Why PetSmart needs to expand its e-commerce presence

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PetSmart needs to expand it’s e-commerce presence

PetSmart’s (PETM) 1Q14 results saw same store sales decline 0.6%, while revenue missed street estimates. The management said sales targets were missed due to macroeconomic factors and rising online competition.

PetSmart ecommerce

We noted earlier in this series that PetSmart faces competition not only from traditional retailers such as Walmart (WMT) and Target (TGT), but also from online giants such as Amazon (AMZN) and eBay (EBAY) in the pet products space. The company was late to expand its ecommerce capabilities. The space currently has an increasing number of online-only retailers. The management acknowledged this on its latest 1Q14 earnings call and said that, “Moving to online, we aren’t satisfied with where we are and we are committed to expanding our omnichannel capabilities and fully leveraging our e-commerce presence. We know that online customers are among the most valuable customers, we have, both in the store and online and we believe it is critical to compete with these customers in the online space more aggressively.”

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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 us to monetize our traffic as a multi-channel retailer.” He added that, “the e-commerce business is growing faster than the online industry, which we believe is growing at about 12%–14% per year, so we continue to profitably grow market share by expanding our offerings and increasing our capabilities.”

PetSmart said in its 10K filing that it’s developing solutions and communication strategies to gain a better insight of its customers’ preferences. It has a PetPerks customer loyalty program, which is available in all stores and on PetSmart.com, which helps deliver personalized offers and other content based on the customer’s purchases, preferences, and unique needs.

The company plans to compete with its online peers by “accelerating deployment of new omnichannel capabilities, which include launching a new PetSmart.com website platform and redesigned mobile site, expanding in-store availability feature online, equipping store associates with mobile devices to help customers, and rolling out order online or pick-up-in-store capability.” It said recently that it’s live with order online pickup in-store in 19 stores. Also, the management said it has “recently began offering more aggressive free shipping and site-wide promotions and will launch a newly re-designed mobile website to drive e-commerce conversion in the second half of the year.”

According to Forrester Research’s online retail sales forecast cited by internetretailer.com, U.S. e-retail sales are expected to increase 57.4% from $263 billion in 2013 to $414 billion in 2018—a compound annual growth rate of 9.5%. E-retail’s share of total retail sales will increase from 8% in 2013 to 11% in 2018. The website cited Forrester analyst Sucharita Mulpuru who said customers increasingly shopping on mobile phones and tablets coupled with e-retailers’ aggressive marketing, pricing, and customer acquisition tactics will help drive this growth.

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