By Joann S. Lublin

What's the difference between a child and a pet? Increasingly, not much. Which is why Petco Health & Wellness -- the second-biggest U.S. pet-store company, behind PetSmart -- now sells pearl necklaces, dresses, hoodies and even matching pajamas for household creatures and their owners.

"Pet parents see their pets as extensions of themselves," says Petco Chief Executive Joel Anderson. "Our year-end unit sales of holiday products were up more than 10% -- partly due to increased humanization."

Anderson took command of Petco in summer 2024, a few months after the San Diego-based retailer swung to a fiscal fourth-quarter loss and then-CEO Ron Coughlin stepped down. The operator of 1,423 stores reported a small loss and roughly flat sales growth during its latest nine-month period.

Anderson blames Petco's recent problems in part on a decision made during the pandemic to be a health-and-wellness company instead of a pet-supplies chain. "We went too far," says the 60-year-old executive, a retail-industry veteran who had spent nearly a decade running discount chain Five Below. "We are laying the foundation for a return to profit and revenue growth."

In an interview, Anderson explained the company's new approach. Edited excerpts follow:

Unhealthy results

WSJ: Why and how did Petco focus on health and wellness?

JOEL ANDERSON: It was the right decision at the time. It led to a successful IPO. Health and wellness represented a huge human trend. Pet trends typically follow.

We launched a full-scale rebranding. We added "health and wellness" to our name. Marketing campaigns centered on pet health -- and even pet mental health. We probably bought too many veterinary hospitals at their peak. We misread that health and wellness would be a long-lasting pet trend.

WSJ: How did the health-and-wellness push hurt earnings?

ANDERSON: For example, we got rid of all foods with artificial ingredients. You effectively fired some customers who preferred those lower-priced items and didn't trade up. We've got to win them back.

While health and wellness is still a big trend, it's more important that we take care of all pet parents. There's a lot more to pet parenting than just health.

WSJ: What else contributed to Petco's fourth-quarter loss during fiscal 2023 besides its health-and-wellness focus?

ANDERSON: We didn't shift fast enough as everything started coming down after the pandemic pet boom. And the shift to value products was much bigger than we expected. When pandemic stimulus money dried up, people cut corners -- like buying the lowest price-per-pound dog food. That helped cause an erosion of market share and profitability.

WSJ: What are you doing differently besides restoring cheaper food brands with artificial ingredients?

ANDERSON: We're expanding our owned brands. These private-label items are affordable. You can't get them anywhere else. We develop them by reading trends.

One of the biggest new trends is that cat ownership growth is on the rise, outpacing dogs. With more companies returning to the office, cats are easier to take care of if you aren't home every day. We've expanded our assortment of lower-priced and premium cat goods.

Birthday wishes

WSJ: Almost half of American dog owners have given their dogs gifts for their birthday or "barkday," according to a 2023 YouGov survey. Petco recently opened "gifts for pet parents" areas in some stores. How else will Petco take advantage of this humanization trend?

ANDERSON: Today, the four-legged family member has reached the status of the two-legged family member. Pet parents want products that integrate pets into their lives. More are celebrating holidays with that pet.

We're leaning more into pet-human matching clothing and accessories. A big point of differentiation in our bricks-and-mortar space is creating an emotional connection with pet parents and their pet.

Many store associates know pets by name more than they know customers by name.

WSJ: Younger consumers are inclined to pay more for pet brands aligned with their values such as sustainability, according to a 2024 report from Pass_by, a retail-trends tracker. Will Gen Z become your next growth target?

ANDERSON: Gen Zers and millennials make up half of the 82 million households with pets. And they're delaying having kids. They're clearly going to be an important area for us.

Our Reddy brand is targeted toward the Gen Zer whose dog is the most important piece of their life. That product line keeps expanding.

Reddy now has clothing, premium dog beds and kitchen items -- including pet-food storage solutions -- that are both functional and look good in your pantry.

WSJ: Veterinary care, grooming and training services represent a major feature of Petco stores. Which will grow the fastest and why?

ANDERSON: The biggest growth will come from vet services. Ten years ago, we didn't have one hospital. Full-blown veterinary hospitals today are in slightly below 300 stores. There's opportunity to put vet hospitals in a significant amount of our stores.

Industry revenue from pet services is expected to double by 2030 because people want to take better care of their pets. It's very conceivable that we should be doubling the number of veterinary hospitals.

WSJ: What additional services might Petco introduce?

ANDERSON: Where we are headed is about happy pet parents, healthy pets and having fun together. Plans are in the works to get back to our stores' Saturday hamster races -- something we last did nationally a decade ago.

Digital outlook

WSJ: Online sales accounted for 37% of the U.S. pet market in 2023, Packaged Facts has estimated. What's your outlook?

ANDERSON: During the pandemic, our e-commerce business went from very small -- low single digits -- to well over double digits as a percentage of total sales. We have to get back to growing the digital business. It's going to grow faster than our overall business by a significant margin.

WSJ: What did you initially find wrong about how Petco handled e-commerce?

ANDERSON: There were too many pain points processing e-commerce orders in our stores. For example, store employees must fill online orders manually. We're adding capabilities so they can scan items, and bar codes are printed automatically. The new process is shorter and less costly. We also sped up digital investment.

WSJ: Petco sells small "companion animals" such as hamsters, ferrets, reptiles, birds and fish. What's the weirdest companion animal you learned to feed while toiling alongside colleagues as their new CEO?

ANDERSON: We have some of the biggest companion-animal assortments of any national retailer. Companion animals are another differentiation point.

My favorite was frogs. If you look in some of our frog habitats during nonfeeding time, you're going to have a hard time finding frogs. They're hidden behind leaves, trees and other stuff.

But when you put crickets in that habitat, you go from "How are there six frogs in that habitat?" to "Where did they come from?" I never knew a frog could move so fast.

Joann S. Lublin, a former Wall Street Journal career columnist, is the author of "Power Moms: How Executive Mothers Navigate Work and Life." She can be reached at joann.lublin@wsj.com.

(END) Dow Jones Newswires

March 11, 2025 08:30 ET (12:30 GMT)

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