Creature comforts spur growth

Posted on July 3, 2012

Livonia-based Pet Supplies Plus is adding 17 to 22 U.S. stores this year and moving its logistics operation out of state as part of a corporate expansion.

The company plans a major rollout of U.S. stores, and to support it plans to consolidate its Ann Arbor and Jackson distribution sites into a larger new site in Indiana.

Pet Supplies Plus has a huge growth curve in its sights. Its 2012 stores will include one in South Lyon. And nationwide in 2013, the company plans 55 to 65 stores and an additional 145 to 160 by 2015.

The company said the new stores will be a combination of company-owned and franchise stores.

The stores will take the company into the Washington, D.C., area this year and bolster its footprint in the Midwest and along the Eastern Seaboard, the company said. Over the next few years, Pet Supplies Plus plans to move into other markets, including Western states.

Pet Supplies Plus, a portfolio company of New York City-based Irving Place Capital, says it’s the third-largest pet specialty retailer in the nation, with 258 stores. Of those, 108 are company-owned. Fifty-five of the 258 stores are in Michigan.

The company hired Wixom-based Gerdom Realty & Investment to identify sites in Michigan and Iowa.

In early August, Pet Supplies Plus plans to consolidate its distribution sites in Ann Arbor and Jackson to a 763,000-square-foot warehouse in Seymour, Ind., about an hour from Indianapolis. The move will eliminate 63 jobs at the Ann Arbor site and 32 jobs in Jackson.

“We’re about to put in a place a much broader distribution network for our stores, which will provide better service and ultimately help our customers,” said President and CEO Dave Bolen.

The new warehouse is more centrally located and will enable Pet Supplies Plus to more than double its current capacity to support its existing and planned stores, the company said.

The Indiana Economic Development Corp. offered Pet Supplies Plus up to $850,000 in conditional tax credits and up to $75,000 in training grants in connection with its expectation that the new warehouse there will create up to 135 new jobs by 2016.

But the move will also allow the company to bring more of its distribution back in-house, Bolen said. He said it no longer makes sense geographically to keep the logistics hub in its home state.

“With the Michigan distribution centers, we had to use third-party distributors for some of the Southern and Eastern markets,” Bolen said.

The retailer, which moved its headquarters to Livonia from Farmington Hills this year, has stores in 23 states, primarily in the Midwest, along the Eastern coast and in Alabama and Texas. It employs 2,423 people, 272 in Michigan.

Pet Supplies Plus plans to move across the country to the West Coast as it expands, said Donna Capichano, senior vice president of real estate.

The western expansion will move the company into the home markets of its two largest competitors, Phoenix-based PetSmart Inc. (NASDAQ: PETM) and San Diego-based Petco Animals Supplies Inc.

Demand for pet food, supplies and services has been on an upward trend for several years in spite of the recession and a competitive retail landscape, according to a report published in February by IBISWorld.

“Pet parents” — owners who treat their pets like family members — cut back on their personal discretionary spending before scaling back on purchases for their pets, analyst Caitlin Moldvay said in the report. She projects that when all figures are in, the industry’s revenue will have increased 4.1 percent from 2011 to 2012.

Pet Supplies Plus does not release its revenue figures.

Demand for premium pet products, such as all-natural and organic pet foods, and services such as grooming and pet day care, have increased profit margins in the industry from 3.7 percent of revenue in 2007 to about 4.3 percent in 2012, according to the IBISWorld report.

The pet supplies and services market is “highly competitive,” PetSmart said in its first-quarter earnings filing with the U.S. Securities and Exchange Commission.

In a May 22 earnings call, PetSmart said it has expanded the store space it dedicates to super-premium, channel-exclusive foods, its fastest-growing category for dogs and cats.

During the first quarter, PetSmart said it netted nine new stores, bringing it to 1,241 stores and 194 “pet hotels” for dogs and cats.

PetSmart also expects to net 35 to 40 new stores during the remainder of this year and two more hotels, it said in its first-quarter SEC filing. Company executives declined requests for an interview.

Moldvay projected that sales will continue to increase for pet retailers over the next five years by an average annual rate of 3.8 percent, to total industry sales of $17.8 billion.

Pet Supplies Plus is prepping for the growth wave by revamping its stores to provide more space to fast-growing categories such as natural pet foods, Bolen said.

“And we’ve begun to add the infrastructure for growth,” adding about 15 people over the past few months in the company’s real estate, marketing and merchandising divisions, he said.

By: Sherri Welch, Crain’s Detroit