PetSmart vs. Petco: A Dogfight That Neither One Is Winning

PetSmart vs. Petco: A Dogfight That Neither One Is Winning

Private-equity firms bought America’s two biggest pet-store owners within months of each other. One spent billions to boost its online business by acquiring the top internet pet retailer. The other focused on getting people back in stores. About three years later, neither strategy is a clear winner.

PetSmart Inc., which acquired Chewy.com for $3.35 billion in 2017, is struggling to pay down debt as growth has slowed at the e-commerce company. Petco Animal Supplies Inc., which is dedicating more of its stores to grooming and other services customers can’t get online, said it returned to growth in late 2018 after a stretch of declines.

The two industry giants haven’t reaped all the benefits of pet owners’ largess, especially as the market filled with new competitors in recent years. Makers of high-end pet food like Blue Buffalo, owned by General Mills Inc., have expanded distribution beyond PetSmart and Petco to chains like Walmart Inc. and Target Corp. Online players like Amazon.com Inc. and Chewy have peeled away shoppers by offering to ship heavy bags of pet food free.

PetSmart, which a group led by private-equity firm BC Partners bought in 2015 for $8.7 billion, decided it was better off joining the online sellers than trying to fend them off. But PetSmart’s Chewy acquisition, the largest-ever e-commerce deal at the time, has yet to pay off.

Chewy is still unprofitable and sales growth has slowed even as the company has spent considerably on marketing, according to people familiar with its financials. Last year, the online pet retailer spent $137.2 million on television ads, up from $99.4 million in 2017, according to Nielsen data. Sales at PetSmart have also slid in recent quarters, according to people briefed on the company’s financials.

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