On average day, pet specialty retailers may have to put out any number of minor fires. But after the last customer has left and the shop doors are closed, storeowners face an array of challenges that are not easily fixed with an email or a mop in aisle five.

Pet Business has identified three major challenges, in particular, that are haunting the pet industry and threatening to stall its growth—if not its very survival. Topping the list is the economy—the recession is reportedly over, but the recovery has been anything but swift or complete, especially for those in the retail sector. While the pet industry has remained relatively unscathed, many wonder how long pet specialty stores can withstand a prolonged economic recovery.

Also plaguing the pet industry is the coming shift in customer demographics that may siphon away a sizable portion of its core consumer base. Industry experts are wringing their hands over what may happen when baby boomers—noted for their love of pets and their ardent support of the pet industry—decide they have had enough of pet ownership. The real question is: will retailers be able to attract and foster new generations of pet owners who will support the industry like the boomers before them?

Lastly, many in the business are concerned that some animal activists, as well-intentioned as they may be, just might succeed at knocking out the foundation upon which the industry was built. A wave of new regulations limiting the availability of live animals—from exotic fish to purebred puppies—endangers the industry at its very core. If ambitious animal activists succeed, will there be any pets available at all?

To delve a little deeper into the challenges facing the industry, Pet Business talked to retailers, distributors, marketing consultants and other pet industry experts about where the pet sector stands on these issues and examines how retailers—and the rest of the industry—can best position themselves for the bumpy ride ahead.

Makes the World Go ’Round

The nucleus around which every other factor affecting pet retail revolves is the economy. Without a solid consumer marketplace, for example, it will not matter whether it attracts a new generation of pet owners. So, while the industry’s resiliency during the economic crisis is well documented, many wonder how long pet stores can hold up during a protracted recovery period.

Experts say that the industry continues to be in good shape overall. In fact, Jennifer Korngiebel, senior category manager for pet, at Daymon Worldwide—a full-service global private brand and consumer interactions partner—says that according to statistics from The Nielsen Company, 2013 pet-care aggregate sales were up by about three percent. The increase serves as evidence that people are still spending.

However, according to Korngiebel, the rate of pet-care-related growth slowed compared to the previous year. The drop seems to reflect the recent trend in overall retail-sector sales growth, which fell to 4.2 percent in 2013, compared to 5.4 percent in 2012, according to recent reports from the U.S. Commerce Department.

It remains unclear what this reported slow down in growth foreshadows for the pet segment. Will the full affect of the recession finally catch up with pet stores?

It is obvious that the impact of the recession is still being felt, says John Stottele, owner of The Family Puppy, a chain of five stores in Michigan and Ohio. “Sales continue to hover at a lower level, and it’s not only in the pet industry,” he says.

Others, however, say the forecast is not so bleak. Shoppers are still buying, say some industry experts; it’s just that their habits have changed.

“Pet shoppers are channel shifting,” says Korngiebel. “They are being very savvy about where they are shopping. They know what they want, and they are making sure they can find it at the best prices, at the best quality. People haven’t necessarily closed their pocketbooks. But they are being much more selective about where they are shopping and what they are buying.”

Fortunately, the pet industry is anchored by independent retailers that, for the most part, have been nimble enough to adapt. “The independent retailer has a distinct advantage in the marketplace, even during tough times,” says Scott Rath, vice president of distribution for Central Pet. “Retailers have the demonstrated ability to capture new customers by creatively marketing themselves and offering premium branded foods/products and [they have] the ability to turn that new customer into a loyal, repeat customer by providing exemplary, personalized service—something that big-box retailers and other industries struggle with.”

Despite the many strengths pet stores may possess, current economics seem to mandate that retailers be more strategic and exacting than ever when it comes to product assortment and marketing. “What I believe is that people have money; they are just afraid to spend it,” says Stottele. “We have to help them.”

Big purchases such as a $1,000 puppy can be daunting, especially when consumer confidence is down. But retailers can help customers overcome sticker shock, Stottele says, by offering financing or even simply promoting the wealth of benefits people stand to gain by owning a pet.

Similarly, Roger DeGregori, owner of The Fish Gallery, a three-store tropical fish store chain in Texas, says he cannot discount people’s qualms about investing in the hobby. Therefore, his job, he says, is to make the hobby as accessible as possible, while setting customers up for success. “People don’t want to buy into large expenses that are coupled with headaches, so we have tried to figure out where that comfort zone is with the consumer,” he says. “We [do that by] directing them toward aquariums that are going to allow them a higher level of success.”

Generation Next

Yet as retailers and manufacturers fine-tune their strategies to suit recession-weary consumers, shifts in consumer demographics threaten to muddy the waters even further.

For decades, the U.S. retail sector has catered to the baby boomer generation. After all, almost any consumer constituency that is more than 75-million people strong is going to have significant buying power. The pet industry, however, has enjoyed a particularly beneficial relationship with this segment of the population. Baby boomers are often credited with fueling meteoric growth in pet product sales over the last 15 years.

But many experts warn that this will soon change, as people on the high end of the baby-boomer age range are now entering their 70s. “Historically, when a person hits their early- to mid-seventies, their propensity to have a pet declines sharply, so as we look at the huge generation of aging baby boomers, there has to be some concern,” says Michael Johnson, vice president of marketing and information for Chuck Latham Associates, a sales and marketing company.

Many industry insiders are also concerned that subsequent generations—namely Generations X and Y—are not likely to fill the revenue gap that baby boomers leave as they age out of their pet-owning years.

Scott Brenner, president of Jack’s Pets, a chain of 32 pet stores throughout Ohio, Northern Kentucky and Indiana, notes that today’s families, largely headed by X and Y generation adults, have different lifestyles and priorities than generations past.

“Twenty years ago, a five-year-old wanted their first hamster, bunny or aquarium; today, they want their first—or most likely, second—new video game console,” Brenner says. “The new norm is both parents working, leaving even less time for caring for pets. This hasn’t been a major problem for our industry as of yet, but 10 years from now, I worry that these trends could adversely affect the pet industry.”

Still, there is no need to panic. The shift will be gradual, Johnson says, so there is ample time for the industry to react—and it is still too early to count the baby boomers out. “Since this generation has always changed the landscape around them, I think it is fair to assume they’ll change what it is to be older and to own a pet,” he says. “I prefer to think of this demographic as potentially on the rise.”

Korngiebel adds that the sales numbers in the baby boomer segment have actually up-ticked, recently. “That bodes really well for the category, because in the past, they just fell,” she says.

Still, attrition in this customer segment is a foregone conclusion—if not today, than 10 years down the line. So, now all eyes are the next wave of consumers with the potential to fill the well-worn shoes the baby boomers will leave behind. Many experts have identified Millennials and Hispanics as the demographic segments most likely to fit that bill.

Nathan Richter, a partner at market-research company Wakefield Research, says retailers that want to be in business 20 years from now should start building relationships with expansion audiences. “It would be shortsighted to ignore younger pet owners and potential pet owners who may not currently have the purchasing power of older consumers,” says Richter.

Building a cross-sectional customer base can be a bit of a juggling act, but Johnson says it is doable. “Retailers and manufacturers can continue to focus on today’s business at hand while devising strategies to hold onto the boomers longer, attract more Gen Y and Gen Z [customers], and harness the growing buying power of the expanding Hispanic population,” he explains.

Of course, to do that, marketing professionals say pet product retailers and manufacturers will have to understand the buying habits of emerging customer bases. For example, Richter says, on average, Hispanic pet owners are willing to spend less on vet care, but more on services and discretionary extras. “We see this trend when it comes to pet ‘splurges,’ too,” he says. “Hispanic pet owners are more likely to own pet clothing and are more interested in treating their pets to cosmetic luxuries.”

He adds that many trends seen among Hispanic audiences are similar to those among Millennial pet owners, meaning that campaigns targeting age groups rather than ethnicities could be lucrative. “From a marketing perspective, correlations between age and purchasing behavior are far more powerful,” he says.

Going forward, it will be important for retailers to consider ways in which they may attract new customers. Johnson recommends that retailers ask themselves several questions: “Are you as segment-friendly and inclusive as possible? Is an aging baby boomer, young Gen Y or Latina comfortable in your store? Do they feel welcome and important? Do they find the products and prices they need—and do you know what these are?” he says.

“If you can answer positively to these basic go-to-market questions you’re off to a good start and can now start developing larger and longer-term programs for these segments.”

Meanwhile, many retailers have identified today’s kids as tomorrow’s pet shop customers and are actively courting their patronage. DeGregori says he often focuses on educating parents and kids who come into his store, rather than on just making a sale.

“We are really very dedicated to getting people back into the hobby, bringing in families and kids,” he says. “We have a lot of educational programs and kids-related programs that do nothing but cost us money. But it’s good will, and it’s very much instrumental in our success, because if we don’t grow the hobby, then I don’t know why I’m doing this.”

A Living Industry

Aside from the challenges posed by slow economic growth or a customer base in flux, one of the most pressing threats facing the pet industry lies at its very core—the availability of pets.

“There is a tremendous movement in the country, created by animal activists and their groups, to limit the sale of live animals in pet stores,” says Michael Canning, president and CEO of the Pet Industry Joint Advisory Council (PIJAC). “We’ve seen their strategy go from focusing on just dog sales to all other animals sold in pet stores. The jury is still out on whether the American pet store can survive without having the foot traffic that is generated by having live animals for sale.”

Activists are applying this pressure in all segments of the pet trade—the herptile, ornamental fish and even the small-animal categories are all subject to scrutiny to varying degrees and for various reasons that range from matters of animal cruelty to questionable sustainability when it comes to procurement. However, most of the fervor centers around cats and dogs.

For the most part, activists’ intentions are noble. No one in the industry is going to argue that the growth of the pet industry should come at the expense of the well-being and health of the very animals the pet-care product sector supports. However, many industry supporters point out that should some of the more ardent activists succeed at affecting an all-out, nationwide ban on the sale of pets, the result would be alarming.

“Those of us at PIJAC, responsible pet manufacturers and distributors see the real need for shelters, and many companies in the industry support shelters, but there is a consequence to having animals that are spayed and neutered become the majority of pets out there,” Canning says. “Unless amazing numbers of homeless animals are imported from outside the country—which brings about a whole other set of issues—the amount of breeding dogs will be decreased pretty heavily, and it could decline precipitously in four or five years.”

Rather than stand idly by, experts say, the industry needs to squash bad practices and continue its support of shelters and animal welfare overall, while still fostering a vibrant animal trade in pet stores. “Not only do we have to advocate for ourselves, we need to be proactive in making sure that all of the animals in our care are treated humanely and taken care of to the best of our ability—and there are many movements to do just this,” Canning says.

Stottele hopes his business practices can demonstrate by example that pet sales can be humane. He says transparency is key. Shoppers at The Family Puppy are told where the pets comes from and are given access to information such as USDA inspection reports and American Kennel Club (AKC) and OFA certifications on the breeding parents.

“We call this ‘The Puppy Facts,’” he says. “So, as long as you are transparent and forthcoming, and you really are looking at where you get your dogs from, then you can be honest and say ‘I’m doing good business here.’”

Stottele adds that he has visited all the breeders he works with to ensure that they are suppliers he feels good about and can stand behind. He says he has also noticed that more and more breeders are self-policing and adopting best practices that keep the animals’ best interest in mind. Meanwhile, local and federal government agencies and organizations such as the AKC are helping to provide guidance and oversight in the commercial breeding arena.

“Things are getting better and better,” Stottele says. “All of these pieces of the puzzle fit to show we are doing better. A lot of the bad breeders are getting out and the ones that are remaining are doing their jobs.”

Still, despite all these efforts, public perception on these issues is still up for grabs—and animal activists are boomingly vocal. “The challenge for the pet industry is to amass the resources and the capability to educate the American public as to the various benefits of sharing our lives with pets,” Canning says.

He advises retailers to get involved in local politics in order to make sure their voices are heard. For example, contribute money or time to a campaign, network and educate policy makers about the needs of local pet businesses. Canning also recommends joining forces with distributors and becoming active with organizations such as PIJAC that can offer support and guidance.

It’s all about coordinating resources to safeguard the industry’s future to the benefit of everyone, he says.

“Traditionally, in highly regulated industries such as pet, leaders within the industry have gotten together and decided that political advocacy and involvement is the key to the long-term success of the industry,” Canning adds. “They’ve banded together to do something about that—raise money, form a political action committee, enhance their grass-roots efforts or possibly do some advertising. And we hope that is what will happen in our industry.”

Source: Pet Business