A 2 Year Old Partnership is Paying Off for PetSmart
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Just like their human owners, pets need vitamins. PetSmart (NASDAQ: PETM) realized that offering more vitamins could be a good way to boost sales, so PetSmart arranged a deal with GNC (NYSE: GNC) in 2010. GNC had a well known human vitamin brand that seemed like it could appeal to pet owners as well. Although GNC does have more than 3,000 of its own stores, GNC also works with several other retailers that sell vitamins, including Rite Aid (NYSE: RAD) and Wal-Mart's (NYSE: WMT) Sam's Club. GNC prominently mentioned this PetSmart deal in its latest earnings call.
The Rite Aid and Sam's Club partnerships could have different results for GNC. GNC seems like it has a major presence at Rite Aid stores, with over 2,000 locations, but Rite Aid has been reporting weaker sales. Even if GNC adds more Rite Aid displays, they might not provide a big boost to GNC's sales. Wal-Mart, which owns Sam's Club, has shown a much stronger performance recently, reporting 8.5 percent revenue growth and 10.1 percent income growth in its latest quarter. GNC's press release also explains that GNC will have a stronger presence in Sam's Club stores later in 2012.
I checked out PetSmart's website to see how well PetSmart shoppers liked the GNC vitamins. The GNC vitamin brand appeared prominently on several of PetSmart's products, which seems good for both PetSmart and GNC. Several cat nutritional supplements cost between $5 and $10, so they seem relatively affordable, although this means that PetSmart needs high volume to make sizable profits here since GNC collects some of the cash from each sale. PetSmart shoppers seem pleased with the GNC vitamins, and several cat products received 4 or 5 star ratings. PetSmart seems like it sells a wide range of GNC products, with cat relaxing medication, kitten milk formula, and antishedding pills showing up in addition to traditional multivitamins.
PetSmart also lists a wide variety of products for dogs, with sunscreen, paw lotion, and joint care products showing up on its website. Like the cat products, the dog products seem like they're getting positive reviews. Health products seem like they could continue to be a decent growth area for PetSmart, because GNC could create a dog or cat version of even more health and cosmetic products that show up at traditional pharmacies such as Rite Aid. PetSmart lists more health products for dogs than cats on its website, and PetSmart also has many suppliers for dog health products.
The product reviews on PetSmart's site could be important for both PetSmart and GNC. Shoppers reinforce PetSmart's ads by writing reviews that explain that these vitamins and health products helped their own pets. Product reviews are a factor I always look at when I consider a retailer that makes a major portion of its sales online, and a lack of product reviews on a website could be a potential red flag. PetSmart's 2012 10Q does mention a plan to operate 47 more physical stores at the end of 2012, although PetSmart closed several physical stores that weren't performing well enough earlier in 2012 and it may close down more stores later in the year.
The Banfield hospitals still seem like the biggest potential growth driver for PetSmart, but a move toward vitamins and healthier food could also give PetSmart a boost. PetSmart does offer organic and health food on its website, although it doesn't completely specialize in these areas like some human focused grocers, and it could be trickier to convince shoppers to pay the high premiums for these products for their pets. PetSmart's deal with GNC does seem like it has helped both companies in 2012 and has the potential to help both retailers' sales in 2013.
Eric Novinson owns shares of PetSmart. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend PetSmart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
