employees in order to help generate sales and
create customer relationships. Their corporate culture attempts to attract, develop, and retain
high-performing leaders and associates that live and breathe the mission statement and core
value.
Additionally, PetSmart employees and animal services are the face of the business and
attract loyal customers and a strong brand. PetSmart’s culture is compatible with employees with
diverse backgrounds. They believe these associates can bring their experience and ideas into the
company and make it stronger. Diversity can help solve problems, generate ideas and enhance
the brand. PetSmart creates an environment that accepts diverse people with a wide range of
perspectives and this pushes employees to do their best.xliv
Lastly, part of PetSmart’s corporate culture concentrations on the neighboring
communities that people live and work in. Their goal is to enrich people’s life and build pet
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friendly communities across the nation through the power of pets. Saving the lives of homeless
dogs, cats, and all other pets, and creating a partnership with these pets and the citizens in each
community is PetSmart’s central focus of giving back to the public. Their core values are to have
playful pets, uplifting stories, and endless inspiration.
Corporate Resource Marketing
PetSmart’s current marketing objectives are to understand the wants and needs of the
customer. They have established marketing teams that can help deliver the right message to the
right customer at the right time. “Our strategy is to be the preferred provider for the lifetime
needs of pets.”xlv
PetSmart’s marketing strategies are its pet services and low prices. These
strategies increase sales and achieve sustainable competitive advantage. A few of PetSmart
strengths are customer loyalty and premium customers. PetSmart wants to differentiate itself by
its brand and promotion of customer value. PetSmart offers a wide range of services for pets
including, grooming, training, hospitals, and hotels, which drives sale growth. A weakness about
our services is that they are not offered in every location, which can establish more of a hassle
for customers. PetSmart wants to create a one-stop shop and it has done just that with all of its
services. A strength for PetSmart is how they created their own brand for pet foods and products
which gives them an edge over the competition and gives customers more options to choose
from. PetSmart also has a diverse portfolio of products which results in more customers and
profits. PetSmart can build customer relationships through the trust of their veterinarians and
medication suggestions. PetSmart also has discounts and low prices for its customers while
offering a price match guarantee. These marketing objectives and strategies are consistent with
the corporation’s mission statement and the employees are dedicated to providing lifetime care to
every pet. PetSmart is also strategically putting stores in high foot traffic areas like shopping
centers that also contain a big box competitor like Walmart or Target. One weakness of
PetSmart’s marketing strategy is their campaign delivery. PetSmart’s has great ideas but their
commercials do not grab the attention and loyalty of new customers. Their commercials and ads
are not targeted to the right demographics. PetSmart commercials might offend their targeted
customer because of their sarcastic delivery.
Finance
Ratio Analysis
Ratio Analysis Table
PetSmart PetCo* Target Wal-Mart Industry
Debt to Asset Ratio 0.57 N/A 0.64 0.62 N/A
Debt to Equity Ratio 1.31 N/A 1.74 1.67 1.57
Current Ratio 1.66 N/A 0.91 0.88 1.15
Quick Ratio 0.73 N/A 0.22 0.24 0.40
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Net Profit Margin 6.0% N/A 3.0% 3.0% 4.0%
ROE 38.0% N/A 12.0% 21.0% 23.67%
EPS $4.26 N/A ($2.55) $5.05 $0.16
Inventory Turnover Ratio 9.34 N/A 8.28 10.62 9.41
Asset Turnover Ratio 2.74 N/A 1.63 2.33 2.23
The purpose of the financial department of a corporation is to overlook and maintain the
firm’s overall profitability along with maximizing all shareholders’ value. In order to fulfill this
duty, financial analysts use calculated ratios to examine the firm’s financial well-being.
Referencing to the table above, we can assess the strengths and weaknesses of PetSmart’s
financial performance and compare it to their competitors as well as the whole industry.
Debt to Asset Ratio The debt to asset ratio is a leverage ratio that measures the total amount of debt in
relation to assets. This allows a comparison to be made between companies across a certain
industry. The higher the ratio, the greater the degree of leverage a company possesses, and thus
overall financial risk. PetSmart has a debt ratio of 0.57, which means that approximately 57% of
their assets are paid with debt financing. Comparable to PetSmart’s, its major competitors
Target and Wal-Mart have debt ratios of 0.64 and 0.62, respectively (PetCo’s debt to asset ratio
is not available). PetSmart’s debt ratio is slightly less than its competitors, which demonstrates
that the company has a lower degree of leverage and less of a financial risk. Additionally, this
shows that PetSmart funds less of their assets with borrowed money than the rest of its
competitors, and therefore looks more stable as a company in the eye of a shareholder.xlvi
Financial Leverage
Financial leverage refers to a how a company utilizes borrowed money. If you take into
consideration a company’s total debts and divide it by the shareholder’s equity, you would get
what is known as the debt to equity ratio. The debt to equity ratio is a simple accounting
measure of a firm’s financing provided by its crediting shareholders as opposed to the financing
provided by the owners. A higher debt to equity ratio normally indicates that a company has
been aggressive in financing its growth and expansion with debt. For the fiscal year of 2014, the
industry average of the debt to equity ratio was 1.57. PetSmart’s competitors, Target and Wal-
Mart, have debt to equity ratios of 1.74 and 1.67 respectively (PetCo’s debt to equity ratio is not
available). Looking at PetSmart’s debt to equity ratio of 1.31, PetSmart is raising less money
through debt financing in comparison to the entire industry average and its competitors.xlvii
Profitability
The first clear measure of a firm’s profitability is their net profit margin. Net profit
margin is the percentage of remaining revenue after all expenses, taxes, and dividends have been
deducted from the total revenue. PetSmart had a net profit margin of 6.0%, which beat out the
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industry average of 4.0%. PetSmart also out did their two main competitors, Target and Wal-
Mart, who each had a net profit margin of just 3.0% (PetCo’s net income margin is not
available). PetSmart is one of the most, if not the most, profitable firm within the pet product and
supply industry in terms of their 6.0% net profit margin. Another profitability measurement is a
firm’s return on equity (ROE) by revealing how much profit that firm generated with the money
shareholders have invested. A company’s ROE determines the amount of net income made as a
percentage of shareholders equity. For 2014, the ROE average for the pet products and supply
industry was calculated at 23.67%. Target and Wal-Mart had ROEs of 12.0% and 21.0%
respectively.xlviii
PetSmart had a moderately higher ROE compared to the industry and their
competitor of 38.0%. As a final tool, we can assess a firm’s profitability by analyzing their
earnings per share. EPS calculate the portion of a firm’s profit that is allocated to each share of
common stock. In 2014, PetSmart’s diluted EPS was $4.26 dollars per share. Unfortunately,
PetSmart’s major competitor, PetCo, does not have any of their financial information available
because they are private firm, which made it difficult to compare the two top companies in the
industry. However, we were able to determine that Target and Wal-Mart had EPS of ($2.55) and
$5.05 respectively.xlix
Looking at the industry EPS of $0.16, along with Target’s and Wal-Mart’s
EPS, PetSmart is performing decently well in terms of profitability.
Level of Activity
A company's level of activity can be determined by the inventory turnover ratio and the
asset turnover ratio. These ratios can measure a firm’s ability to effectively convert its various
accounts on their balance sheet into sales and revenue. They indicate how well management is
doing in terms of generating cash, sales, revenue, and profits from its available resources. First,
let us consider a company’s inventory turnover ratio. Inventory turnover ratio examines the
number of times the average inventory of finished goods is sold during a fiscal business year. For
2014, PetSmart produced an inventory turnover ratio of 9.34, which is almost in line with the
industry average of 9.41. In regards to PetSmart’s competitors, Target had an inventory turnover
ratio of 8.28 and Wal-Mart’s was 10.62. Now we can analyze the asset turnover ratio and the
efficiency of the management within a firm. The asset turnover ratio serves as a determinant of
how much revenue is generated for each dollar of assets. Generally the higher the ratio, the better
off the company was at generating more sales per dollar of assets. However, this ratio is only
significant when compared to other companies in the same sector. PetSmart attained an asset
turnover ratio of 2.74, which was slightly higher than the industry average of 2.23. In
comparison to its competitors, PetSmart out-performed but Target and Wal-Mart’s asset turnover
ratio of 1.63 and 2.33 respectively.
After reviewing the ratio analysis table in depth, PetSmart has out-performed both Target
and Wal-Mart in the majority of the ratio analysis categories. Aside from its competitors,
PetSmart is either leading or at least parallel with the pet industry as a whole, which emphasizes
PetSmart’s capability to effectively manage their sales, profits, assets, liabilities, and equity. It is
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clear that PetSmart is the superior company compared to its competitors and the overall pet
product sector in regards to its financial resources.
Research & Development
Eddie Burt is the Senior Vice President and in charge of Real Estate and Development.
His job is to plan, develop, operate and maintain the store locations while sustaining growth. He
manages all facilities and infrastructures. When PetSmart is looking to develop a new store
location Eddie is responsible for providing budgets, schedules and reports. A weakness PetSmart
currently has is the development of new storefronts. PetSmart has not tried expanding its stores
in a few years and is losing revenues and customers because of this failure. Eddie’s other
responsibilities are to coordinate with the accounting department to check the budget available
and report to for any changes. He is also accountable for the company’s policies that
contemplate service trust and legal compliance. PetSmart’s R&D strategy targets policies and
services aimed towards increasing future development and profits. PetSmart recently gave store
managers IPads in order to help with efficiency and product overview. With the IPad, managers
are able to check the inventory; order new products and help customers find the best prices and
products. PetSmart’s R&D strategy takes into consideration the mission statement, which is “to
provide lifetime care to every pet, every parent, every time.” PetSmart’s objectives, policies and
strategies are influenced by the expansion of its business services.
Operations and Logistics
Bruce Thorn is the Executive Vice President and in charge of Store Operations, Services
and Supply Chain. He oversees all of the company’s operations strategy formulation and
implementation. He is responsible for the operations for 53,000 employees in three
nations. PetSmart implements a just in time inventory strategy by receiving goods only as they
are needed which reduces waste, inventory costs and increase efficiency. DSC logistics and
supply chain management helped PetSmart increase on time deliveries and order fill rates to their
retail stores. “Taking on PetSmart’s California cross dock operation, DSC exceeded expectations
by efficiently managing the cross dock to achieve a 99.7 percent on-time delivery to stores and
98 percent order-fill rate over a six-year period.”l DSC is a mixing center for multiple vendor
deliveries with cross docking and storage activities. DSC worked with PetSmart to change their
delivery routes. When inbound transfers from Arizona would be late on their delivery, DSC
offered to extend receiving hours in order to ensure the order fill to stores. DSC and PetSmart
created a partnership that will no longer jeopardize order fill and on time delivery. PetSmart
currently has 593 vendors, of these existing vendors the top two largest make up approximately
20% of their total revenue. A weakness for PetSmart would be their reliant of revenue from these
two vendors. With these two vendors generating 20% of PetSmart’s total revenue, they have
obtained too much bargaining power over PetSmart as suppliers.li If PetSmart were to lose the
partnership of these vendors, they would lose that percentage of revenue. To avoid such a loss,
PetSmart can do one of two things: they could either bring in new suppliers and delegate that
20% amongst them or disperse the percentage to the already existing 591 other vendors.
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Human Resource
Erick Goldberg is the Senior Vice President and in charge of the Human Resources
department. He is responsible for setting PetSmart’s overall direction in regards to hard work,
acquisition and sales talent. PetSmart’s success is due to its ability to attract and keep loyal
customers. PetSmart employs over 53,000 employees in three nations.lii
PetSmart offers their
employees the chance to work up the corporate ladder with hard work, determination,
performance and great sales records. PetSmart also has horizontal transfers available that way the
company can grow and employees can increase their knowledge. The corporation has
performance reviews for employees that can result in pay increases, stock options and bonuses.
Employees have a motive to work hard and try to move up in the company. PetSmart has an in
depth training program for employees that want to be stylist and groom the pets. They train for
160 hours and 30 days at an academy. Regular sales employee’s watch informative videos and
take online tests as part of their hiring process.
PetSmart uses a template called SMART for goal performance. SMART is Specific,
Measurable, Attainable, Realistic and Timely. This template can help employees eliminate
mistakes and move the company in a positive direction. This template can reduce the ambiguity
of employees’ roles and ensure its competitive position.
PetSmart is a diversified company that values this characteristic. PetSmart believes that
having a diverse workforce can bring new ideas, different perspectives and solve problems. “We
deliver our vision by developing in three key areas – talent, culture and community. These areas
are our pillars of diversity and inclusion efforts and guide what we do to make our good
company great.”liii
Information System
PetSmart’s Chief Digital Officer is Brock Weatherup who drives growth through social
media, mobile applications and the World Wide Web. PetSmart’s current website is
Petperks.com and is based behind their customer membership called PetPerks. This rewards
membership can give customers discounts on purchased products, subscriptions to emails and
newsletters and be more in touch with the company. PetSmart is currently trying to gain some
presence on the internet. The customers can browse the website for specific items, and can check
out when necessary with the option of in store pickup or delivery. The company’s senior vice
president and chief marketing officer John Alpaugh said on its analyst day last year that, “About
10% of our store sales or about $700 million per year are driven by shopping trips to start on
PetSmart.com. This is the focus of our e-influence strategy and it provides a great opportunity
for PetSmart to monetize our traffic as a multi-channel retailer.”liv
PetSmart is trying to gain a
better insight of what the customer wants by developing solutions and communication strategies.
IFAS Table Refer to Appendix
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Analysis of Strategic Factors (SWOT)
Situational Analysis (SFAS Table) Refer to Appendix
Review of Mission and Objectives PetSmart’s enduring mission statement is “To provide lifetime care to every pet, every
parent, every time”.lv
PetSmart creates a competitive advantage by having their in-store services,
human resources, and its PetSmart charities. Their core competency is through the services that
are within their store, which include pet grooming, pet training, pet boarding, and pet hospitals.
PetSmart follows their mission statement through their desire to be consumer’s preferred
provider of pet needs. They also achieve their mission statement by connecting with all of its
customers in a personalized manner through its PetPerks customer loyalty program, which
allows them to deliver personalized offers to its consumers based on their previous purchases,
preferences, and needs. By conducting customer research, PetSmart will get an idea of their
customer’s needs and preferences and will design solutions in order to address the customer’s
needs.lvi
Another way that PetSmart achieves its mission statement is through its PetSmart
charities program, which is a program that focuses on ending pet homelessness and put any
homeless animal in their adoption centers. Through PetSmart Charities program and through
their sponsored adoption events, PetSmart was able to save over 400,000 dogs and cats from
homelessness each year.lvii
The company’s objective is to “Offer superior products, unmatched services and superb
customer service to pet parents and their pets”.lviii
The objective can be tied to the mission
statement in that PetSmart focuses on providing unmatched services to both the pet and the
owner. These services include veterinary care services operated by Banfield Pet Hospital,
grooming services, boarding services (PetsHotel), and pet training. Because of PetSmart’s unique
services, it differentiates them from its competitors, it increases customer traffic and frequent
customer visits, increases customer spending, provides customers with cross-selling options, and
are able to build loyalty and develop stronger relationships with their customers.
PetSmart services are what drives its margins and provides consumers with a unique
experience that no other company can offer. Their service segment accounted for 11% of its total
revenues from 2012 to 2014. PetSmart services are growing; in fact, their service sales have
increased by 68%. In 2007, their services sales were only $455 million and in 2013, their sales
increased to $766 million. The increase in service sales has definitely helped PetSmart boost its
revenues. Lastly, as a result of PetSmart selling itself to BC Partners, it gives PetSmart the
opportunity to fulfill their mission statement and objectives by meeting the needs of pet parents
and shareholders can benefit from value maximization.lix
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Strategic Alternatives and Recommended Strategy
TOWS Matrix
Strategic Alternatives
Pros and Cons
SO Strategies
1. Offer PetSmart’s knowledgeable customer service online through a live chat feature with
PetSmart employees, improving the firms online store (S1O1)
Pros
Provides customers with real time assistance online, allowing them to have their questions
answered at home rather than on the phone or in store. This strategy increases the likelihood of
customers completing an online purchase by eliminating second-guessing. In order for this
strategy to work the firm can utilize their training programs to develop knowledgeable online
employees ready to assist customers.
Cons
Increases the company’s overall expenses due to: training new employees, developing a
specialized IT department, and having to employ a 24-hour staff. In addition to this, there is a
risk of customers not utilizing the added service.
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2. Take advantage of the firms established scale and strategic distribution centers to open a
new line of stores targeted toward a specific demographic (S3O2)
Pros
Rather than having a warehouse store format, PetSmart can look into creating micro stores that
cater to smaller pets, like hamsters, cats, and small dogs. These pets are usually the ones favored
by owners living in urban areas. PetSmart’s micro stores can be used to sell owners the essentials
for smaller pets such as food, bedding, and hygienic products. By entering urbanized areas and
focusing the micro stores on smaller pets, PetSmart can begin to compete with smaller, local pet
retailers. The firm’s size can eliminate competition from several smaller stores and cater to the
needs of consumers living in urban areas.
Cons
Large startup cost with the potential for little to no return on investment.
ST Strategies
1. Provide new pet adopters coupons for PetSmart products and services to lower the
chances of them shopping somewhere else (S4T2)
Pros
Encourages new pet owners to shop at PetSmart and potentially create long term loyalty to the
PetSmart brand.
Cons
Customers switch retailers after they have used all the coupons.
2. Utilizing PetSmart’s control of the market to entice manufacturers to only distribute their
products through PetSmart (S3T4)
Pros
Creates customer loyalty to PetSmart because of products only they are allowed to distribute.
Cons
Manufacturers may threaten to sign contracts with other retailers if PetSmart refuses to purchase
products at a higher price.
WO Strategies
1. Complete the sale of the firm to BC Partner’s and use their resources to overcome
PetSmart’s weak marketing strategy (W2O3)
Pros
PetSmart is able to utilize both BC’s marketing resources as well as their financial assets to
expand brand awareness.
Cons
PetSmart becomes a private firm and may lose majority say over business operations if new top
management is implemented.
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2. Expand all services (grooming, hospitals and training) to every location, in order to
increase the firm's competitive advantage and eliminate their inability to attract consumers away
from wholesale stores such as Walmart, Target and Costco (W5O5)
Pros
From the increase in store traffic comes a likelihood of customers engaging in purchases outside
the firms services. For example, the consumer is more inclined to purchase a product
recommended by an employee working in one of the firms service units rather than making that
purchase through a competitor.
Cons
The expansion of these services is costly and provides no definite increase in revenue. PetSmart
also gains no profit from Banfield’s services. If Banfield fails to attract customers, PetSmart is
then forced to take on the added expenses of remodeling store locations.
WT Strategies
1. Improve online store and services to decrease the threat of online competitors gaining
market share (W1T1)
Pros
By making PetSmart’s online store more customer friendly, e-customers will be drawn away
from competitors to PetSmart’s site for the expertise and stay for the ease of use.
Cons
The investment needed to develop a new e-commerce site that differentiates itself from
competitors may outweigh the benefits. Additionally, the new format may confuse new
customers and lose customers already adapted to the current site.
2. Minimize weak brand awareness by developing a marketing campaign informing
consumers of PetSmart’s extensive offering of products and services to avoid the growing threat
from wholesale retailers (W2T2)
Pros
Through an informational ad campaign, PetSmart can educate pet parents of all the services and
products offered under one roof. Overall, this campaign will improve the firm's brand image and
boost company awareness.
Cons
The promotion of extensive products and services through a marketing campaign can push
customers away. This can be attributed to societal pressures to buy certain foods, toys, and
services to measure up to other customers. For example, pet parents looking only to purchase
necessities rather than luxuries may feel overwhelmed by the pressures to spoil their pet causing
them to take their business elsewhere.
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Recommended Strategy Corporate Strategy
A firm’s corporate strategy is meant to dictate the direction of the company. According to
Wheelen and Hunger, a corporate strategy “describes a company’s overall direction in terms of
its general attitude toward growth and management of its various businesses and product lines”lx
Corporate strategy focuses on directional strategy, portfolio analysis, and parenting strategy and
looks to align the three functions with the company's mission and vision. Within the corporate
strategy is the directional strategy, which aims to discuss growth strategies, stability strategies,
and retrenchment strategies. PetSmart’s emphasis should be on its growth strategy, which is
meant to expand the company’s business processes. PetSmart’s main growth strategy should be
focused on the acquirement of Banfield Hospitals. By acquiring Banfield Hospitals, PetSmart
can expand the number of Banfield locations to every PetSmart in the United States. In addition
to this, PetSmart can increase its overall revenue. PetSmart currently owns 27% of Banfield’s
shares; however, Through expansion, PetSmart can create a convenient shopping experience for
their customers which helps PetSmart accomplish its mission of lifetime care for every pet, every
parent, every time.
Another growth strategy is to sell the company to BC Partners. As mentioned in Current
Situation, PetSmart is struggling to create value for its shareholders so the company has worked
on a deal with BC Partners since the beginning of January 2015.lxi
BC Partners has not acquired
PetSmart yet, but there have been discussions of PetSmart selling for over 8 billion dollars. From
a shareholder’s perspective, the buyout is seen as a strategic move because it is forecasted to
have a positive impact on the shareholder’s wealth. If the buyout goes through, shareholder value
should increase and satisfy shareholder demands. On the other hand, the board may see the
buyout as a negative aspect because the new company may implement a new board or CEO.
Regardless, being bought by BC Partners should allow PetSmart to move into international
markets significantly easier because BC Partners is located in England. BC Partners may have
existing knowledge of the pet retail industry in England that can provide easy entry for PetSmart.
Business Strategy
Business strategy focuses on improving a company’s overall competitive position
through multiple strategies regarding the firm’s products and services. Companies generally
compete on a competitive strategy such as price or differentiation of products and services, and a
cooperative strategy, whether companies form alliances or work individually. PetSmart’s success
can be largely attributed to its business strategies. PetSmart competes on cost leadership and a
differentiation strategy. PetSmart has consistently lower prices than most of its pet retail
competitors, like PetCo. Although PetSmart is not as inexpensive as Walmart, PetSmart does
offer a price-matching policy to keep their customers. Assistant store manager, Phillip from the
Moreno Valley branch, stated that he would generally price-match and sacrifice a few cents,
rather than lose loyal customers. PetSmart’s business strategy also focuses on differentiation of
its services. PetSmart has separated itself from other pet retailers through its excellent customer
service, and the numerous segments in each store. Most PetSmart’s across the U.S. have an in-
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house veterinarian, grooming services, and training facilities. On the other hand, a select few
have strategically placed pet hotels within the store. The rationale for this is that not every
location requires a pet hotel, and it can be expensive to have employees stay overnight to watch
the pets. Instead, PetSmart put the hotels near airports and robust traveling locations.
A recommendation for expanding their hotel and dog sitting services would be to acquire
Rover.com. Rover.com is an online dog-sitting website that allows pet owners to customize their
preferences and choose from a variety of dog sitters. The sitters have their own profiles, which
show their location, their dog sitting environments, and previous reviews. This would be a
strategic acquisition because it can enhance PetSmart’s competitiveness online and through an
expansion in their services.
The second aspect of the business strategy is cooperative strategy, which describes
strategic alliances formed between companies. According to Wheelen and Hunger, strategic
alliances are business arrangements between firms for mutual gain.lxii
PetSmart’s strategic
alliance can be categorized as a joint venture, which combines the two business processes while
still maintaining each firm’s identity. Joint ventures occur because many companies are unable to
merge legally or permanently. An example of this is how PetSmart only owns a percentage of
Banfield Hospital’s shares; however, a much larger corporation, Mars Incorporated, owns
Banfield Hospital. This restricts PetSmart from acquiring Banfield, so the joint venture allows
the companies to work together for mutual gain. Although PetSmart does not generate revenue
from Banfield, PetSmart benefits as Banfield becomes more successful.
Functional Strategy
Wheelen and Hunger define functional strategy as the approach used by areas of the
company to achieve the business and corporate strategies. In regards to PetSmart, we recommend
the company to look at, improve and strengthen its human resource management, logistics,
research and development strategy, operational, financials, marketing strategy, and information
technology.
Human Resource Management
PetSmart’s human resource management team is in charge of hiring and developing
employees that best fit specific job requirements. PetSmart looks for a variety of personality
types in their employees to assign to each of their departments. For example, PetSmart requires
sales associates to be extroverted and outgoing employees who can create and build stronger
relationships with their customer. In addition, PetSmart looks for employees who are able to
determine whether a customer has the qualities of a desirable pet owner.lxiii
The company wants to ensure that the pet will be loved and taken care of. PetSmart’s
employees are generally low skilled and low paid workers that only stay within the company for
a short time. This can create stress for the floor manager if employees are not adequately trained
to assist customers and their needs. To resolve this, PetSmart can begin to cross train their
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employees to work various positions, while also retaining their employees through higher job
satisfaction like increased pay and benefits.
Purchasing Strategy
According to PetSmart’s 2014 Annual Report, the company was reliant on two vendors
despite having approximately 600 others. The two vendors controlled roughly 20% of PetSmart’s
purchases, leaving 80% to 600 other companies.lxiv
This equates to the smaller companies
contributing to about .13% of PetSmart’s revenues, whereas the two companies each contribute
about 10%, which is 76 times the amount of other competitors. This creates a problem for
PetSmart because it gives the two companies, an incredible amount of bargaining power. Moving
forward, PetSmart’s strategy should be to limit their purchases from these two retailers and even
the amount distributed among its 600 vendors. In doing so, the company strengthen relationship
among its other vendors and possibly gain better deals on products through new contract
agreements.lxv
Research and Development
Research and Development focuses on innovation within products and services.
PetSmart’s three food brands, Authority, Grreat Choice, and Simply Nourish, are not organic pet
consumables; however, Simply Nourish is the only PetSmart brand of pet consumables that is
natural.lxvi
The difference between natural and organic foods is that organic foods are completely
free of fertilizer and other chemicals, while natural foods may have very little. As consumers
become more health conscious, a strategic recommendation is to create a new line of PetSmart
consumables that is entirely organic. This will target the health conscious market, while also
giving PetSmart a wider selection of goods. Through this, PetSmart can expand its consumer
base which in turn reflects the corporate strategy.
Operations & Logistics
A strategic recommendation for PetSmart’s operation is to enter new niche markets with
micro stores. Rather than having a warehouse store format, PetSmart can look into creating
micro stores that cater to smaller pets, like hamsters, cats, and small dogs. These pets are usually
the ones favored by owners living in urban areas. PetSmart’s micro stores can be used to sell
owners the essentials for smaller pets such as food, bedding, and hygienic products. By entering
urbanized areas and focusing the micro stores on smaller pets, PetSmart can begin to compete
with smaller, local pet retailers. The firm’s size can eliminate competition from several smaller
stores and cater to the needs of consumers living in urban areas.
Another strategic recommendation for PetSmart’s operations and logistics is to improve its
internal operations within its distribution centers. PetSmart can implement a GPS tracking device
to increase efficiency and eliminate time used to finds items. PetSmart currently has seven
distribution centers across the United States. These seven centers must then distribute products
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on a weekly basis to over 1,300 stores. Increasing efficiency can eliminate costs for PetSmart
and give them a competitive edge in their business strategy.
Financial Strategy
Capital structure is the methodology that a company follows when deciding whether to
finance their operations through debt or equity. A strategic recommendation for PetSmart would
be to optimize PetSmart’s capital structure. This can be done by balancing the financial distress
brought upon by debt and increasing the benefit of receiving a tax shield. On both highly
recognized credit-rating agencies, S&P and Moody’s, PetSmart is expected to drop radically on
each of their respective scales. Increasing the weight of how much equity is financing the
company can lower the market’s perception of PetSmart’s risk, and simultaneously decrease the
risk of financial distress.
Marketing Strategy
PetSmart’s current marketing strategy is to improve their e-commerce presence. Prior to
this, PetSmart failed to capitalize on the growing online market. To resolve this situation,
PetSmart has created a new campaign called Parents in Pethood, which is an online marketing
video meant to show the typical customer’s love for their pets. While the videos were meant to
“have fun with its advertising and help PetSmart stand out in the crowded pet category,” the
videos actually took away from PetSmart’s message.lxvii
PetSmart portrayed the parents as overly
protective individuals, which gave off the impression that they were ridiculing their target
market.
Creating campaigns that can be relatable to their consumers is an excellent strategy for
PetSmart, but they need to ensure that the content is appropriate. A recommendation for their
marketing strategy is to relate their videos to their products and services. In doing so, they can
continue to create humorous videos, but also remind consumers that PetSmart’s products and
services can be instrumental in raising pets.
Information Technology
PetSmart currently utilizes information systems to monitor real time count of products
online and in stores. This allows employees to maintain customer satisfaction even when they are
unable to provide products.lxviii
For example, if a local store runs out of a specific brand, the
employee can offer to send it to the customer online or refer a nearby store. A strategic
recommendation PetSmart can consider is creating an online application for its employees and
customers. This can provide convenience for customers so that they are able to see what each
store is currently carrying from the comfort of their own homes.
Policies
Moving forward, PetSmart should focus its resources on implementing a new policy
called Operation P.E.T. The acronym P.E.T. stands for People, Education, and Technology. In
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the People category, PetSmart’s goals would be to increase customer satisfaction through a
customer service approach. By completely satisfying customer needs and demands, PetSmart is
able to live their mission statement of providing “lifetime care to every pet, every parent, every
time”.lxix
The Education category describes the company’s goal of having knowledgeable
employees. Ideally, PetSmart’s employees should be trained cross-functionally to ensure a
diverse and flexible working staff. The significance of cross training is to have workers who can
answer every customer’s questions thoroughly, even if it is not their area of expertise. The final
category, Technology, delves into the internal and external technological operations of the
company. This may involve strengthening their online presence through a variety of policies,
such as a price-matching program or a live-chat system for PetSmart’s online website. The use of
technology provides many benefits for PetSmart through its convenience and potential for
growth.
A secondary policy PetSmart can look to implement is an online price-matching program.
PetSmart currently does not price match with its online competitors like Amazon, which creates
a problem because the company has lost significant market share online. To strengthen their e-
commerce sales, PetSmart can match Amazon and other online retailers’ prices. In doing so, the
corporation can sacrifice a small amount of their profit margin to retain customer loyalty. This
program will help the company over time because it will improve the brand loyalty and
PetSmart’s image of remaining dedicated to their customers.
Implementation
Implementation Program & Action Plan According to Richard Rumelt, the author of Good Strategy Bad Strategy, a kernel of Strategy
is made up of three parts: the diagnosis, guiding policy and coherent action.
The diagnosis is identifying and defining the challenge that is facing the company.
The guiding policy includes policies that are set in place to help manage and address the
challenge identified.
Coherent action is the action needed to take in order to implement the policy. It is the
heart of the strategy because it includes the actions and steps necessary to overcome the
challenge.
PetSmart’s diagnosis: PetSmart wants to reduce costs, increase efficiency, and increase online
competitiveness.
PetSmart’s guiding policy: PetSmart is going to increase efficiency and its online presence by
making changes that will impact customers, resulting in an increase of online competitiveness.
PetSmart is known for its customer’s service and will continue to live by its credo by keeping
customers in mind when it makes these changes.
PetSmart’s coherent action: PetSmart plans to reduce costs by placing tracking devices on
products in distribution centers, as well as increasing in-store efficiency. PetSmart will also
increase online presence with a different approach and focus to their advertisements. With the
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creation of convenient applications to aid customers in finding items, it will increase its online
mobile presence, in turn.
What Must Be Done Program Activities - Action Steps - Who Implements Strategy
Human Resource Management Strategy:
PetSmart’s human resource management strategy is to incorporate diverse personality
traits amongst their workforce to better suit the positions in each department. This hiring strategy
will benefit the relationship between pets and their parents, especially in the adoption
department. For example, the employee that interviews the family interested in adopting a dog
must be extremely observant and cautious about the approval of each adoption. If a family or
potential pet owner does not show enthusiasm, proof of financials, and/or the importance of
loving and caring for the animal, then the employee must notice these unmet criteria’s and turn
down the offer.
Although, the hiring of socially skilled employees is an important aspect in the hiring
process, Human Resources must ensure that the individuals share the same values as PetSmart.
PetSmart searches for passionate pet lovers who understand the animals’ needs physically and
mentally. By hiring individuals with the right traits and values, employee turnover rates will be
lowered versus hiring employees who meet the basic criteria. Thus, the lower turnover rates will
decrease overall training costs and ensure employees’ stay for the long run.
Since PetSmart offers services such as hospitals, hotels, and training programs,
employees must maintain trust between the customers and themselves. Through the hiring of
personable, caring, helpful, responsible, and cautious PetSmart associates, the firm can instill
trust in all of their customers and ultimately, retain loyal customers.
Purchasing Strategy:
PetSmart’s purchasing strategy is to eliminate the bargaining power of its suppliers. It has
over 500 vendors, but only two represent 20% of its sales combined. Therefore, the
diversification of vendors will give PetSmart more power over its suppliers and never have to
worry about losing a chunk of their revenue if one defaults.
In order to eliminate the bargaining power of its suppliers, PetSmart will have to re-
evaluate its contracts with the two largest vendors to decrease their power. Then, it will create
new contracts with additional vendors in order to obtain better deals with other companies and
diversify. This opportunity will reduce the cost of goods and overhead. It will, in turn, increase
revenues that could be used to increase shareholder wealth or invest in innovative projects to
continue to stay competitive and in its blue ocean.
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Research and Development Strategy:
PetSmart’s initiative to be a technological follower will open up a new target market by
creating an organic brand for its consumers. Currently, the company is only selling all natural
foods for pets. However, the recent increase in preference for organic foods presents an
opportunity to tap into a new market since humans will directly affect the diet of their pets,
especially if it is a healthier alternative. To do this, PetSmart must create an organic recipe with
only organic ingredients. Once the food has gone through extensive testing and approved by the
FDA, PetSmart can begin to install a mass production for actual sale in their stores. PetSmart can
claim that their organic brand is beneficial to a pet’s long-term health, which will attract any pet
lover and organic preferred consumer. To promote the organic brand, coupons will be offered for
in-store customers and new commercials will introduce PetSmart’s organic brand through the
media to increase its awareness in public. This will definitely have a positive effect on their
revenue since consumable sales represent at least 53% of the company’s revenue.
Operational and Logistical Strategy:
For PetSmart’s operational and logistical strategy, the company will use “computer-
assisted design and manufacturing principles” to help improve efficiency at their distribution
centers.lxx
By attaching trackers or GPS chips to each product, efficiency is improved through the
convenience of immediately finding products in specific aisles and boxes in the distribution
centers. It also allows distribution to maintain accurate stock count and keep a record of shipped
items. With these tracking devices, PetSmart’s distribution can follow the items on route and see
which stores they are headed to. The opportunity to reduce time during their distributing process
can help them find better routes and eliminates unnecessary transportation costs, as well. In
addition, a replacement of positions having high turnover rates, using machinery, will decrease
wage expense and time used to train new workers.
Financial Strategy
PetSmart’s financial strategy is to optimize capital structure. The amount of debt from the
potential buyout is expected to inflict more financial distress than the stakeholders are willing to
endure. An initiative to re-optimize its capital structure, PetSmart can have reissue more stock.
The cash it receives from selling more stock can be used to reduce the amount of debt it owes
and allocates more weight of how the company is financed into its equity. With a tax rate of
37%, PetSmart can take advantage of the tax shield that will add to the value of the company. A
balance needs to be met so that the financial distress taken on by additional debt.lxxi
Marketing Strategy:
PetSmart will be using market development strategy to increase their share in the online
market. Currently, their online presence is barely improving since 2014. Their advertisements,
specifically their commercials, did not do exceptionally well. It captured their main focus of
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brand identity, but its execution was inadequate because of the lack in mentioning what the
company had to offer in terms of services and high quality products. There was also a negative
connotation towards their target market. Therefore, PetSmart will improve their advertisements
by introducing and mentioning their great services and high quality, range of products they have
to offer to valuable and potential customers. They could also turn their focus to their PetSmart
Charities since consumers favor philanthropic companies.
In order for these changes to happen, PetSmart will have to collaborate with its third party
marketing firm to infuse their main strategy for gaining a larger share in their online market and
grab potential valuable customers. Both parties must understand the focused strategy when it
comes to production, directing, acting, and the valuable message behind their commercials and
ads. By changing the focus of their commercials and posting more ads online on websites like
YouTube and Pandora, their online presence will increase dramatically. To track their results
from their online campaigns, they will gage the number of visitors using a click ratio on their
online store.
Information Technology Strategy:
PetSmart will increase its competitive advantage by providing its customers with an
online and in-store application. For an online application, the IT team will increase the functions
online for customers through one-to-one marketing and live chat support. The IT team will also
create an improvement with online shopping by decreasing the amount of clicks it takes to
purchase an item. For the in-store application, the information technologists will create an
application specifically granting customers the ability to locate any product in the PetSmart store
just like the distribution center and see how many are left in stock. Not only will the application
help locate the aisle and section the item is in, but it will give a brief description of the product,
reviews from other consumers, and the price. If the item is low in stock or is out of stock, the
application will notify the consumer of a nearby PetSmart that has the same item and suggest
ordering the item online.
For one-to-one marketing, the team will collect and analyze the data from user interaction
on web searches related to pets, pet services, and pet products, as well as a consumer’s online
pet-related purchases. This will allow them to decide with the marketing team where to
strategically place PetSmart ads. Creating a live chat support will draw in customers online when
they have questions about the care of their pets, the products they will be using or are currently
using, as well as the services at PetSmart. This creates convenience for potential and current
customers for the company. The improvement on online shopping makes purchasing processes
hassle free with time reduction on the consumer's part. PetSmart.com will be a preferred online
pet store versus its competitors with the update.
With these new applications, human resources must take on the responsibility of hiring a specific
IT team who specialize in the area PetSmart wants to improve such as hiring IT’s with mobile
experiences on a new mobile app.
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Matrix of Change
Organizing for Action
Although PetSmart is the leading pet needs supplier, there is always room for
improvement as shown in the SWOT analysis. PetSmart’s most burning issues that need
addressing are product recalls and the e-commerce sector. PetSmart is the leader in its market
because it is dedicated to delivering quality products to its customers. Strict standards have been
set in place to ensure that customers receive the best quality items establishing trust between
PetSmart and its customers. Being that PetSmart receives the majority of its products from other
companies, it is difficult to avoid recalls. Whether it be defective toys or unsafe food, PetSmart
addresses recalls promptly and efficiently which it must continue doing to maintain its
trustworthy company image. Compared to PetSmart’s in store sales, e-commerce is a weak point
for PetSmart. Although PetSmart is a leader in the pet industry, its lack of online presence leaves
much room for improvement. The e-commerce sector can be improved by offering more online
services
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Corporate Structure
The corporate structure of PetSmart is experiencing changes due to the selling of
PetSmart to BC Partners. The Board of Directors responsibility is to ensure that stockholders are
being represented. Due to the recent changes in PetSmart’s corporate structure, their
responsibilities have changed. Regardless of the changes, the corporate structure is aligned and
prepared for growth in different departments. PetSmart’s main corporate strategy is growth due
to its plans to expand its online presence as well as overseas expansion. Now that PetSmart does
not have to worry about stockholders, it is able to focus on its expansion.
Job Creation
PetSmart currently employs 53,000 associates at 1,387 locations in the U.S., Canada and
Puerto Rico.lxxii
As the company expands in North America as well as overseas, the number of
associates employed will rise. PetSmart’s commitment to pets, pet parents, and the community is
matched only by their commitment to their employees. The company recognizes the connection
between their life care customer experience and the quality of the PetSmart workforce. With the
inspiration for lasting and enjoyable careers stemming from pets, the company emphasizes
building relationships with customers. From the CEO to the store stockers, the one of kind
company culture entices employees to create “moment making” experiences for the customer
through products, services, and experience.
By taking care of their employees, PetSmart aims to minimize outside employee stress,
allowing them to have a more positive and helpful approach to work. They primarily do so by the
implementation of the SmartChoices Benefits Package option. It includes:
Medical, dental, and vision
Life insurance and AD&D
SaveSmart 401(k) Plan
Paid time off
Associate discount
Excellent work/life balance
Flexible spending accounts
Short- and long-term disability
Employee Stock Purchase Plan (ESPP)
Adoption assistance
Tuition assistance
Vendor discounts
PetSmart is an equal opportunity employer meaning that the company does not turn away
potential employees based on age, race, gender, or disability.lxxiii
Their hiring process is a
multi-step procedure that aims to acquire knowledgeable, motivated, and experienced
personnel.
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Hiring process:
Candidate applies (online and or in store)
PetSmart receives and reviews applications
Fitting candidates are contacted for an interview
In store interview
If called back from PetSmart:
Pre-employment background check and drug test ensue
If both are passed, training begins
PetSmart seeks employees that are honest truly care about pet care. Employees are
expected to perform all of their job duties with integrity. With customer service and satisfaction
being a priority, all employees are required to be personable and facilitate a positive customer
experience. PetSmart places a heavy emphasis on the importance of exceptional customer
service. It is important that PetSmart only hire employees capable of providing such service.
Hiring managers do their best in hiring employees whose personalities fit the job. PetSmart
acknowledges that the more an employee enjoys his/her job, the better the service that is
provided to customers. A nurturing yet stern personality type is sought when hiring a dog trainer
while a friendly and knowledgeable personality type is sought after as a cashier. Lastly, PetSmart
looks for employees that have experience in sales and store flow facilitation.
As a method of enhancing their workforce, PetSmart requires each employee to go
through their signature training and development program. Some of their methods include e-
learning, cross-disciplinary internships, and external training. They also have Individual
Development Plans that consist of managers and employees working together to chart out
employee goals and strategies to reach such point. Altogether, PetSmart facilitates job creation
through training, development, culture, and innovation.
Evaluation and Control
Measuring Performance: Balanced Score Card The balanced score card was developed as a way to evaluate a firm using both financial
and non-financial measures. Robert Kaplan and David Norton developed the scorecard to
measure these two areas using the firm’s performance in the operational measures of customers,
learning and growth, internal business process and financials. The scorecard focuses on
answering these four questions:
Financial- to succeed financially, how should we appear to our share holders
Customer- to achieve our vision, how should we appear to our customers
Learning and growth- to achieve our vision, how will we sustain our ability to change
and improve
Internal business process- to satisfy our shareholders and customers, what business
processes must we excel at
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Through an evaluation of PetSmart’s strengths and weaknesses, we have developed three
recommended objectives, measures, targets and initiatives per operational measure. Through the
implementation of these objectives, PetSmart can better archive their mission of providing
lifetime care to every pet, every parent, every time.
Financial
Objectives Measures Targets Initiatives
(1) Build up a
large cash
reserve
Measure the increase in
overall company profit
along with decrease in
company spending
Increase liquid
assets by 5% within
1 year
Acquire Banfield Hospitals (along with other strategic
partnerships)
(2) Satisfy
shareholder
demands
Measure the value
change in stock price, as
well as the number of
outstanding shares
When the company
is sold, ensure
shares are bought at
a 25% premium
Selling the company to BC
Partners
(3) Enter into a
new niche
market
Number of micro stores
opened in urban settings 5 year continued
profits on micro
locations
Build a local dog park in the
urban community, showing
local residents PetSmart’s
commitment outside of retail
Objectives
1. PetSmart’s main objective like most companies is to grow the firm financially. The firm’s
first recommended objective is to build a large cash reserve by putting aside their yearly
retained earnings and cutting excess spending from different areas of the firm. This
objective is measurable through an analysis of yearly company profits along with the
firms documented cuts in operations. The overall target for this objective is to increase
the firm’s cash by 20% within a year. This 20% increase is estimated at $75,000,000
making PetSmart’s total cash reserve $450,000,000. Benfield is currently valued at
$200,000,000.lxxiv
At a 25% premium, PetSmart can achieve the initiative of purchasing
Banfield while maintaining a cash holding of $225,000,000 for other potential
investments.
2. In 2014, PetSmart’s shareholders pressured the company to increase shareholder wealth
through an acquisition. Although PetSmart was still the largest pet retailer, the firm failed
to maximize the shareholders’ potential return on investments.lxxv
As a result, the firm’s
current objective is to satisfy shareholder demand through an increase in shareholder
wealth. A way to evaluate this objective is to measure the value change in stock price as
well as the number of outstanding shares. An effective target for PetSmart is to sell the
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company’s shares at a 25% premium, while the initiative is actually to sell PetSmart to
BC Partners. Since the shareholders’ have voiced their discontent, PetSmart has been
working with BC Partners to work out a deal. The acquisition of PetSmart has not been
finalized yet, but BC Partners is expected to pay over 8 billion dollars for the company.
3. PetSmart’s last financial objective is to expand into a new niche market in order to
capture more market share of Pet Parents. The goal is to obtain the business of many
potential customers that do not have access to current large PetSmart locations. In order
to do so, it is recommended PetSmart open micro stores that address the specific needs of
pet owners in urban areas. The number of micro stores opened in key urban areas will
measure the firm’s success. The overall target is to have 5 years of continued profits at
each micro location. Through building a local dog part and investing in the community,
PetSmart can initiate displaying their commitment outside of retail and improve their
brand relationship to pet parents, in order to boost sales.
Customer
Objectives Measures Targets Initiatives
(1) Improve
brand and
customer
loyalty
Measure the number of Pet
Perks members and how
frequently they utilize
PetSmart services
Increase the number of
members by 25% in
the first quarter
Increase the number of
rewards Pet Perks
members can earn as well
as in store discounts
(2) Increase
overall
customer in-
store
experience
Measuring the amount of
time it takes for
customers to be
acknowledged by a
service or support agent,
and then the time it takes
for the interaction to be
resolved.
Acknowledge
customers within the
first 10 seconds they
enter the store and
resolve customer’s
issues within 5
minutes.
Train associates to be
personable and taking
the time to learn
customers preferences
through the
implementation of
Operation P.E.T.
(3) Offer
customers any
and all
consumable
products they
may demand
By offering a wide variety
of consumable products in
store and online
Offer 95% of the
leading pet
consumables (Sell the other 5% products
online while offering the
majority demanded in store)
Supply customers options
of picking up products in
store or having them
delivered directly from
distribution centers
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Objectives
1. The high threat in the pet product market from competitors such as PetCo and one-stop
stores such as Walmart and Target has caused PetSmart to try to find new ways to keep
customers coming back. Measuring PetSmart’s objective to improve brand and customer
loyalty will come from the firm’s increase in registered Pet Perks members, along with an
analysis of how often these members make a purchase. The firms target to increase Pet
Perks members will not provide the firm with an immediate 25% increase in loyal
customers, but will instead provide the firm with personal information that can be used to
attract customers in store later.
2. As a means of increasing market share, customer retention, and overall company profits,
PetSmart’s customer objective is to increase overall customer in-store experience. By
doing so, the positive experience will draw customers into the store and away from big
box retailers, like Walmart, Target, Costco, PetCo, and online sites. In order to measure
the success of the objective, managers will randomly monitor the time it takes for a
customer to be acknowledge by a PetSmart staff member along with the overall time it
takes for the interaction to be resolved. PetSmart’s target is to acknowledge the consumer
within 10 seconds of arrival and satisfying their needs within 5 minutes. The initiative
comes from Operation P.E.T. that trains associates to learn customers’ preferences while
being personable and educated on the firm’s diverse portfolio of products. Along with
utilizing the firm’s logistics operations to order products the firm does not offer in-store.
PetSmart can also increase their in store experience by eliminating the customers need to
wait in long lines. This wait can be easily eliminated by offering customers the option to
use a self-checkout register.
3. One of PetSmart’s core competencies lies in its customer service, which is reflected in
the vision. Their vision is “to provide lifetime care to every pet, every parent, every time
– which we do by offering superior products, unmatched services and superb customer
service to pet parents and their pets”.lxxvi
To embody their vision, PetSmart’s objective
should be to offer customers all consumable products they may demand. An appropriate
measure of this would be accomplished by offering a wide variety of consumable
products in stores and online. For example, when a consumer comes in store and cannot
find a specific product a PetSmart sales associate can order it online to compensate for
not having the product. A target for this measure is to offer 95% of the leading demanded
pet consumables in stores, while selling the other 5% of products online. PetSmart can
effectively meet their target, by supplying customers the option of picking up products in
store or having them delivered directly from distribution centers. In doing so, PetSmart
can meet their objective of providing customers with a variety of products to ensure the
best customer service.
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Internal Business Process
Objectives Measures Targets Initiatives
(1) Incorporate
efficiency in
environmental
sustainability
throughout the entirety
of PetSmart’s
operations
Track annual carbon
footprint, recycling
ratio and overall water
consumption
- Encourage recycling
in 100% of their
facilities
- 50% drop in all fish
system water waste
- Decrease firms
carbon dioxide output
by 5%
- Implement sky
light system in store
- Offer toner
cartridge recycling
and fixture
refurbishing
- Install filter tanks
in every fish
department
(2) Provide online
solutions for customers’
needs
- Numbers of
subscribers reached
- Unique visitors (ex. #
of mobile users),
- Click-through-ratios
- Online revenue
growth
Increase online sales
by 15% within a
year
- Live chat support
- Decrease # of
clicks to purchase
- Live chat feature
- Offer real time
in-store inventories
online
(3) Create an in house
marketing team that also
focuses on big data
analysis to provide
targeted advertisements
Measure amount of
click interaction with
targeted ads
Have 12% of online
sales come from
targeted ads
Increase company
marketing by
keeping it in house
and out of the
control of third
parties
Objectives
1. Pet PetSmart not only believes that it is their responsibility to promote sustainable
operations, but they also believe that it is the right thing to do. That is why an objective
for internal business process should be to be incorporate efficiency in environmental
sustainability throughout the entirety of their operations. To measure this objective,
PetSmart should track its annual carbon footprint, its recycling ratio, and minimize
overall water consumption. Since 2010, PetSmart has produced over 425,000 metric tons
of carbon dioxide equivalents into the environment and should target a decrease of 5%
within the next five years. 84% of facilities throughout the company have been recycling
and effort should be made to encourage recycling in 100% of their facilities.lxxvii
With
880 million gallons of water used a year, PetSmart should target lowering water
consumption of their fish systems. These make up, on average, 74% of any PetSmart
location’s overall water waste. PetSmart should target a 50% drop in all fish system water
waste. An initiative to implement this enhances their strategy in place, Think Twice. To
reduce their carbon footprint, PetSmart can implement their “skylight” system in every
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store, reducing energy consumption and promoting longer lasting light bulbs throughout
the company to reduce e-waste. PetSmart can also promote additional recycling in
facilities other than the ones in place, including toner cartridge recycling and fixture
refurbishing. This will boost the number of ways they can recycle and this can improve
their recycling ratio. The last improvement to Think Twice PetSmart should implement is
to install water filter systems into each PetSmart location. These 10,000-gallon tanks
filter and reuse the fish water systems at each location, with the potential to reduce water
waste of up to 90%.lxxviii
2. The firm’s most burning issue is in regards to their online presence. In order for PetSmart
to compete against large online retailers such as Amazon and PetCo’s e-commerce cite
the firm needs to create online solutions the competition does not currently offer.
PetSmart can measure the online cites number of subscribers, click through ratios and
overall online sales. By aiming for a one year, 15% increase in online sales, PetSmart can
slowly decrease PetCo’s share of the online market, which currently makes up 25% of
their total revenue.lxxix
In conclusion, customers can easily have their issue resolved
online through the implementation of one-click purchases, live chats with employees and
real time inventory information tied to local store locations.
3. With the constantly changing social trends and delicate audience base for marketing ads,
the development of an internal marketing team would increase PetSmart’s responsiveness
and self-sufficiency, allowing them to capture the attention of more pet parents. Such
effects would be measured by the amount of click interaction with targeted ads.
Accordingly, PetSmart would need to set a target of 12% online sales from targeted ads.
The benefits of implementing an internal marketing team include the potential for
advertisements to be increased and controlled from within the PetSmart Corporation;
giving them direct access to modify their marketing campaign. Overall, this form of
advertising will allow the company to specifically target ads towards consumers who
have previously showed some kind of interest in pet products. This will eliminate excess
marketing costs normally used to reach a broad audience of consumers
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Learning and Growth
Objectives Measures Targets Initiatives
(1) Develop a staff of
employees
knowledgeable in all of
the firms business unit
Facilitate monthly
employee
assessments of
PetSmart products
and services
90% passing rate on
employee
assessments
Implement a comprehensive
cross-functional training
program when hired and
when new products come
into store
(2) Expanding Banfield
Hospitals to all
PetSmart locations
Monitor number of
PetSmart’s that will
implement Banfield
services
Supply customers
with every
veterinary related
need at all 1387
locations
Be customers #1 option for
veterinary and pet supply
needs (convenience)
(3) Enter/Sustain
presence in the UK
Market
- # of stores opened
in 5 years
- Percentage
increase in market
share
Control 20%
market share for
the UK pet
industry within 5
years
Create a campaign
highlighting PetSmart’s
benefits
Objectives
1. For Learning and Growth, an objective for PetSmart would be to develop a staff of
employees knowledgeable in all of the firm’s business units. To measure this, the
firm would facilitate monthly employee assessments of PetSmart products and
services, in the form of a 20-question exam that discusses PetSmart’s products,
services, and procedures. A target for this measure is to have a 90% passing rate on
the employee assessments. The rationale for having such a high passing score is to
ensure that PetSmart’s employees are well educated. On the other hand, employees
that do not pass with a 90% will have to take a short seminar educating them on new
products and in store services. An initiative for the target would be to implement a
comprehensive cross-functional training program taught when employees are hired
and when new products come into the store. The more sales associates know about
the products and services, the better they will be at assisting customers.
2. For PetSmart to continue its growth, an objective should be to expand Banfield
Hospitals to all PetSmart locations. According to PetSmart’s annual report, there is a
total of 1,387 locations, yet only 837 of those stores house Banfield’s services. A
measure of the success is to monitor the increase in the number of stores that will
implement a Banfield Hospital. Although Banfield does not directly generate revenue
for PetSmart, it provides the potential for higher profits through the increase in store
traffic. An effective target for PetSmart’s measure is to supply customers with every
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veterinary related need at all 1,387 locations. Building off their target, PetSmart’s
initiative should focus on being every customer’s preferred option for veterinary and
pet supply needs.
3. Given PetSmart’s continual growth and dominance of the US pet care market, the
next step would be the expansion of stores into the UK market. PetSmart’s objective
would be to enter the market and sustain a sizable portion of UK’s pet parents
business. Its growth will be measured by the number of stores established within a 5-
year span and the percentage increase of market share. Through strategic
implementation of store locations and brand introductions, the target would be a 20%
market share of the UK pet industry within 5 years. The initiative would be a
widespread campaign highlighting PetSmart’s benefits and luring in needed
customers.
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Appendix
(EFAS)
External Factors Weight Rating Weighted
Score
Comments
Opportunities
Improve e-commerce 0.15 5 0.75 Comment 1
Open Micro Stores 0.1 3 0.3 Comment 2
Selling to BC Partners 0.1 3 0.3 Comment 3
Improve customer in-store experience 0.1 4 0.4 Comment 4
Expand Globally/Expand Services to all
Locations
0.05 3 0.15 Comment 5
Threats
Online Competition 0.2 5 1.0 Comment 1
Whole Retailers Competition 0.15 5 0.75 Comment 2
Economic Decline 0.05 4 0.2 Comment 3
Owners suing PetSmart 0.05 2 0.1 Comment 4
Government Regulations 0.05 2 0.1 Comment 5
Total 1.0 4.05
(IFAS)
Internal Factors Weight Rating Weighted
Score
Comments
Strengths
Customer Service 0.2 5 1.0 Comment 1
Pet Services 0.1 5 0.5 Comment 2
Largest pet retailer 0.05 3 0.15 Comment 3
Charitable efforts 0.05 2 0.1 Comment 4
Diverse Product Assortment 0.1 3 0.3 Comment 5
Weaknesses 2.05
E-Commerce 0.15 5 0.75 Comment 1
Weak Marketing Campaign 0.15 3 0.45 Comment 2
Failure to Develop New Store Formats 0.05 2 0.1 Comment 3
Dependence on few vendors 0.05 2 0.1 Comment 4
Services limited to number of stores 0.1 4 0.4 Comment 5
Total 1.0 1.8
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(SFAS)
Strengths:
Comment 1: Pet service business
PetSmart is one of the leading providers of pet services in North America based on net
service sales. Its services made up 11% of their total revenue over the past three years (2012-
2014). During the fiscal year of 2014, their pet service sales have increased to $766 million,
making it a 3.4% increase from the past year. PetSmart’s services include grooming (bath and
nail trimming), pet training, pet boarding at PetHotels, and veterinary services all within the
same store. The company uses approximately 900 square feet per store for its grooming services
and groomers are expected to perform safe and gentle grooming procedures to the pet.
Accredited pet trainers conduct dog training and PetSmart’s training services include puppy,
advanced, and private courses. Its boarding services include PetHotels, where pets can be
supervised for 24 hours. All of these services promotes customer loyalty and differentiates
PetSmart from its competitors.lxxx
Comment 2: Customer service
PetSmart focuses on customer service in that they market a pet as a member of the
family. When PetSmart employees allow pet owners to realize that they are not only pet owners,
but actual parents, it creates an emotional connection and makes the owners realize that they
Strengths Weight Rating Score S I L Comments
Pet Service Business 0.12 4.5 0.54 X Comment 1
Customer Service 0.12 3.6 0.43 X X Comment 2
Diverse Product Assortment 0.02 4.0 0.08 X Comment 3
Weaknesses
E-Commerce 0.08 2.3 0.18 X Comment 1
Services limited to number
of stores 0.12 2.7 0.32 X X Comment 2
Failure to develop store
formats 0.02 1.9 0.04 X Comment 3
Opportunities
E-Commerce Expansion 0.12 4.0 0.48 X X Comment 1
Store Expansion 0.06 5.0 0.30 X X Comment 2
International Expansion 0.06 5.0 0.30 X Comment 3
Threats
Online Competitors 0.10 5.0 0.50 X Comment 1
Large retailers competition 0.12 5.0 0.60 X Comment 2
Rising labor wages 0.06 4.0 0.24 X Comment 3
Total 1.0 4.01
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should treat their pet as if it were their child. When customers go inside their store, associates are
interested in getting to know the pet, identify what pet needs, and provide them with the
necessary products for their pet. With their outstanding customer service, it has strengthened
their relationships with their customers, has enhanced customer loyalty among their consumers,
and has increased its market position. This is what differentiates them from other mass
merchandisers.lxxxi
Comment 3: Strong Product Assortment
PetSmart offers a variety of merchandise and value added services to its consumers,
approximately 11,000 items in its stores and 9,000 online.lxxxii
Their items are offered under a
variety of brands including national brands, proprietary brands, and exclusive brands. PetSmart
also offers a variety of services including pet training, veterinary services, grooming and
boarding services. Store products are categorized into several categories including food, supplies,
medicines, veterinary care, pet services, and purchase of pets. All of these categories provide
consumers with a smooth shopping experience and their high value added on services will
differentiate them from their competitors. Their products and services will allow them to cross
sell, which increases consumer spending.
Comment 4: Charitable Efforts
PetSmart has strong connections with the community; for instance, they have
collaborated with Family Promise, Phoenix Children’s Hospital, and have PetSmart Charities.
PetSmart has collaborated with Family Promise which a nonprofit organization that helps low-
income families achieve independence and ensure that they do not give up their pets due to their
income. PetSmart created PetSmart Promise, which allows them to keep low income/homeless
families dogs and cats sheltered at their stores and provide them with free veterinary
services.lxxxiii
The company has also collaborated with Phoenix Children’s Hospital to help them
sponsor their animal-assisting therapy program called PetSmart Paws Can Heal. PetSmart brings
therapy animals from their stores to every patient at the hospital to assist them with their
rehabilitation, help them reduce stress and anxiety, and reduce their blood pressure. They also
have PetSmart Charities that focuses on ending pet homelessness. How strong community
connections is a strength for PetSmart is that it helps them enhance their brand image and gives
them a positive reputation because they are making a positive contribution to society.
Comment 5: Largest Pet Retailer
PetSmart is the largest pet retailer of products and services; operating 1,387 stores in the
United States, Canada, and Puerto Rico. PetSmart provides a variety of pet food, pet products,
and services (veterinary, grooming, boarding, and training services). It operates approximately
42% of the pet market, whereas PetCo only controls 20% of the pet market.lxxxiv
PetSmart is
considered an iconic pet brand with the largest market share and finest retail locations within the
pet industry. The reason for PetSmart’s large market share is the emotional connections that the
employees provide to their customers and because of the variety of products and services that
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they offer. Being the largest pet retailer allows more consumers to become aware of the brand
and promotes higher customer traffic.
Weaknesses:
Comment 1: E-commerce
A weakness that PetSmart has is that it has a weak e-commerce presence. According to
JANA Partners, PetSmart recently began to focus on its web presence, which leaves them behind
their competitors (PetCo, Wal-Mart, Target, Costco, Amazon). PetSmart’s online business is 20-
25% the size of PetCo’s, although PetSmart has larger overall sales.lxxxv
In May 2014, PetSmart’s
lack of e-commerce resulted in a decline of store sales by 0.6%, where consumers became
members of Amazon’s Prime program and shopped at other online stores.lxxxvi
According to the
Internet Retailer Top 500 Guide, PetSmart falls in 341 place, where their 2012 online sales was
$39.2 million which was less than 1% of their total sales ($5.98 billion).lxxxvii
Because of
PetSmart’s weak e-commerce, its shareholder value declined, thus it is going to have to sell itself
to BC Partners in order to resolve this issue. How lack of e-commerce is a weakness to PetSmart
it damages their overall store sales, customer retention, and shareholder value.
Comment 2: Weak Marketing Campaign
Another weakness for PetSmart is that it has a weak marketing campaign. For instance, in
their commercial, “Parents in Pethood”, it ridiculed the pet owners being the actual parents of the
pet. The campaign is irrelevant to the products and services that PetSmart offers. PetSmart
should make commercials that not only focus on people and pets, but that also focus on their
products and services. For example, there can be a commercial of a pet being taken to Banfield
Hospital to get treated or of a pet being taken to groomers. By promoting their services, the
viewers will become more aware of the services that PetSmart offers. If PetSmart fails to execute
effective marketing, it will reduce their sales and harm their business.
Comment 3: Failure to develop new store formats
According to JANA Partners, another weakness for PetSmart is that it has failed to
deliver new store format. While PetSmart continues to open large stores, PetSmart recently
opened 100 smaller format stores that are located in smaller neighborhoods and urban areas.
However, PetSmart’s attempt to open smaller store formats in Faribault, Minnesota, was late and
underwhelming. PetSmart’s head start to open smaller store formats has led them behind PetCo
by 16% in terms of performance since the first quarter of 2011.lxxxviii
As PetSmart continues to
expand itself, an option would be to create smaller proximity stores in smaller cities and towns.
How this is a weakness for PetSmart is that if PetSmart only opens larger stores in larger cities,
then only consumers from the larger cities will buy their products and services, while consumers
from smaller towns will not have access to them. PetSmart will also fail to spread their brand
image to the smaller towns and people from the smaller towns are going to prefer to shop at pet
stores that are near their residence.
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Comment 4: Dependence on few vendors
Although PetSmart has 600 vendors, the company is only reliant on two vendors. The
two vendors have power over PetSmart by 20%. This means that smaller companies make up
0.13% of PetSmart revenues, while the two companies make 10%. This is a weakness for
PetSmart because the two suppliers to have a significant amount of bargaining power over
PetSmart. When PetSmart has high reliance on a few suppliers, it increases its business risk and
reduces their competitive advantage. If PetSmart relies on more vendors, then it can strengthen
its relationships between vendors and can get good deals from vendors.lxxxix
Comment 5: Services limited to a selected number of stores
Although PetSmart has strong services within its stores, we believe that PetSmart’s
weakness is that not all of its stores offer its services, which include pet training, boarding,
grooming, and veterinary care. PetSmart provides grooming services in all of its stores and high-
quality training for dogs in most of their stores. However, out of 1,333 PetSmart stores, PetSmart
only operates 199 PetsHotels and 837 Banfield pet hospitals.xc
What makes this a weakness is
that PetSmart is losing potential customers from entering their stores and it reduces their
margins. If there are not enough services within PetSmart stores, then consumers will not know
how the company differentiates itself from its competitors and will purchase their pet products
and services from other stores. By including services to all of its stores, it will allow PetSmart to
earn a higher margin than their merchandise sales.
Opportunities:
Comment 1: E-Commerce Expansion
PetSmart is committed to improving their omni-channel and e-commerce presence by
launching a new PetSmart platform, expand in-store availability feature online, and introduce
order online and pick up in store capability.xci
Their online inventory availability feature allows
customers to find out if a specific item is available in the store. PetSmart also acquired Pet360
(provider of e-commerce services), in order to expand its e-commerce business and service
customers across all distribution channels more efficiently.xcii
Their overall goal is to improve
customer’s overall experience and bring more customers into their stores. PetSmart believes that
customers are their most valuable asset and by improving their in-store and online offers to
customers, PetSmart can increase its customer base, help customers create a stronger bond with
their pet, and allow customers to create loyalty towards the PetSmart brand.xciii
Comment 2: Store Expansion and Growth
PetSmart has an ongoing expansion program that will allow them to open stores in new
and existing markets and relocate existing stores. The company plans on opening 70 new stores
by the end of 2015, which includes 15 large stores, 20 micro-stores, and three PetsHotels.
PetSmart anticipates store sales growth of 2% to 4% and overall sales growth of 4% to 6%.xciv
As
of 2014, PetSmart has operated a total of 1,333 stores (including Canada and Puerto Rico) and
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hope to eventually expand to 1,800 in North America. PetSmart is expecting its revenue to grow
4.5% yearly resulting from their growth and expansion.
Comment 3: Selling to BC Partners
Another opportunity for PetSmart is to sell itself to BC Partners to improve on their
shareholder value. Because PetSmart was behind on e-commerce relative to their competitors, it
gave up its market share to those competitors, and thus reduced their shareholder value. Also, as
competition from Amazon and other competitors increased, PetSmart’s same-store sales
remained flat. JANA Partners and Longview Asset Management (PetSmart’s shareholders)
recommended PetSmart to sell itself to BC Partners to in order to recover their shareholder value.
By PetSmart selling itself to BC Partners, according to David Lenhardt (PetSmart’s CEO), they
will help PetSmart implement the necessary strategic plan to help them grow, maximize value
for their shareholders, and meet the needs of pet parents.xcv
Comment 4: Improve customer in-store experience
An opportunity for PetSmart would be to improve the customer’s overall in-store
experience. PetSmart store associates are beginning to use iPad minis in 19 stores to help
customers with ordering items online.xcvi
PetSmart is also improving their PetSmart.com website,
introducing in-store availability feature online, and allowing customers to order online and pick
up their item in the store. Other opportunities for PetSmart is to provide better customer service
and this can be done by assigning employees to greet and acknowledge customers as they come
into the store and assigning employees to work in every section of the store to assist with
customer questions. By improving customer’s in-store experience, they are helping customers
build a stronger meaningful bond with their pets and greater loyalty to PetSmart.
Comment 5: Expand Globally/Expand Services to all locations.
An opportunity for PetSmart is for them to expand its services to all locations and to
expand its stores globally. PetSmart provides grooming services in all of its stores and training in
most of its stores. However, out of 1,333 PetSmart stores, it only operates 199 PetHotels and 837
pet hospitals.xcvii
If PetSmart expands their services to all of its stores, then more consumers can
walk into their stores and take advantage of their pet products and services, which leads to higher
margins. Customers can take their pets to the groom while they shop for pet food and supplies.
Expanding globally will benefit PetSmart in that it will continue to remain competitive against
their other competitors (Wal-Mart and Target), it will have more consumers, have an access to a
larger pool, generate more profits, and enhance their brand image.
Threats:
Comment 1: Online competitors
Apart from having a weak e-commerce, PetSmart also faces intense online competition
against Wal-Mart, Target, Amazon, and eBay. Due to its weak e-commerce presence, PetSmart’s
first quarter store sales decline 0.6%.xcviii
The risks and threats that PetSmart faces is to keep up
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with any change in technological developments, failure in security procedures and operation
controls, the systems being unable to process customer orders, and e-commerce related
government regulations. All of these factors will prevent PetSmart from providing a good Omni-
channel experience to their consumers and negatively impact its business. It will also make it
challenging for them to bring new customers and get them to shop online.
Comment 2: Competition with large retailers
A threat for PetSmart would be competition against large retailers such as PetCo, Target,
Wal-Mart, Safeway, and Costco. The pet industry has become more competitive because now
large super markets, warehouse clubs and mass merchandisers offer pet products and some stores
have homogeneous store formats to PetSmart’s. Since large retailers like Wal-Mart and Target
offer lower prices on their products, it pressures companies like PetSmart to lower their costs in
order to remain competitors and protect their market share. Because of the increase in pricing
pressure, it will negatively affect PetSmart’s margins.xcix
Comment 3: Economic Decline
The risk PetSmart faces is that economic decline can influence consumer
spending. Economic decline can lead customers to purchase lower-margin products, purchase
less expensive supplies, and give up their pets. With an increase of economic decline, pet
ownership decreases as home purchases decline and foreclosure increases. Also, many
apartments restrict the ownership of pets. In an economic downturn, consumers are reluctant to
spend on premium products, and will go to alternate stores that sell food for cheaper prices.
Instead of buying healthy organic food from high quality stores like PetSmart, consumers will
buy cheaper pet food from its competitors like Wal-Mart and Target. However, PetSmart has
created in-house brands that sell premium products at a lower price in order to take advantage of
increased margins. Failure to meet consumer’s needs can result in damaging customer
relationships, market share, and profitability.c
Comment 4: Manufacturers creating contracts with other retailers
A threat that PetSmart faces is for its vendors to make contracts with other retailers. If its
vendors make contracts with other retailers to sell its products, then customers can buy the
products at another store for cheaper, thus reducing PetSmart’s customer traffic. PetSmart offers
a variation of proprietary-branded products that they obtain from third-party manufacturers.
Some of their products from third-party manufacturers are of low-quality, which leads PetSmart
to face the risk of quality related claims and losses caused by those products.ci If PetSmart
continues the evaluation of the types of proprietary brand products that they sell, it can reduce
product offerings to PetSmart and make a contract with another retailer to sell their products.
PetSmart can also have product liabilities if any of their products harm their customers. As a
result, it will have a negative effect on their business and financial performance.
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Comment 5: Government Regulations
Some government regulations that apply to PetSmart include the sale of animals, pet
boarding, pet training, and veterinary services. This also includes fees from owning a pet
(obtaining a pet license), having to give your pets a certain amount of shots a year, and possibly
neuter their animal to reduce pet overpopulation.cii
Some governmental regulations are that every
person who owns, operates, or maintains a pet shop must have a valid license issued by the state
of each store. Prior to their licensing, they must go through a store inspection twice a year and
meet all of the conditions of the inspection. The store inspection is done to ensure that the store
is a safe environment to keep the animals. What makes government regulations a threat is the
that government can impose a tax for owners to own a pet, and more regulations to owning a pet
can make it more challenging and more expensive for people to own a pet. Thus, there are less
customers that PetSmart gets.
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Nicolas Alves- Business Marketing
Jason Semthiti- Business Management
Hector Alamillo- Business Accounting
David Gazzolo- Business Management
Tyler Orosco- Business Accounting
Leslie Perez- Business Finance
Ashley Yeung- Business Finance
Arturo Soria- Business Accounting
Irene Carbajar- Business Accounting
Page 65
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