Apply SCP ( Structure Conduct and Performance ) analysis of the Petsmart company. (10-15pages)

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Apply SCP ( Structure Conduct and Performance ) analysis of thePetsmart company. (10-15pages)

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SCP analysis of Petsmart company Recommendation We initiate coverage of PetSmart PETM stock with a HOLD rating PetSmart is a fundamentally strong company with excellent future revenue expectations the largest industry market share solid cost controls and good competitive positioning However these factors are fully reflected in the current stock price Industry The pet industry is part of the consumer discretionary sector but unlike many companies in this sector PetSmart has continued to perform well as pet owners have been unwilling to cut back on spending for their animals During this period pet spending has increased and we forecast this increase will continue at a rate of 47 per year The increased humanization of pets will continue to drive positive comparables for pet spending as pet owners strive to improve the quality of their pets lives With these trends PetSmart will continue to maintain value for shareholders Competitive Advantages PetSmarts goal is to provide for the lifetime needs of pets and pet parents PetSmart differentiates from competitors by offering merchandise and services under one roof for pet owners while catering to the needs of premium niche and mass retail customers It has established several exclusive partnerships products and proprietary consumable options With PetSmarts superior understanding of customer needs and its PetPerks program PetSmart has tailored its services and product offerings to maximize repeat patronage customer satisfaction and desired products Overall PetSmart is well positioned in the current market to outperform its major competitors Revenues Through its advertising and promotions throughout the store PetSmart crosssells customers from grocery brands like Pedigree to propriety organic and premium brands of pet food and high revenue margin services like grooming training and boarding PetSmart is ensuring prolonged revenue growth despite the current economic conditions These will create increasing profit margins and same store sales over the coming years Company PetSmart has effectively controlled costs and capital expenditures allowing it to maximize profits Given PetSmarts strong financial position the company has been able to use the recent market decline as an opportunity to enter new geographical markets Risks Risks include the rate at which new stores are opened adverse effects on the companys supply chain loss of key management and competition PetSmart faces a risk to losing market share to its competitors in the industry particularly big box retailers such as WalMart and Target Regional supermarkets also pose a threat to PetSmart especially for customers who are willing to buy generic pet food Smaller pet specialty suppliers pose a threat to the firm as well especially online businesses such as Vitahoundcom and Pet Meds Express which have lower overhead due to a lack of brickandmortar establishments While these concerns are valid WalMart announced its intention to gain a 30 market share several years ago Today it controls 25 of the Pet Product and Supply market During this time PetSmart consistently increased its market share and yearoveryear revenue change percentage in excess of the industry demonstrating its rightful place as the top pet specialty retailer Business Description The Company PetSmart Inc together with its subsidiaries provides products services and solutions for lifetime needs of pet owners and is an industry leader with 53 billion in revenue for 2010 Founded in 1986 and headquartered in Phoenix Arizona PetSmartemploys 45000 associates within its 1149 retail stores 162 PetsHotels 740 hospitals under the Banfield and The Pet Hospital trademarks and 12 Canadian pet hospitals administered by third parties It intends to increase the presence of veterinary services to all PetSmart stores Through its PetPerks program PetSmart tracks the needs of its consumers Management In an interview with PetSmart CoFounder Michael Manson who worked with Philip L Francis and Robert Moran the management practices and corporate culture was discussed PetSmart empowers its employees in a variety of ways According to Mr Manson store level managers are given the responsibility and authority to make independent decisions This allows capable leaders to develop and decreases the risk of any one manager leaving Both Philip Francis and Robert Moran maintained this culture and empowerment practice PetSmart also provides training classes for its associates This grants associates transferable skills and if they complete all the courses qualifies them as a Veterinary Assistant This employee empowerment and knowledge base improves PetSmarts customer service capabilities and therefore customer satisfaction Most importantly Mr Manson discussed the situation in PetSmart at the time that Mr Francis and Mr Moran entered management at PetSmart The company was rapidly approaching failure its stock price had plummeted and significant changes were required for recovery The new management team was able to overcome these obstacles and return PetSmart to profitability In addition to capable leadership PetSmarts management team encompasses diverse skill sets and extensive retail experience Executive Chairman Philip L Francis was the chief executive from 1998 to 2009 Before PetSmart Mr Francis was president and chief executive officer of J Sainsbury plc subsidiary Shaws Supermarkets Earlier he was corporate vice president of Roundys a wholesale grocery distribution company from 1988 to 1991 CEO Robert F Moran joined PetSmart in July 1999 as president of North American store operations In December of 2001 he was appointed president and chief operating officer and he was named president andchief executive officer in June 2009 Moran came to PetSmart from Toys R Us Ltd Canada where he was president Prior to that he spent 20 years with Sears Roebuck and Company in a variety of financial and merchandising positions including president and chief executive officer of Sears de Mexico From 1991 to 1993 Moran was CFO of GaleriasPreciados a Spanish department store chain Chip Molloy joined PetSmart in October 2007 as the Chief Financial Officer and remains in that position currently Prior to joining PetSmart he held various financial leadership roles with Circuit City Inc including the CFO of Retail Stores Molloys other finance positions include corporate planning at Capital One Financial private equity with AGL Capital Investments and consulting with Deloitte Consulting Prior to entering the private sector Molloy served in the US Navy as a fighter pilot subsequently retiring as a Commander from the Naval Reserve CMO John Alpaugh was appointed Senior Vice President Chief Marketing Officer in February 2010 He joined PetSmart in 1999 and has served in several leadership roles including Vice President of Marketing Vice President of Specialty Merchandising and most recently as Vice President of Strategic Planning and Business Development Prior to joining PetSmart Alpaugh worked in Brand Management for Procter Gamble Europe and in Financial Planning and Analysis for IBM Stores PetSmarts stores range in size from 14000 to 27500 square feet While all the same services and products are being offered most new stores designs have changed decreasing to See Answer

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