Some Dogs Do Well in a Recession
A shopper removed a dog bed from the shelves of a PetSmart (NASDAQ:PETM) store in Phoenix. Out rolled a Shih Tzu puppy.
It had no knees on its hind legs, and it hopped, pathetically, like a rabbit. Anyone's best guess is that some heartless breeder, having bred a designer dog with a crippling birth defect, had abandoned the puppy inside the store.
Had this fur ball been left on the streets, it might have become coyote fare. Had it been taken to a shelter, it could have been euthanized. But instead this hapless little Shih Tzu became one of the luckiest dogs in the world.
The woman who found her was the wife of PetSmart Inc. (NASDAQ:PETM) Chief Executive Bob Moran. They named her Tatum Shea for the corner of the store where they found her, Tatum and Shea boulevards. For the past nine years, Tatum Shea has lived in the canine splendor an executive in charge of 1,250 giant pet stores can provide.
Unlike some big-box retailers -- like, eh-hem, Best Buy Co. (NYSE:BBY) -- PetSmart has seen its stock nearly triple since the 2008 financial crisis to about $71 a share.
In its most recent financial report, for the second quarter of this year, earnings were up, revenue was up, and same-store sales, the key metric for any retailer, were up 7% despite lackluster U.S. consumer confidence.
I wouldn't have predicted such success. I'd read stories about the foreclosure crisis causing an increase in abandoned pets. But Mr. Moran said his company plans to keep adding 50 new stores a year for the next eight years.
Despite difficult economic times, or maybe because of them, an increasing number of people have come to think their pets as people.
In an interview, Mr. Moran said he calls this trend the "humanization of pets."
"We have seen dogs go from the barnyard, to the backyard, to the back porch, to inside the house, to inside the bedroom, to under the sheets," he said.
And if dogs are going to be under our sheets, they should be as clean as we are. They should at least be free of fleas, ticks and mange, necessitating a whole range of products and services that never would occur to a barnyard dog. Might as well feed them organic food and vitamins, too.
"During the recession, pet parents didn't trade down," Mr. Moran said. "If anything, there's been a trading up."
Yes, Mr. Moran calls his customers "pet parents." Many of them, in fact, carry pictures of their animals in their wallets and treat them like over-privileged children.
"Maybe it's related to society," Mr. Moran said. "It's harder to bond. We don't have as much time. I don't know."
At 61 years of age, Moran has spent decades in retailing, beginning as a trainee at Sears. During a stint at Toys "R" Us, he would sit in the parking lots and watch the faces of children light up as they ran for the doors. He now sits in the parking lot and watches pets run for the doors.
"They know where they are going," he said, "and they start jumping up and down."
Dogs are his biggest customers. Cats, second. As CEO, he recognizes his weaknesses and surrounds himself with cat experts.
"Cats don't like me," he admitted. "I don't know why. I go up to a cat, and all of sudden I'm being bitten."
His company faces catty competition from all the usual players -- from Wal-Mart Stores Inc. (NYSE:WMT) to Costco Corp. (NASDAQ:COST) -- and from a privately held chain with a similar name, Petco. But PetSmart hasn't been sufficiently threatened by Amazon.com Inc. (NASDAQ:AMZN) and other Internet retailers.
Remember Pets.com and its iconic sock puppet from the dot-com era? The company blew through its cash only to learn that shipping 40-pound bags of dog food and kitty litter to individual customers was unprofitable. PetSmart manages to eke out a margin on these products, and when pet parents come into its stores for a bag or two, they find a big-box array of pet products as well as grooming, training and boarding services.
PetSmart doesn't sell dogs or cats but provides space in its stores for animal shelters to offer adoptions. Through its PetSmart Charities--also supported by customers and employees--it's on track to give away $42 million to animal welfare causes this year, Mr. Moran said. The company also just celebrated its five millionth pet adoption.
This is why, for better or worse, some people have come to think of PetSmart as a great place to abandon a pet. "It happens more than you want to know," Mr. Moran said.
It worked out well for Tatum Shea. For a six-pound dog with missing knees, she's logged a lot of miles.
"She travels the world because she's pretty easy to put into the cabin of a plane," Mr. Moran said.
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at al.lewis@dowjones.com or tellittoal.com)