Pets not only make great companions, they also make money.
In 2020, Americans spent more than $ 100 billion for the first time on their furry friends, and this trend is expected to continue to grow after the pandemic.
The current share prices of new entrants on the public markets – namely Chewy (CHWY) and Petco (WOOF) – does not reflect the enthusiasm of investors since their inception. Yet, according to one analyst, historical trends in industry growth rates are proof that the pet retail boom is not going anywhere.
“The industry itself has always been very resilient to economic downturns, even during the financial crisis,” Mickey Chadha, vice president and senior credit manager at Moody’s, told Yahoo Finance Live in a recent interview.
“When the rest of the retail business was going through a very difficult time, pet retailers were doing well,” he added. “This is mainly because of the trend towards humanizing and ‘premiumizing’ products for your pets and the fact that pets, as you know, obviously become family members. “
Winners and losers
During the pandemic, 23 million American households had a pet, according to the American Society for the Prevention of Cruelty to Animals (ASPCA). As social guidelines soften, services such as dog grooming, walking and boarding that were affected during the closures are expected to recover, and the pet retail industry is expected to grow. by 5.8%, according to the American Pet Products Association.
From 2019 to 2020, total pet retail sales increased 6.7%, according to the APPA. Additionally, nearly half of pet owners said they purchased more products online as specialty and independent retailers experienced solid growth.
For 2020, Petco reported an 11% increase in revenue, in part because remote workers adopted new pets or splurged on their current ones during COVID-19 lockdowns.
The retailer operates more than 1,500 Petco locations in the United States, Mexico and Puerto Rico. Meanwhile, online retailer Chewy, which was founded ten years ago and went public in June 2019, announced a 47% year-over-year increase in net sales for fiscal 2020.
Despite the growth of the industry as a whole, he doesn’t expect consolidation anytime soon.
“I think pet products are attractive to a company like Target (TGT), but a big acquisition in the pet industry would be pretty prohibitive, especially if you’re talking about Chewy,” Chadha said.
While the pandemic has generously rewarded many businesses, small retailers have not had the same financial success. Independent neighborhood chains cannot fully compete against well-heeled rivals to increase their presence in e-commerce, so they cannot sell their products to more people.
“These are the ones who are probably going to be challenged because you have a lot of big guys playing in this game,” he said.
“With the humanization of pets, it has really helped pet retailers. There are legs to the momentum. “Mickey Chadha, Moody’s
By far, the majority of pet spending is on food and treats, and almost half the country does so digitally.
E-commerce has grown by almost 40% per year, Chadha notes, while the entire retail industry has grown by around 5%. Going forward, he believes digital can grow by 10% per year, and bricks and mortar around 2%.
“If you look at the industry, that biggest share is still in the mass market, so retailers like Walmart (WMT) and even Amazon (AMZN) are getting into it. [it] because it’s actually a pretty good income generator, ”he noted.
“With the humanization of pets, it has really helped pet retailers. There are legs to the momentum,” said Chadha.
Pamela Granda is a producer on Yahoo Finance Live. Follow her on Twitter.
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