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

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

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

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.

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%

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

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

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

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

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

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.

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.

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.

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

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.

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.

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

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.

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.

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

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

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.

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

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

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

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

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.

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

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

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

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

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

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.

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

http://phx.corporate-ir.net/phoenix.zhtml?c=93506&p=irol-govBio&ID=228303

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

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.

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.

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.

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-

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

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

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

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

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.

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

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.

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

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.

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

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

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


(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

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.

Internal Business Process


(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

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

Learning and Growth


(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

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.

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

(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

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

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.

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

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

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.

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.

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

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