In This Article:
Pets not only make good companions, they make good bucks, too.
In 2020, Americans spent more than $100 billion on their furry friends for the first time ever, and that trend is expected to keep growing post-pandemic.
The current stock price of new entrants into public markets — namely, Chewy (CHWY) and Petco (WOOF) — hardly reflect the same investor enthusiasm that prevailed when they debuted. Yet according to one analyst, historical trends in industry growth rates are proof that the pet retail boom isn’t going anywhere.
“The industry itself has always been very resilient to economic downturns even in the financial crisis,” Mickey Chadha, Moody's Vice President and senior credit officer, told Yahoo Finance Live in a recent interview.
“When the rest of retail was actually having a very hard time, pet retailers were doing fine,” he added. “That's primarily because the trend of humanization and 'premiumization' of products for your pets and the fact that pets obviously, as you know, become family members.”
Winners and losers
During the pandemic, 23 million American households got a pet, according to The American Society for the Prevention of Cruelty to Animals (ASPCA). As social guidelines ease, services such as grooming, dog walking and boarding that took a hit during lockdowns are expected to recover, and the pet retail industry is expected to grow 5.8%, according to the American Pet Products Association.
From 2019 to 2020, total pet retail sales increased by 6.7%, according to the APPA. Moreover, nearly half of pet owners reported they bought more stuff online, as specialty and independent retailers experienced solid growth.
For 2020, Petco reported an 11% increase in revenue, in part because remote workers either adopted new pets, or splurged on their current ones during COVID-19 lockdowns.
The retailer operates more than 1,500 Petco locations across the U.S., Mexico, and Puerto Rico. Meanwhile, online retailer Chewy, which was founded a decade ago and went public in June 2019, reported a 47% jump in net sales year-over-year for fiscal 2020.
Despite growth in the industry as a whole, he does not expect consolidation any time soon.
"I think pet products are attractive for a company like Target (TGT), but a big acquisition in the pet industry would be quite prohibitive, especially if you're talking about Chewy," said Chadha.
While the pandemic rewarded many companies handsomely, smaller retailers have not had the same financial success. Independent neighborhood chains cannot fully take on well-heeled rivals to raise their e-commerce presence, so they cannot sell their products to more people.