Archive for category: Pet Market

We are all familiar with the reality of migration in the world around us. Massive flocks of birds fly south for the winter. Huge herds of herbivores migrate across the plains of Africa. Much of the population of North America came as a result of migration from other parts of the world. Why? The reason is ultimately the same – both people and animals were seeking survival, opportunity…a better way.

On a smaller stage, consumers exercise the same behavior in the “Retail World”. They “migrate” between retail channels to find a better answer for their “consumer needs”. Thankfully, it is generally not a matter of survival but rather:

1. Value = Quality + Price (*Note: In some cases value can be filling an emotional need. This could even be a matter of “prestige” or fad and is often short-lived)
2. Convenience – In today’s hectic world any product or type of outlet that makes life or shopping easier has a strong appeal.
3. Selection. – Regardless of product category, Americans want choices.

The change can also be the result of technological advances. There is no doubt that computers, the internet and ultimately smart phones have literally changed the environment that we live in and have radically affected consumer behavior.

As I researched this article, I was stunned by the changes in my lifetime.

• Department stores were “it” when I was young. Sears, Macy’s, J.C. Penny’s and regional chains like Marshall Fields – This is where America shopped. In 1977 Department stores accounted for 10.7% of all retail sales in the U.S. – including Auto, restaurants and gas stations – everything. They had the highest per store volume – $8.7M – of any retail activity. In 2013, their share of retail was less than the $ Stores – incredible.
• Speaking of $ stores, 50 years ago there were 5 and 10¢ Stores. Ben Franklin, W.T. Grant, Woolworths – this is where I bought comic books and greeting cards. Remember Walmart started out as a Ben Franklin store and morphed into…
• I also remember in the 1970’s there were over 60,000 independent drug stores. Then came the rise of regional chains which became consolidated into a few national chains. In between, someone got the idea of putting a pharmacy in supermarkets…and clubs…and SuperCenters (another brilliant idea). The result is that there are about 3 national drug chains and still 20,000 independent stores. However, the indies are all in markets with a population of under 20,000.

You get the idea. We’ll take a look at the migration of the U.S. consumer between channels. We won’t go back 50 years – just to 1992. The data is courtesy of the U.S. Census Bureau.

First, let’s look at the whole retail pie, before we see how it is sliced up! The Total U.S. Retail market in 2013 was over $5 Trillion. For this study, I have cut out certain segments which don’t relate to most consumer products, especially Pet Food and Supplies. I have removed Auto Vehicle Dealers and Parts stores, Restaurants and Gas Stations. The result is still huge – $3 Trillion in 2013 and is conducive to more valid comparisons. I also put in a line which is adjusted for price changes – up 64.7% since 1992.

1. Total Growth 1992 to 2013
   • Up $1.76 Trillion (+141.9%)
   • Average Annual growth rate = +4.3%
2. Real Growth 1992 to 2013 (Adjusted for price changes – CPI)
   • Up $.57 Trillion (+46.0%)
   • Average Annual growth rate = +1.8%

You can see that more than half of the growth comes from increased prices. The buying power of the 2013 Dollar was 60.7% of the 1992 Dollar.

The Adjusted “line” gives a “behind the scenes” picture, especially regarding the major recession. Total Retail sales didn’t drop until 2009. However, you can see that the problem started 2 years earlier when the amount purchased in 2007 was just equal to 2006. Consumers actually started buying less in 2008, not 2009.

In terms of recovery, the “real” recovery didn’t occur until 2013, when we finally got back to the level of purchases made in 2006 and 2007. This took 6 years…not 2 years, which is the time frame for full retail $.

We also had a flat spot in 2001, when price adjusted sales just matched 2000. Thankfully, sales started a slow rise again in 2002.

Now that we have the overall picture, let’s take a look at the individual channels.

The chart below shows 10 key channels and their share of the U.S. Retail Market in 1992, 2002 and 2013. The data is available annually but we have pared it down to make it a little more digestible and still show any migrating trends.

Note: Channels can actually increase sales but lose market share because they are not keeping up with the overall marketplace. Share seems to be the best way to look at the competition for the U.S. Retail $.

There will be observations about each of the channels in the chart. However, consider the top 3…

• In 1992 – Grocery, Gen Merchandise, Hdwe & Farm
• In 2002 – Grocery, Gen Merchandise, Hdwe & Farm – The same order, but a battle for #1.
• In 2012 – Gen Merchandise, Grocery, Internet/Mail-order- GM edges out Groc for #1; Internet/Mail comes out of nowhere and knocks out Hdwe & Farm to win the “bronze”.

Now let’s look at the trends in the individual channels.

TRENDS IN KEY U.S. RETAIL CHANNELS 1992 > 2013

• Clothing and Accessory Stores – They have lost 14% in market share in a slow decline since 1992. This has flattened out and they have actually gained some traction since the recession. This is being driven by the Value Clothing Stores like T.J. Maxx, Marshall’s and Ross. They actually have dipped their toes into Pet on a limited basis.
• Electronic and Appliance Stores – This channel reached its peak in the years surrounding the Millennium. Many of their products are now being poached by different channels. The recent bankruptcy of Radio Shack does not bode well for this segment.
• Furniture & Home Furnishings – After 10 years of market share gains, this channel lost momentum and sales turned sharply downward during the recession. Current market share is being maintained due to home products stores like Home Goods, Bed Bath & Beyond, etc.
• Sporting Goods, Hobby, Book & Toy – Overall, this channel is headed down. Technological changes have seriously hurt books stores. Toys retailers have seen their products commoditized and deflating prices have caused consumers to migrate to other channels – SuperCenters, Discount/Value Stores and the internet. Sporting Goods stores are the only bright spot. They account for 83% of the sales in this channel and have actually increased their small market share by 16% since 1992.
• Miscellaneous Stores – This is a mixed bag which includes gift, office supply and Pet Stores. Pet represents about 20% of the total outlets. This Channel actually reached its peak market share in 1997 and has been falling ever since. Sales and share both turned sharply down since the recession. We take a closer look at Pet Stores in a separate report on the specific migration of Pet Products.
• Hardware & Farm Stores – This Channel had steady growth until 2005 when sales flattened out, then turned down during the recession. The Farm segment has shown recent strength and has stopped the downward slide of the whole channel.
• Drug and Health – This channel had steady growth until it reached its peak in 2009, at the depth of the recession. It then fell slightly and has essentially flattened out. About 60% of this channel’s sales come from Rx sales so it is much more dependent on 1 commodity than other channels.
• Internet & Mail-order – A true success story. Steady growth in sales and share, year after year. Driven by the internet, this channel has taken market share from most segments with its combination of value and selection. Grocery is probably the least affected as food is not a major category…yet. It has been especially hard on “specialty” retailers in a myriad of product categories.
• Food & Beverage – This channel is almost all grocery with Supermarkets the vast majority of the business. This channel has been #1 since they began these surveys…until 2013, when it was edged out by General Merchandise stores. The drop since 1992 has been precipitous – 31.3%. Where did all these consumers go? The only other channel which gained that much was the internet…and they didn’t go there. The answer is they went to other Supermarkets – SuperCenter/Club stores are general merchandise stores which include a full service Supermarket.
• General Merchandise – This segment is now the largest channel in the U.S. Retail Market…yet is remarkably steady – flat in share since 2002 – up only 8.5% since 1992. This is a more complicated situation and requires a closer look.

Let’s take a look “inside” the General Merchandise Channel to specifically see what’s happening.

• Traditional Department Stores – This channel has consistently lost market share every year, 71% since 1992…and an astounding 88% since 1977. In 2013, their share dropped below the $/Value Stores. This would have been beyond comprehension back in 1977.
• Value Dollar Stores – This segment began as the 5 & 10¢ Stores then a few years ago morphed into the current Value Store Concepts. They have a small market share – about 2%, but it has started to grow, up 17% since 2007. Most of this gain has occurred since the recession as consumers look for value in a store with a convenient “footprint”.
• Discount Department Stores – This is the channel that started the Department Stores on their decades long fall. They actually reached their peak in 1995 and have been dropping ever since. Their market share has dropped more than 50% since 1997.
• SuperCenters/Clubs – Both of these stores combine a Supermarket with a Discount Store. They offer Value and in the case of SuperCenters, a large selection. Consumers must shop for groceries and bundling this with a wide array of general merchandise items has resulted in a 337% increase in market share. Where did the Supermarket business go – right here. Of note, these stores peaked in market share in 2009 and have remained flat or down slightly – about 0.1%, for 4 years.

Overall – This channel has only 1 success story. SuperCenter/Clubs gained 10.8 points in market share since 1992. The other segments are down 9.1 pts. The Value/Dollar Stores have turned upward since 2007…but overall the net gain in the channel is only 1.7 pts in market share.

Summary

Like the natural world, the U.S. Retail market is a complex environment with every retailer competing for the same nourishment – the consumer $. Here is a brief summary of our analysis of the migration of the consumer within the U.S. retail market over the past 20+ years and the current situation.

The biggest channels are:

• General Merchandise
• Grocery
• Internet/Mail-order

The ranking may change but these should remain the top 3 for the foreseeable future.

In terms of retail segments, the big consumer winners since 1992 are:

• The Internet/mail-order – Still moving up – driven by internet – no signs of the growth slowing.
• SuperCenters/Clubs – Big but has stopped gaining ground since 2009.

The “small” winners, at least in the current market, are listed below. With the exception of Drug Stores, the others are usually the only positive segment in channels which are trending down.

• Drug Stores – have gained through the years but have limited range in product mix.
• Farm Stores – have shown recent strength and is the largest of these small segments.
• Value/$ stores – the only Gen Mdse store segment actually gaining market share.
• Sporting Goods stores – small market share but gaining…slowly.
• Home Goods stores – the only + in the Furniture/Home channel
• Value Clothing stores – a positive in the sixth largest channel.

Up and then down – Hot product categories generated a “wealth” of “big box” specialty stores in Electronics, Media, Books, Office, Toys, Home, Pet… Technological changes and the allure of Super Centers and the internet have lessened their consumer appeal and in some cases virtually killed these outlets. Big Box Retailers require high levels of consumer store traffic to prosper…or even to survive.

Admittedly, this is a somewhat oversimplified view. There are still individual losers in winning segments and winning retailers in fading segments. We can identify the trends but it comes down to how well the retailer fulfills the consumers’ needs – Value, Convenience and Selection. The great recession has caused Value to come to the forefront. At the same time, technological changes – the internet and smart phones – have made the consumers more knowledgeable and given them a new shopping option.

Sometimes the consumer migration between channels has an even larger impact on society. Consider:

• Indoor shopping malls had become a major gathering place. They were invariably “anchored” by department stores. With department stores fading, whole malls are shutting down.
• Perhaps the single smartest “recent” decision in U.S. Retail was the commitment to build Super Centers. However, grocery items have incredibly low margins. Expanding discount stores to accommodate a huge amount of low margin items required the retailers to push the general merchandise suppliers for radical price reductions. These reductions were often not possible with U.S. manufacturing costs so they looked first to Mexico and ultimately to the Far East in order to stay on the shelf – a big impact on the whole world.

Consumer migration is ongoing and always evolving. Retailers must recognize the “drivers” and be prepared to adapt to better meet consumer needs.

In our next post: we’ll look at the retail migration of U.S. Pet Parents.

 

The Holiday season is a critical selling period in the U.S. retail market and December is the most critical month. In recent years, there has been an effort to push the “starting” date earlier. However, these earlier sales don’t occur in a vacuum. In this post we will try to put the November and December Sales in context with the total Holiday Lift…and the resulting yearend total sales.

The best way to do this is visually with graphs so there will be a few more than normal.

As usual, the data is from the U.S. Census Bureau and includes the just released Advanced Retail Sales for December. In this first section, we will take a look at retail sales for November and December of 2014 compared to 2013.

• Year to date $ales through October (before the start of the holiday lift)
• November 14 $ vs November 13 $
• December 14 $ vs November 13 $

 OBSERVATIONS

1. The Retail less Auto and Restaurants is the most relative overall view for the Pet Industry. December was better than November but neither was as good as the ongoing increase through October.
2. Grocery definitely had a great December.
3. Drug had spectacular December which made up for November.
4. Building, Hardware and Farm stores – Fall/winter is not their season but – a good December!

Let’s take a look at other channels, including General Merchandise and the Internet:

OBSERVATIONS

1. The General Merchandise Stores include Department Stores, Discount Stores, Clubs, SuperCenters and Value stores. They are generally the channel trying to “push the season” earlier. It looks like the tactics worked…but the cost for a better November was a slower December.
2. The Internet/Mailorder Channel was up 5.7% in November, slightly below their October YTD rate but they bounced back in December.
3. Clothing and Accessory Stores had a good November and an even better December. This channel depends on a strong Holiday Season.
4. Sporting Goods, Hobby, Book Stores and Toy Stores – Talk about a turnaround. Amazing!
5. Miscellaneous Stores includes outlets like Florists, Gift and Pet Stores (Pet is about 20% of the total outlets). November was not good…as sales were down -1.0%. December sales were up slightly, but not enough to make up for November.

We have looked at December sales vs YTD October and November. Overall it was stronger than November but didn’t quite match the rate of increase prior to the holiday season. We’ll give it a “C-“ Let’s next look at the % of December lift compared to recent years.

Here is the first group, including the overall National numbers:

OBSERVATIONS

1. In the total Retail Market, December was slightly better than last year. However, the Auto and Restaurant segments had a good December – up 10% in sales vs 2013.
2. The Auto and Food Service Segments represent roughly 30% of the total Retail market. However, because of the nature of these businesses, the trends in these industries are often not directly comparable to the rest of the U.S. retail consumer products market. In 2014, when you look at the Retail Market – less Auto and Restaurants, the lift in December is pretty stable but actually trending down – slightly.
3. Although Grocery stores don’t traditionally have a big lift, this December was definitely improved versus 2013..
4. The December lift in Drug Stores is steadily improving. This channel is a bit of a special case. Most of the sales are not driven by consumer choice but rather need. The past 2 years have seen rather intense flu and cold seasons…reaching epidemic proportions in December.
5. As we have noted, the late fall and winter months are not a “lift” time for Building, Hardware and Farm stores. However, December 2014 was markedly better than last year or 2012 – the drop in sales versus October YTD was less.

In the next chart we will take a look at Miscellaneous Stores which includes Pet and Gift outlets along with some major channels that are impacted strongly by the Holiday lift.

OBSERVATIONS

1. To most U.S. consumers, the General Merchandise stores are the big drivers in the Holiday Sales Season. They are the most visible promoters and have been trying to push the kickoff time up a little bit in November. They have seen somewhat successful but as a result they have lowered the lift in December.
2. The Internet/Mailorder has a strong…and growing December lift.
3. In December, Sporting Goods, Hobby, Book and Toy Stores almost doubled a normal preholiday month’s business – amazing!
4. The December lift for Clothing stores is a big deal and 2014 was a good year.
5. In Miscellaneous Stores (includes Pet and Gift) the December lift was equal to last year but down from 2012.

HERE’S A SPECIFIC DECEMBER SALES RECAP

• Total Retail – $505B; Up $22B (4.6%)
• Tot Retl – Food/Auto- $366B; Up $9B (2.5%)
• Grocery – $52B; Up $1.7B (3.3%)
• Health/Drug – $29B; Up $2.1B (8.2%)
• Hdwe/Farm – $25B; Up $1.7B (7.3%)
• Gen Mdse – $74B; Up $0.7B (0.9%)
• NonStore – $58B; Up $4.2B (7.7%)
• Sport/Hobby – $13B; Up $0.8B (7.2%)
• Clothing – $34B; Up $1.4B (4.4%)
• Miscellaneous – $11B; Up $0.2B (1.8%)

Now let’s pull all the lift numbers together and look at sales before, during and after this year’s lift

THE SPECIFICS AND OBSERVATIONS

• Total U.S. Retail & Restaurants  
  • Total Nov /Dec $ales = $948B; Up $35B (3.8%)
  • Total 2014 $ales = $5,271B; Up $203B (4.0%)
• Retail Less Auto & Restaurants –
  • Total Nov/Dec $ales = $679B; Up $16B (2.3%)
  • Total 2014 $ales = $3,642B; Up $92B (2.6%)
• Grocery Stores  –
  • Total Nov /Dec $ales = $103B; Up $2.9B (2.9%)
  • Total 2014 $ales = $594B; Up $14.7B (2.5%)
• Health & Drug Stores  –
  • Total Nov /Dec $ales = $53B; Up $3B (6.2%)
  • Total 2014 $ales = $299B; Up $14B (6.0%)
• Bldg, Hdwe & Farm Stores  –
  • Total Nov /Dec $ales = $51B; Up $3B (6.4%)
  • Total 2014 $ales = $328B; Up $3B (5.0%)

1. In general, the retail economy was slowed slightly by the November/December sales period as the holiday increase did not match the YTD %
2. However, Grocery, Drug and Hardware/Farm stores had a good season!

THE SPECIFICS AND OBSERVATIONS

• Misc. Stores (Includes Pet & Gift)
  • Total Nov /Dec $ales = $21B; Up $0.1B (0.5%)
  • Total 2014 $ales = $120B; Up $1.9B (1.6%)
• Sporting Goods, Hobby, Book & Toy –
  • Total Nov/Dec $ales = $21B; Up $1B (5.0%)
  • Total 2014 $ales = $88B; Down $0.05B (-0.1%)
• Clothing Stores  –
  • Total Nov /Dec $ales = $57B; Up $2B (4.3%)
  • Total 2014 $ales = $254B; Up $5B (1.7%)
• Nonstore Retailers (Mail order & Internet) –
  • Total Nov /Dec $ales = $102B; Up $7B (6.8%)
  • Total 2014 $ales = $481B; Up $32B (7.1%)
• Gen Mdse, Dept & Value Stores –
  • Total Nov /Dec $ales = $136B; Up $2B (1.5%)
  • Total 2014 $ales = $663B; Up $11 (1.6%)

1. Business as usual in Nonstore retailers – continuing strong growth through the holiday season.
2. Gen Mdse Stores – disappointing performance.
3. Clothing stores– a good season: For Sporting Goods, Hobby and book stores…a “life” saver.
4. Miscellaneous Stores – not a good season. Couldn’t make up the ground from a bad November.

Lets take a look at the total holiday lift trends for the past 3 years.

OBSERVATIONS

Let’s first put the overall Holiday List in perspective. We are measuring 2 months’ worth of sales which accounts for 16.67% of the available year. The percentage of total sales will vary by channel depending on how much they have come to rely on the lift.

1. The overall retail market is showing a downward trend in the percentage of the holiday lift. In the (Less Restaurants and Auto) total, 18.6% of annual sales are done during the Holiday Lift so November and December are about 11% more important that an average month.
2. The lift in the Grocery channel is steadily increasing. However, with 17.3% of annual sales coming during the holiday period, the lift is not that important – only 3.5% greater than an average month.
3. The lift in the Health/Drug channel has jumped markedly in the past 2 years. However, as we mentioned the occurrence of epidemic flu outbreaks is a major factor in the past 2 years. In all three years the total of November and December business accounts for about 17.8% of annual sales – about 6.8% greater than average.
4. In Building, Hardware and Farm stores the November/Dec ember period accounts for only 15.5% of annual sales. So the question in this channel is how much lower will these months be than earlier in the year. Normally the total sales of the holiday months is about 7% below an average 2 month period. Of note, there was a definite improvement in 2014 over 2013.

In the last chart let’s take a look at the lift history of some retail channels that are more dependent on the Holiday Season Sales.

OBSERVATIONS

1. The lift in General Merchandise stores has fallen slightly over the last 2 years. They have also increased the November portion…at the cost of reducing December. Nov/Dec account for a consistent 20.5% of sales or about 23% more important than an average month.
2. The NonStore channel has a strong lift but it is eroding. It has definitely become driven by December. It seems that the consumer may be making early season (Nov) purchases from the highly publicized Gen. Mdse stores …then switching over to the internet in December About 21.2% of total annual purchases occur in Nov/Dec making those months 27% greater than average.
3. Sporting Goods, Hobby & Book stores generate 24% of annual sales during Nov/Dec, making those months up to 43% above average. The lift is huge in this segment and got even bigger in 2014.
4. Clothing stores are also very dependent on holiday sales, with 22.6% of annual sales coming in Nov/Dec. This period performs 35% better than an average month. The lift has rebounded strongly in 2014 after a small dip in 2013.
5. Misc Stores – (Pet Stores account for only about 20% of the outlets.) Overall the holiday season generates 17.4% of annual sales – only 5% above average. Even the small lift is dramatically falling. Sales in November were actually less than 2013 and December didn’t make it up.

Final Thoughts – The holiday season is a major part of U.S. retail. In general, the lift is slowly but consistently decreasing. Efforts to push the season earlier have worked to increase November sales but at the expense of lowering the lift in December.

The 2014 December sales increase was greater than last year but the combined Nov/Dec increase was not…and both were in the bottom 5 smallest % increases since 1992. Channels doing 42.9% of the total did add to their annual rate of increase through holiday business. Others doing 34.7% lost ground. Overall the “lift” earned a “C-”. Before we can do a final assessment of the total 2014/15 holiday season we have to measure the Jan/Feb “fall” which happens EVERY year.

Recently we took a look at the history of the Holiday Lift. As you recall, overall the peak has dropped considerably since 1992. At that time the peak of the lift was over 40%. In 2012, it was down to +23% – a  decrease of over 40%.

Remarkably, the lift for November has remained relatively constant through the years at about +7% – despite the increased hype over Black Friday and even with the kickoff time being pushed up to Thanksgiving day and earlier.

The Census Bureau just released the Advanced Retail Sales for November. Let’s take a look and see how we’re doing this year in retail sales compared to 2013. To make it easier to view the results from different channels, we’ll break the data into 2 charts and compare:

• Year to date Retail $ales through October (before the start of the holiday lift)
• November 14 $ vs November 13 $
• Year to date Retail $ales including November vs the same period in 2013

OBSERVATIONS

1. The Retail less Auto and Restaurants is the most relative overall view for the Pet Industry. Note that November was up 2.4% over last year. However, since October YTD was up 2.7% November sales actually lowered the YTD increase.
2. Grocery had a good month but not enough to make a difference in YTD overall.
3. November is traditionally not a good month for Drug. This year, November didn’t match the YTD rate of increase.
4. Building, Hardware and Farm stores – Fall/winter is not their season but they are holding their own.

OBSERVATIONS

1. The General Merchandise Stores, including Department Stores, Discount Stores, Clubs, SuperCenters and Value stores expect and need a strong Holiday Season. November sales were up 2.3% – not much but it is better than the YTD rate so it helps.
2. The Internet/Mailorder Channel was up 6.3% in November, slightly below their October YTD rate so November was a slight drag overall.
3. Clothing and Accessory Stores had a good November. This channel depends on a strong Holiday Season.
4. Sporting Goods, Hobby and Book Stores – November sales were up…finally. It will be very difficult for this Channel to break even for the year.
5. Miscellaneous Stores includes outlets like Florists, Gift and Pet Stores (Pet is about 20% of the total outlets). November was not good…as sales were down -1.9%. December is the most critical month in this channel.

We have looked at November’s sales. Overall it was an OK month, give it a “C” or “C-“. How does this affect the anticipated Holiday Lift which starts in November? The next 2 charts will compare this year’s November “lift” to the ones in 2012 and 2013.

Here is the first group, including the overall National numbers:

OBSERVATIONS

1. Overall the lift in November is definitely trending down. However, there is a factor that is “unseen” in the data. We have noted that VALUE is increasingly becoming the key driver in consumer purchasing behavior. Thanksgiving is the kickoff time to the holiday “deal” season. Consumers often delay purchases until then. In 2014 Thanksgiving was on 11/27. In 2013 it was on 11/28. However, in 2012 Thanksgiving was on 11/22 – 5 or 6 days earlier. This meant that in 2012 the November portion of the holiday season had almost a week more of intense shopping so it is not surprising that the lift was higher.
2. Retail Less Restaurants and Auto – Had almost an 8% lift in 2012. The extra 5-6 days of shopping probably pushed November up close to an additional 1%. However, even allowing for this “bump” in 2012, the subsequent years are still trending downward.
3. Grocery is not traditionally a channel with a big holiday lift. However, you can see that this big segment is steadily improving.
4. The lift in Drug usually occurs in December. November is often flat to down.
5. The late fall and winter months are not a “lift” time for Building, Hardware and Farm stores. The drop in 2014 was similar to the pattern in 2013.

In the next chart we will take a look at Miscellaneous Stores which includes Pet and Gift outlets along with some channels that are impacted early and strongly by the Holiday lift.

 

OBSERVATIONS

1. General Merchandise stores are big drivers in the Holiday Sales Season. They are big promoters and try to push the kickoff time up a little bit. The lift has increased slightly in November each year since 2012.
2. The Internet/Mailorder has had the greatest overall holiday lift. In this chart you can see that, while still substantial, the November portion is trending down. Part of this is due to the fact that this segment has substantially increased everyday sales so the Holiday lift is less pronounced.
3. Sporting Goods, Hobby and Book Stores – A substantial increase every year since 2012.
4. The November lift has remained relatively strong and steady for Clothing stores.
5. Miscellaneous Stores (includes Pet and Gift) didn’t have a good November. The bulk of the lift in this segment comes in December but in 2014 they’re starting out “in a hole”.

In November the Retail Sales for all channels less Restaurants and Auto was $314B – up $7B (2.4%) from 2013. It will be the third biggest month of 2014 – behind only May and of course December. By the way, a reasonable estimate of December sales this year is $365B vs last year’s $356.5.

Regarding the November portion of the lift, it seems to be trending down slightly. Moving up the kickoff of Holiday shopping may help…at least when it is done by the calendar…and especially when November 1 is on a Thursday, which can give us up to 6 more “official” holiday shopping days in the month.

By the way, in the midst of the Great Depression, President Roosevelt tried to move Thanksgiving to the third Thursday of the month (from the last Thursday) in the years 1939-1941. Some people say he was urged to do this by Retail executives in order to extend the Holiday shopping season. The effort ultimately failed and Thanksgiving was set as the fourth Thursday of the month by an act of Congress which was signed by the President on December 26, 1941…less than 3 weeks after we entered World War II.

So I guess we could write our Congressmen….or better yet…..Enjoy the Holiday Season and have a great New Year!

Why Invest in the Pet Industry?  To answer that question, let’s look at the numbers.

In sheer numbers, America has a lot of pets – 400M – more companion animals than people. According to the APPA there are:

• Cats – 95.6M
• Dogs – 83.3M
• Birds – 20.6M
• Small Animals – 18.1M
• Freshwater Fish – 145M
• Saltwater Fish – 13.6M
• Reptiles – 11.5M
• Horses – 8.3M

But how widespread are they in society? In September of 2014 the U.S. Census Bureau released updated data. In 2013 there were 125,670,000 Consumer Units (Households) in the U.S.

The APPA reports that the % of pet ownership among U.S. Households is:

68% have a pet(s) = 85.4M H/Hs

• 46.7% have a dog = 58.7M
• 36.3% have a cat = 46.9M
• 5.7% have a bird = 7.1M
• 5.7% have a small animal = 7.1M
• 11.8% have freshwater fish = 14.8M
• 1.5% have saltwater fish = 1.9M
• 4.5% have a reptile = 5.8M
• 2.3% have a horse = 2.9M

As expected, Dogs and cats are by far the most popular. Let’s put some of these numbers in perspective:

As you can see, Pets are a major part of American life and have become part of the family. However, we are talking about business so how much do Americans spend on their pets?

The U.S. Census bureau just released their annual study on consumer spending which found that the average U.S. Consumer Unit (household) spent $460 annually providing for their pets. That’s for all households – with and without pets. ..and does income matter?  Let’s take a look:

Income does matter as the rate of pet spending  increases radically with an increase in income.

So what is the top line? According to the APPA, Pet Spending in the U.S. in 2013 was $55.72B The U.S. Census Bureau’s estimate is actually higher…$57.95B. Either way, it is a lot of $…and more than is spent on alcoholic beverages (at home), non-alcoholic beverages, dairy products or men’s clothes…to name a few categories that Americans are fond of.

Where do we spend all this money? A review of a recently published list of the top 100 U.S. Retailers from the National Retail Federation is very enlightening. Before we take a look at the summary results, we should note that this report just reflects the top 100 Retailers. It doesn’t include approximately 8000 other Pet Stores and thousands of other outlets selling pet products across many distribution channels.

So how do the Top 100 Retailers feel about selling Pet Products? Let’s see…

Obviously, Pet Supplies are sold in a huge number and wide variety of outlets…all across America. There is another factor to consider. How important is shopping for Pet Supplies to the U.S. consumer? A.C. Nielsen has done a survey which gives some insight into how the consumer feels and acts.

The Nielsen survey addressed the nature and number of consumer shopping trips. They divided them into 4 segments:

1. Immediate(need) – $15 ave.
2. Fill-in – $51 ave.
3. Routine – $98 ave.
4. Stock up – $242 ave.

Here’s how the trips broke out.

As you can see most trips are smaller – with 82% at $51 or less. Let’s take a look at the immediate trips. These are “need” driven and make up 61% of all of Americans’ “forays” into the retail market. What “needs” motivate these trips?

According to A.C. Nielsen, 9 of the top 10 are for “food”. Ranked in order, the top 10 reasons for an immediate shopping trip are:

1. Milk
2. Bakery (bread)
3. Pet Care
4. Cheeses
5. Salty Snacks
6. Soft Drinks
7. Frozen Meals
8. Fresh Produce
9. Ice Cream
10. Cereal (ready to eat)

Number 3…behind Milk and Bread…It looks like their companion animals are pretty important to American Consumers or should I say “pet parents”.

What then is the bottom line for the Pet Industry? How does it stack up against the total U.S. retail industry? One last chart…

Through good times and bad, at full retail or adjusted for inflation, since 1997 the Pet Industry has performed at least 50% better than the overall U.S. retail market.

It is different from many industries because of the emotional element in caring for and providing for companion animals. Americans have almost a “family like” connection to their pets. They also have proven that they are very willing to put their money where their heart is.

So to answer the question, “Why invest in the Pet Industry?”… Because it makes $ and sense!

The CPI data for September is out. The big news again is from…Supplies – Prices Up, Way Up! This is the first September increase for Supplies prices in 5 years and at 1.38% – the 6th largest monthly increase in history. In recent years, driven by drops in Supply Prices, September had become the month for lowest overall pet prices…not in 2014.

Key 2014 September Facts:

• Huge price increase in the Pet Supplies Segment.
• Prices almost flat in Service segments.
• Food continues “normal” Fall increase.
• Overall result…Total annual projection basically unchanged from last month

Here are the specifics:

• Vet Service CPI – up 0.19% over August – As expected – a little lower than anticipated
  • Up 2.5% since Dec.
  • Projected – Up 3.66% for year. (last  month’s projection was 3.68%)
• Pet Services – down -0.03% from August – Essentially flat. Unusual.
  • Up 1.5% since Dec
  • Projected – up 3.21% for the year (last month’s projection was 3.36%)
• Pet Supplies – Up 1.38% over August – First September increase in 5 yrs…and a big one.
  • Down -0.7% since Dec.
  • Projected – down -1.39% for the year (last month’s projection was -1.56%)
• Pet Food – up  0.44% from August – Normal Fall increase continues
  • Up 0.3% since December – Finally got back to where we started the year.
  • Projected – down -0.42% for the year (note: last month projection was -0.47%)
• Total Pet – Up 0.6% from Aug – Back on track
  • Up 0.7% since Dec
  • Projection – up 0.60% for the year (last month’s projection was .55%)

Here’s what it looks like along with updated annual projections:

Ultimately there is little change from last month’s overall  Total Pet projection…up 0.6% for the year versus up 0.55% for the year. However, the way that it was produced was interesting. Service Prices (Vet and Non-Vet) have slowed their inevitable climb while Pet Supplies started back up…in spectacular fashion

I think the best way to appreciate what is happening and to discuss what is possibly in store for the balance of 2014 is to look at the pattern by month.

Here’s what the last 13 months of CPI’s look like.

This graph is definitely more interesting and makes it easier to “see” how the action in the 4 individual segments produce the overall industry total. There is a mix of slow steady climbs and…roller coasters.

For the balance of 2014

Pet Services – Basically climbed steadily for the first half of the year, then flattened out. Expect prices to climb to a peak in December. The prices in this segment have grown unchecked for 16 years at a 3.4% average annual rate of increase. They need to slow down or they will inevitably face a correction in the amount of services consumers buy. This “correction” has occurred in every other pet segment.

Vet Services – As you recall from a previous post, since 1997 Veterinary Prices have risen at a rate that is 46% faster than Human Medical Care. For the past 4 years the amount of Veterinary Services purchased by consumers has been effectively flat. Price increases have slowed since April and been minimal since June. The August “dip” this year was normal. Last year the “dip” was followed by 5 months of rapidly rising prices. Expect prices to continue up for the balance of the year – peaking in December.

Services Total – Since February 2014, these two segments have been performing in “lockstep”. You almost only need 1 line on the graph.

Pet Food – This largest segment of the market has been performing in “untypical” fashion. In a “normal” year Food prices climb from August through November and then drop sharply for 1 month in December. They start back up again in January. Last year, Food prices were essentially flat from August through November. They dropped in December then kept on dropping to the low point in March. The second quarter brought increases followed by a “normal” July drop. So far, August and September look pretty normal. Expect prices to rise through November with a fairly substantial drop in December. Note: the CPI for Pet Food in September of 2014 is almost exactly the same as it was in September of 2013. Expect overall prices to be down for the year – the second time in history.

Food Clarification: Although the segment is called Food. The USBLS includes treats in this survey. Basically, if it has calories, it’s a food. The consumer has a wide variety of pet foods to choose from, especially for dogs and cats. There are actually even more companies that provide treats. At SuperZoo and GPE, there were over 240 exhibitors (1 in 4) offering dog and/or cat treats. This enhanced competitive environment could be a factor in pricing pressure.

Pet Supplies – Although it came in an unexpected month, Supply prices finally went up…big time… +1.38%. Monthly price changes of over 1%, up or down, have occurred on average less than once a year. The last time that Supply prices rose in September was 2009. Prices then uncharacteristically dropped in October and November. In fact, October 2009 marked the starting point of the current 5 year deflation. Let’s hope that history doesn’t repeat itself.

Coincidently, the big increase in the CPI also put this segment at exactly the same level as it was one year ago – in September 2013. Although, we have a different perspective, as September was the pricing low point for last year. We also should note that prices are currently at the same level as they were in March 2008 – over 6 years ago. Expect prices to continue up in October and November, then drop sharply in December. Net drop for the year should be less than 1.5%.

Pet Food & Supplies – Both of these segments usually have an annual rollercoaster ride. Although, the peaks, valleys and monthly changes on the Supplies ride tend to be more extreme. Let’s note again that both segments are almost exactly where they were one year ago. Combined, the difference is less than 0.02%. Look for 1 more dip in this year’s ride – December.

Total Pet – The monthly performance of the Total Segment is also a roller coaster because of the influence of Food & Supplies. Services are pretty consistently up so they just tend to keep the prices in the market higher. The Food segment is the largest, so the overall market tends to mirror it’s pattern – except when there is a big disparity in performance. Look at August 2014. Services – Flat; Slight increase in Food; Big drop in Supplies. Result: Total Pet down slightly.

Expect prices to rise in October and November, then drop slightly in December. The amount of the December dip will depend on how much Food and Supplies fall. For the year, prices should be up about 0.6%, matching the lowest annual increase ever – which occurred in 2010.

Note: An updated printable version of all relevant 2014 posts is available. It has a table of contents for easy reference and is segregated by chapters to facilitate printing of specific sections. To receive an electronic copy (including this post) by e-mail, contact me at [email protected]