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2026.09.30 | TB | Retail | Petco Pet Retail Headwinds

原标题：Petco – Pet Retail Positioning as Headwinds Persist

#consumer

Third Bridge · 2026-09-30

Analyst-led • 23 Sep 2026

Companies: AMZN US, CHWY US, WOOF US

Scott Curlow (SC) Independent Consultant

Patrick Ricciardi (PR) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

PR [00:00:02]: Welcome to Third Bridge's Interview entitled Petco – Pet Retail Positioning as Headwinds Persist. I am Patrick Ricciardi, and I will be facilitating today's Interview with Scott Curlow, former Senior Director of Omni-channel Merchandising Strategy at Petco.

Before we begin today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

SC [00:00:38]: I agree.

PR [00:00:40]: Thank you very much. Could you please begin with a brief introduction to your professional background?

SC [00:00:47]: Sure. My professional background really it's all in retail on the corporate side of things, specifically within merchandising. I've been on the allocation teams for national retailers, planning as well as buying and then leading teams of merchandising, most recently at Petco overseeing the dog food business. Before that, I was working at different retailers that were more in the footwear and apparel industry.

Questions

00:01:17] What is your current perspective on the North American pet retail industry, highlighting standout trends or shifts, especially relating to humanisation, cat vs dog ownership shifts and food trends?

SC [00:01:31]: I think that current position of the pet industry right now it's a little bit stagnant. However, I think there's a lot of momentum in the future. Right now, when you look at cat vs dog ownership and trends, cat ownership is definitely going up, and that's what's feeding the growth. Dog ownership is not. It's actually flat to down depending on which resource you're looking at. That strongly has impacted the overall business within retailers as well as brands out there. Humanisation specifically, that trend, although it's slowed down in the past couple of years, it is still marching forward and still a huge important part of the industry, in my opinion. There are still plenty of customers that are trading up as they learn and are educated about higher-quality products, specifically within consumables. Although the macro environment has not been super healthy recently and there are people trading down, humanisation and trading up and wellness within pets is still going to fuel growth going forward.

I think what is hurting right now is more of the discretionary spend categories within the business, such as toys or collars, leashes, harnesses, etc. That stuff is definitely what I've seen at least is a little down YoY and continues to struggle. I don't see a turnaround there very, very quickly. One other note when it comes back to the cat vs dog, the younger generation definitely fuelling a lot of the cat growth, which is great. However, if you think about it, cats eat less than dogs and therefore, LTV for a cat customer vs a dog customer is not necessarily as high. I think another important part about the industry right now, specifically within consumables are different food forms. Minimally processed dog food as well as a little bit of cat has been showing up there is still the darling of the industry will continue to be a huge growth category. However, it is still a small piece of pie. Kibble and wet cans still drive the vast majority of the business in the industry, and I still think that will be the case in the near future despite fresh or frozen really growing.

There are a couple of other food forms I wanted to highlight too that I think are really important and have gained a lot of momentum. One is freeze-dried food. That continues to grow. A lot of innovation keeps showing up in new brands that are focusing on freeze-dried food and more and more customers are starting to learn and understand the benefits of feeding freeze-dried. Another one is air-dried food. That's been picking up. It's even smaller piece than freeze-dried right now. In my opinion, it's been that way because of the cost to feed for air dried it is very, very high. I have seen that starting to go down with new capabilities and facilities being stood up each year. I wouldn't be surprised if down the road, air-dried actually overtook freeze-dried. That definitely is an important piece of the business.

The last one that's all the rage right now is shelf-stable fresh. Essentially minimally processed food that is shelf stable and is either in pouches or Tetra Paks or other type of new packaging that's been out there. A couple of other things I wanted to also call out protein trends within consumables. Fish and novel proteins have been driving a lot of that. I think chicken and beef still continue to be a huge piece of the business, and I do not see that going away. However, as pet owners try to take care of their animals and learn about allergic reactions and things like that, proteins are usually the first things they try to change from, and that is really driving a lot of the fish and novel proteins, which ties right back to the new food forms I was talking about, freeze-dried, air dried and shelf stable.

00:06:11] How do you interpret the trend towards accelerating cat and decelerating dog adoption? As it relates to retailers such as Petco, what considerations or changes must be made when thinking about the shift in pet ownership?

SC [00:06:32]: Yes. I think there's a couple of things that come to mind. Back to the cost of feed of cats vs dogs. I think that definitely is a headwind the industry is going to be facing as well as cats tend to eat more wet food vs dogs as well, and the margin structure varies for that as well as just the overall industry's capabilities and capacities with production. That's going to be challenged a little bit as well. I think as retailers look at these trends and focus on what they need to do, you're going to start to see some certain things happening in some of these retailers, whether it's assortment changes and the amount of space they dedicate to cat vs dog, whether you're looking at marketing or store layouts, more and more focus will be on cats. I think especially for some of those things that are targeting the younger consumer. They are indexing high in cats.

PR [00:07:38]: You also mentioned the lower customer lifetime value for cat owners. Combining that idea with the decline in dog ownership, does that imply a potentially shrinking TAM for pet retailers over the near term?

SC [00:07:54]: I think it's a headwind, but I don't think it's going to take the whole industry down just because of the continued increased overall pet ownership as well as humanisation. Those factors are going to outweigh that headwind that I called out. I still think that this industry is very… There's a lot of light when you look in the future and a lot of potential here. I just think retailers and brands need to start thinking a little bit differently on how they address future strategies. Even when it comes to toys, if you think about it, dogs go through toys and are a much bigger piece of that business vs cats. There's definitely some shifts happening that will change the landscape a little bit.

00:08:44] Do you see the discretionary category pressures as entirely induced by the macroeconomic environment, or are there some underlying executional shortfalls or consumer preference shifts?

SC [00:09:03]: I think it is mostly macro. I definitely think everybody's wallet is a little bit tighter. Customers are deciding what to purchase and understanding what they can live without and finding other ways to occupy their dogs, for example. I do think it is a macro trend. I do think it will turn around. You still see several huge success stories in some of those categories. If you look at the brand Woof, doing fantastic and growing crazy, just acquired by Farmer's Dog. That is a discretionary category that has been on fire. Although overall, there are some headwinds, there has been a lot of innovation, new products, new brands that still showcase how important those categories are to the business, especially when you just look at the margin structure for retailers and brands out there, those are the more lucrative areas of the business.

00:10:05] To what extent has Petco Health and Wellness Company gained or lost market share in recent years? What factors have driven any shifts in market share?

SC [00:10:18]: I look at Petco and PetSmart in the same light really as the two big national pet retailers. I think they both have been struggling with market share because of the shift to online. More and more people are willing to buy their products online, start their shopping journey even if they're going to a store online and tend to find the best pricing there. Chewy and Amazon dominate the category when it comes to that piece of the business, and that is not the strength of the national retailers. Chewy has a very, very robust assortment. I'm not saying that the others don't, but they definitely have been driving a lot of growth. Just a lot of customers still don't know that Petco and PetSmart have significant online business that they can go after and have repeat delivery options like Chewy and things like that. I still think they're going… If I had to predict, they're still going to struggle when it comes to that just because of those two behemoths and really driving a lot of the growth in the industry. It's not just from new customers. It's also customers shifting. They used to go to bricks-and-mortar stores and now shifting to online. From what I've seen in my career, especially in the consumables area, price and convenience are the two things that drive the decision for the customer. You can get both of those things online.

PR [00:11:54]: In its Q4 2025 earnings call, Petco's management highlighted experience as a driver of customer loyalty. How important is experience compared to price and convenience in the pet retail landscape?

SC [00:12:11]: I think experience is very important. I think it varies by customer, but I do think that there is a big reason to believe there, especially which is the nature of some pet ownership is you've got to bring your dog in to see a vet or your cat to see a vet or to get your dog groomed or training, for example. I do think those things are a big piece of it.

00:13:08] What are your thoughts on the paradigm shift to Autoship and online affecting Petco and PetSmart in the longer term? Is there any defence for bricks-and-mortar businesses against digitally native players, such as Chewy and Amazon?

SC [00:13:22]: Yes, I think there is. I think the Autoship is going to continue to be a huge portion of the business. If you listen to Chewy's earnings call, it's a massive piece of their business. I do think some of the big bricks-and-mortar retailers are trying to figure out ways to capitalise on that. I was at a Petco the other day buying some dog food and was asked, "If I wanted to sign up for repeat delivery," while I was checking out, so getting customers there. I do think bricks-and-mortar retailers have unique ways to build the type of competitive moat where they utilise services and in-store experiences and Petco has done a lot of really cool experiences that an online retailer can't do where, "Bring your dog in and have a picture with Santa for free or a national ice cream day, you get a free dog ice cream if you just come into the store with your dog," and things like that. Definitely I think there are ways to help those retailers thrive in the future despite the strength of the other two behemoths.

00:14:25] How would you characterise Petco's customer demographic base? How insulated is the company's typical customer from macroeconomic volatility, especially in a competitive light?

SC [00:14:41]: Yes. I think from what I see, first and foremost, Petco's customers love animals. They want to take care of their pets. They want to learn how best to do that. They tend to skew female. They're looking for premium products. Since Petco brought back [banned and removed] artificial ingredients a couple of years ago and sell some of those more value brands, there are some value customers that are loyal Petco customers, in my opinion, as well that are a little bit more vulnerable to the macro volatility. I think the Petco demographic where they may be struggling is the younger generations and making sure they're getting their fair share because obviously, they are even more inherent to shop online vs going to a store tend to go to Chewy and Amazon, first and foremost. I think the Petco customer likes to discover new things to come into the store and see what products are new. They've done a great job adding a lot of new products.

PR [00:15:49]: How can Petco succeed better with those younger consumers who are more digitally native?

SC [00:16:02]: I think as they continue to build robust assortments and bring in brands that resonate with those customers will help. I think Ollie is a great example of a brand that resonates towards those consumers, and that's a brand that's only available DTC or through Petco. I do think a lot of their newer products overall are speaking to some of those consumers. I think that it will just take some time to get those customers aware that Petco does have different stuff now that appeals to them, in my opinion.

00:16:44] How would you assess Petco's merchandising capabilities, particularly in consumables? What do you see as the company's greatest strengths and weaknesses in that regard?

SC [00:16:56]: I still think the newness and they're making that loud. I've seen commercial about all the new products that they've had. You walk into the store and in all the prime locations, you see newness. You see new types of products, new brands, new SKUs added. I know you asked about consumables, but that they have non-pet categories as well. I saw Legos in stores, gardening products in some stores that are pet safe. I think that their capability to identify trends to go after them very quickly and be first to the market of offering new types of products that are hot is definitely something that they stand on.

00:17:41] How would you evaluate Petco's mix of national vs private label vs other smaller brands in its portfolio? How do you see that mix evolving in the near future?

SC [00:17:52]: Yes. I think all retailers, it's a key pillar of growth and focus for them. Just if you look at the nature of private label business, just the sheer margin and impact to retention is so beneficial for retailers that they're all pushing for more and more private label. I do think that if you look at Petco consumables and growing WholeHearted, they recently launched a Limited Ingredient Diet dog food subline that I recently saw in stores. I've seen a lot of non-consumable products that are private label as well for Petco that bringing in more and really hitting those trends and getting them to the market pretty quickly.

PR [00:18:45]: Are private label non-consumables, especially in those discretionary categories you mentioned, a tangible or valid reaction to discretionary spending pressures that can maintain volume even if price degrades slightly?

SC [00:19:06]: I think if they play the cards right, yes. I do think that it can curb some of that headwind just because of the value that they can offer with private label products in those categories vs national brands and showcasing things that customers are not used to seeing, so I do think so.

00:19:29] Could you expand on Petco's approach to private label consumables? To what extent are they competitive differentiators and offer benefits beyond driving margin expansion and customer retention?

SC [00:19:43]: I think when you look at both Petco and PetSmart and their private label offerings, whether it's Authority, for example, at PetSmart and WholeHearted for example at Petco, it's where pet speciality is driving and having a long-tail assortment really and offering all sorts of unique offerings that some of the major national brands may not carry, ones that specifically cater to a certain life stage of an animal or a breed size, for example, or avoiding allergies or certain ingredients as well as hitting different price tiers within those brands is definitely something that has helped both of those retailers grow, in my opinion.

00:20:39] Is there anything about Petco's private label approach, whether that's in consumables, hard goods, etc, that suggests it isn't being used to its full potential?

SC [00:20:55]: Nothing comes to mind right away. I still do think it's a focus of theirs just based on recently, as I visited several other stores, WholeHearted is still pretty front and centre, a great location. The employees are very well educated about it and help customers shop and can educate them. Seeing just the assortment expand year after year, I think, is a huge indicator of how that business is doing. Nothing really does come to mind, maybe utilising online a little bit more so and having more of a focus there, but I'm not saying they don't, just maybe to be utilised a little bit heavier.

00:21:41] You also mentioned the long tail with private label products. With that in mind, how would you assess Petco's SKU management capabilities?

SC [00:22:06]: Yes, it definitely is a challenge. It's part of the nature of speciality retail and speciality retail in general, not just within pet. You need to have that long-tail assortment to have that credibility with the consumer that you do have the best offering out there for them. Now that doesn't mean every single store has to have every single SKU and carry X amount of inventory. What I see is all retailers are getting better and better with that, especially now with AI, I'm assuming that they'll be utilising that in the future if they're not already and helping to manage some of their inventory and SKU efficiencies.

00:22:55] What is the runway for growth in Petco's fresh food programme? How credible is the company's decision to dedicate freezer and refrigerator space across its store footprint?

SC [00:23:06]: I think the opportunity is huge. It is a huge growth area of the industry right now from a growth rate standpoint. It's still a small piece of the pie. However, there are some incredibly beneficial reasons for retailers to focus on that. Those customers have to come to the store to buy product more frequently. Their freezers are only so big and their fridges are only so big, so the amount of time that customer comes back to shop is significantly higher than a traditional kibble or can customer. I do think it is very expensive to continue to expand. Adding chillers or freezers to such a large chain is a big capital investment. I do think that it takes time, resources as well as customer education to scale that. Doing it very rapidly is a challenge, but I do think this is an area where the large national bricks-and-mortar retailers could have a leg up on online, especially with the shipping complications of shipping refrigerated or frozen products. They do it sometimes actually better than Amazon or Chewy in my opinion, just because they can use all their stores as micro DCs, if you will. You can order same-day delivery for frozen product from Petco, for example, online.

PR [00:24:41]: Do you think the relative operational strength in delivering and getting fresh and frozen food through stores is communicated well to consumers?

SC [00:24:53]: I think it's communicated fairly well. I still think there needs to be a lot of education out there that this type of product even exists. Yes, a big portion of the consumers out there know about it, but I don't think they know as much as we would like them to know, those of us that are in the pet industry and really, the more and more the pet customer gets educated, I believe the more and more pet speciality will win, whether that's fresh frozen or other types of premium products. It is so much better for your animals. There's a lot of benefits to it if you can afford it. I think that as that business continues to ramp and you see a bigger presence of it even at Costco, for example, and they have a large Freshpet assortment as well as their own product. More customers are learning about it. I think that's first and foremost, as… They're also educating customers where and how they can purchase that product through them.

00:25:59] Are there any other considerations or steps we should think about as fresh food scales? How long would it take for fresh food to meaningfully contribute to Petco in a best or a worst-case scenario?

SC [00:26:16]: I think it's already been a huge impact on their business for several years now. I hesitate giving an exact timeline because a lot of that would be tied to capital investments and how many resources can the company put towards that part of the business? I don't know. The ROI on that is definitely a little bit more long term than just shelf-stable product. I have seen them continue to grow and continue to add new products in those categories like the launch of the brand Humbl, for example. I do think that they will continue to push and push there and expand and make it a bigger piece of the pie, but I just don't feel comfortable giving an exact timeline of when.

00:27:11] How much runway for revenue growth do you see within pet services, specifically veterinary, grooming and training?

SC [00:27:25]: I think it's huge. Being a fundamental piece of bricks-and-mortar retailers to build that competitive moat I was talking about vs when comparing themselves to Chewy and Amazon. There are a lot of customers, in my opinion, that utilise those services right now, but don't buy any products in the centre store. They buy everything online. Then vice versa, there's customers that buy stuff in there, but don't utilise their services. I think it's not just an avenue for them to acquire new customers. It's also a way to cross-pollinate business, if you will, between those two types of revenue drivers for them. Chewy is offering a lot of services now, too, but they can't offer what a large national retailer has a bricks-and-mortar presence of roughly 1,400 stores can offer. I think although the number of vets are limited at Petco stores, they still have a lot of clinics, if you will, where they have a van come and give vaccinations or you can make appointments and things like that and grooming and training continue to still be a huge trip driver to the store. I think there is a lot of runway for revenue growth there.

00:28:48] What do you make of Petco's decision to temporarily pause its vet services expansion in 2026? How confident are you that the company can rightsize and streamline its vet services to resume expanding in 2027?

SC [00:29:07]: I'm not quite sure. I assume that the amount of capital investment and the resources that they would need to dedicate it, it's just not the right time for the company, I guess, because I don't see anything in the industry that has changed to make that type of strategy irrelevant. You did use the word pause, not kill the strategy or pivot to something else, just pause it. I'm not sure when or if they will expand in '27 or in the future, but I do think it will continue to be an opportunity and why wouldn't they continue to go after it when they can.

00:30:01] How much cross-selling opportunity do you see from vet services to consumables? Could you expand on how cross-selling can manifest between services into the core retail?

SC [00:30:21]: I think within vet, there definitely is an opportunity to cross-sell. I think some of the challenges lie within vets have certain stances that are personal to them and what they want to suggest customers go after and purchase, which might make it difficult for a large retailer to really capitalise on that opportunity, but when you look at just services in general and the amount of customers that come in for grooming and training as well, I think the opportunity to cross-sell is huge. Again, it's both ways. It's from centre store to services and from services to centre store, really getting that crossover as well as the crossover of getting the customer to shop online if they come to stores or vice versa, if they shop online, how do you get them into the stores? I've seen strategies that they've done, whether it's promotional events or different product placement within the services areas or education that those groomers are giving to the customers as they get their dogs groomed, for example, indicate to me at least from the outside that that they are focusing on that. I still think it's a massive opportunity for them.

PR [00:31:39]: Are there any specific product categories, whether that's for vet, grooming, training, etc, that you think have the greatest or maybe the least opportunity for cross-selling from services to centre store?

SC [00:31:58]: I think consumables, specifically still has the biggest opportunity. That's where you see the majority of customers that are really digitally native and buying repeat delivery and Autoship, from Chewy or Amazon, but bringing their pet in, like can you get them to switch that repeat purchase and tie it to services somehow? That's why I think that will probably be the biggest opportunity.

00:32:31] What is your perspective on Petco's relaunched Petco Perks programme? Considering consumer usage to its detriment since its overhaul in June 2026, would you anticipate any other changes or rollbacks to the newer programme?

SC [00:32:47]: Good question. I think the first thing that comes to mind is, in my opinion, a revamp was needed. PetSmart updated their programme a few years ago. It definitely helped them, in my opinion. I think Petco's move from a… In my opinion, pretty complex loyalty programme to understand with lots of different offerings and lots of stipulations and different tiers of things that you can sign up for to the new loyalty programme, which is definitely more straightforward and easier to understand was needed. I think it's table stakes in the industry to have a programme like that that's simplified for the customers to understand and makes it easy to utilise your rewards whenever you gain them. If I had to guess that they would roll back, I wouldn't think so. There's lots of other strategies that I'm sure they can implement to help offset some of that hit that you're referring to and still keep the programme strong and maybe tweaks down the future, I don't know, but I wouldn't see it going away or rolling back to what it was. Maybe if I had to guess morphing into something a little bit different, but still fundamentally same type of programme.

00:34:12] How do you evaluate the national footprint of bricks-and-mortar pet retailers, such as Petco and PetSmart? Do you see more room for store unit count growth or more rationalisation?

SC [00:34:30]: I would think more rationalisation, just knowing more and more of the business goes online. How many locations do we need in the country right now to service that type of business that is morphing more online. I wouldn't expect store unit growth. I'm sure both of them are going to be opening up new stores in certain areas and closing stores where they're not working, but do we really need the sheer number we have right now? As a guess, I wouldn't think so. It's somewhat similar to if you look at the past of Best Buy and Circuit City and how a lot of that business shifted. Now we really only have one. I'm not saying that will happen or guessing that it can, but just the nature of the business has shifted fundamentally and the amount of business that has shifted online and is not slowing down, it's actually accelerating and more and more and more is going online, there's only room and appetite for so many locations out there.

I do think some of those strategies that we talked about of experiences and new products and product discovery while you're shopping in a store vs searching online is something that I think is very unique to bricks-and-mortar retail that a lot of customers really like. A lot of these categories that the retailers offer are not fun categories to shop necessarily. They're hard to research if you're trying to understand what type of food to feed your animal and really care about it. Sometimes it is easier to talk to somebody about it. Although obviously, you can find a lot of that the research online. I do think that their overall store counts, probably I wouldn't think would go up, but just a stab in the dark for me.

00:36:33] Is there anything about Petco store experience that lends itself to customer loyalty and repeat visits? Are there any changes you would recommend to drive increased wallet share and basket size?

SC [00:36:48]: I think it goes back to some of the things we talked about earlier in the call when it comes to product newness and exclusive products, that definitely will drive some experiences and repeat visits. Petco has done a lot of cool unique marketing events, whether it's things I mentioned earlier, and I continue to see new things pop up in the emails that they send me. I think their focus on fresh-frozen food is another thing that will drive more trip frequency, just the nature of that category. Then again, with the services. Those will always be needed for the customers and bricks-and-mortar is definitely uniquely positioned to take more advantage of that, and it will help trips. I think that there's a lot of work still to be done, maximising those, and it hasn't been tapped out yet, and I think that's why there still is potential for growth. When it comes to the basket size portion of the question, I think there's a lot of things, whether it's secondary products that customers discover as they navigate the store or register lane products that they see as they're waiting in line to check out and things like that that are new fresh products, lower price point, add to the basket, a lot of times easier than shopping online. That's all I've got for that one.

PR [00:38:24]: Is there anything about the e-commerce experience that facilitates loyalty, or lack thereof, compared to Chewy or Amazon?

SC [00:38:41]: I think that repeat delivery is still a massive part of that focus. Loyalty programme works online as well as it does in stores, and I think can be viewed as more attractive than Amazon's depending on whether you utilise Prime for other things or not. The opportunity to utilise online and pick up 20 minutes later, half an hour later in stores is a unique opportunity that helps drive some loyalty for customers that wait last minute and next thing you know they're out of food and you need food right away. For example, I can't wait the 3-5 days that a Chewy will take where a bricks-and-mortar retailer can get it to you quicker by driving, buying online, driving to the store, picking it up or getting same-day delivery.

00:39:33] Do you have any thoughts on Petco's store remodel prototype? In the Q2 2026 earnings call, the company's management mentioned bigger changes, such as animal habitats, Petco-exclusive brand collaborations and nutrition advice. Do those bigger changes give you confidence that the store experience is meaningfully improving?

SC [00:39:58]: Short answer, yes. The one that I've been to, the experience is definitely unique. There's a focus on interactive experiences for kids such as interactive terrariums where they can crawl underneath and stick their head up in this plastic bubble and they're face-to-face with a lizard, for example. A lot of parents love bringing their kids to the Petco Zoo, if you will. I do think that also that the updated fixtures, store layout helps maximise the space for products, and I'm assuming helps overall profitability and efficiency, but overall, nationwide, they don't have consistent store formats like a Walmart, Target, where you inherently know if you've never been to that location where certain categories are, that's not necessarily the case. It takes a lot of resources to roll out a new concept to that many stores. However, I think where huge opportunity is some of the learnings from those stores and taking pieces of it and rolling it out vs necessarily completely updating and remodelling the entire store. Does that make sense?

PR [00:41:19]: Did you notice any more subtle store changes that might tell you something about the company looking forward?

SC [00:41:32]: I felt that just navigating the store and wayfinding was much more improved. I noticed more of a focus on cat vs dog. Again, I don't know if it was that one store I happened to look at vs all of them, so small sample size for me I was speaking about. I do think focusing on new products, getting them right, front and centre in the customer space was very obvious. Just the overall aesthetic of the store felt more premium to me.

00:42:11] Are there any other changes you would like to see or recommend to improve Petco's store experience or overall performance?

SC [00:42:29]: I would think helping the customer become educated on all the products that they offer. If you go to the supplements area, for example, or even cat or dog food area, there's a lot of SKUs and for customers that aren't intimately aware of those products and understanding it can be overwhelming for the customer to visually see all of that vs scrolling pages online on a Chewy website, for example. How can you make that assortment easier to navigate and make the shopping experience for the customer an educational one that almost in a way that they don't even know they're being educated and also fast and convenient.

00:43:14] How would you compare Petco's e-commerce strategy against its peers, such as Chewy and Amazon?

SC [00:43:25]: I think somewhat similar with some variances, but what I could tell, all of them have a long-tail assortment. I do think from what I see, Amazon and Chewy do offer overall bigger assortments. However, that makes it hard to navigate sometimes. You get too many product offerings to try and navigate through. I do think both of those retailers have a better taxonomy and way of navigating their website vs the Petco, PetSmart. There's some opportunity there. I think Chewy and Amazon, from my opinion, are more so day in, day out, you're going to get the great price vs more of a promotional time period heavy or specific marketing events that Petco may focus on. I'm not saying that a Chewy or Amazon doesn't do that. If you look at Prime Day, for example, that has shifted the strategies for all retailers. Now all retailers need to have some type of savings event to really defend themselves against the Prime Days that are out there.

00:44:45] Do you think Petco's Autoship programme has the potential to take a meaningful share from Chewy, specifically? Why or why not?

SC [00:44:56]: I definitely think so. (Audio distorts 45.00) know, but I do think that they have offerings that are only available at Petco, whether it's the private label or Ollie, for that example I brought up before and getting those customers locked into those products that have inherently really high retention is definitely a way to help that. Again, when it comes to utilising their services and cross-selling and getting those customers to sign up. There's lots of things that they can do to get the customer to shift to their Autoship. I have seen, though, however, that there is some gamification, if you will, with customers where you see Chewy, you usually always sign up for repeat delivery, save X percentage off. There are lots of customers that are out there that will sign up for one month or two, then cancel that one and then go to the next retailer because they are offering a similar promotion, get the auto repeat for one or two deliveries, then cancel it and go to the next one and really maximise their savings there. I do think some of the newer type of promotions that I've seen them run, whether it's additional discounts on your second, third, fourth delivery type of thing is a unique thing that will really help them. The opportunity is there, but it still is going to be difficult and a lot of hurdles, even though eventually take share overall.

PR [00:46:31]: Are there any specific hurdles to taking away share from other pet retailers that you would like to highlight for Petco?

SC [00:46:39]: I think when you look online and just look at simple SEO or as customers go online and start their shopping journey there, Petco, PetSmart, bricks-and-mortar retailers are not typically the first things that pop up. For example, if just adopted the dog hypothetically, and you just want to learn about pet ownership, Chewy has an extremely robust amount of resources that you can go on their website and utilise to learn all about. Obviously, it will tie you right into buying something from them. I'm not saying Petco doesn't have anything. I just don't think it's as robust as what Chewy has.

00:47:26] How can Petco drive omnichannel cross-selling to increase the number of consumers that participate across channels – in-store, online and in services?

SC [00:47:39]: I think it goes back to some of the things that we talked about, whether it's a loyalty programme and unique offerings that are personalised to customers that incentivise them to shop one channel vs the other or offering deals when they're in for services or vice versa. There's definitely room to capitalise on that. Same thing when it comes to a unique assortment offering that would help as well.

00:48:09] What is Petco's pricing power across its assortment? Are there any specific categories that you think have more or less room for pricing growth?

SC [00:48:21]: From what I see, as a dog owner myself as I'm shopping online, I've noticed Chewy and Amazon tend to be sharper day in, day out in general. I think that's part of the nature of having a bricks-and-mortar business as well as an online business just with all the operating costs associated with running stores. Can they afford to be priced as sharp as a Chewy and Amazon? You can argue, no. I don't think that there necessarily is, but I think more focus on private label penetration can help, and when it comes to categories where they may have opportunities, private label (audio cuts out 49.08).

00:49:21] What is your current read on Petco's promotional environment? How is the company positioned for more or less AUR [average unit retail] realisation compared to its peers?

SC [00:49:42]: I think a lot of the retailers, specifically when we talk about online business, are following each other, trying to stay competitive with each other. If one has a big sales event, then the other one needs to copy it. As my Prime Day example I spoke about a couple of minutes ago. However, I do think that there's a unique opportunity when it comes to the new products and new type of marketing activations and experiences that Petco has and tying those to promotions is a unique way to help drive some of that. Adoption (audio distorts 50.18) is another example that can help drive AUR. Get in front of a pet owner on the day that they adopt their animal is very, very powerful. There's a few times in a dog, cat owner's life when they really consider what type of food to buy typically when they get the pet, when the pet potentially becomes from a puppy to an adult or an adult to a senior or if the animal is having some type of problem, whether it's allergies, itching, stomach issues, those things. Taking advantage of some of those types of events can be really, really powerful. You can really drive some AUR there and help educate by trading them up and getting them aware of some of the higher-quality products that are offered as well as just some of the other categories that they offer as a pet speciality retailer.

PR [00:51:13]: Do you think the pet retail industry is getting any more or less promotional? Are there any other nuances to pricing competition that you think Petco is better- or worse-positioned to take advantage of?

SC [00:51:30]: I think the industry has become more promotional in the past five years, a little bit more promotional for sure. I do think that there is still a lot of focus on everyday savings though, for all retailers, and that is shown just through their focus on loyalty programmes, and really utilising that and nailing that down and making it customised and most effective for the retailer and customer is definitely a way to help that vs offering a promotion to the general public and you're giving customer a discount that they were going to go and buy that product anyway. Retailers are getting more and more and more sophisticated and making sure that that type of situation doesn't happen where the customers that were going to buy the product anyway are still going to buy it without the promotion and how can we get the promotion in front of those customers that are not buying it and really more targeted marketing and targeted loyalty programmes, I think, are a way that they can really help drive the business.

00:52:49] What is your near-term outlook for Petco? What are the greatest risks or opportunities for the company over the next few years as we navigate this constantly dynamic and evolving macroeconomic environment?

SC [00:53:06]: I think there's a lot of opportunity for national pet retail. I do think that it is an industry that will continue to grow despite some of the headwinds that we talked about right now. I would keep an eye on the strategies that they referred to in their earnings call and focus on the new products. Are they selling well? Are they moving, or when you walk in the store, are you starting to see them in the clearance area? Time will only tell and see what the customer votes for, but I continue to see new products, new offerings, new types of ways to speak to the customer. Petco has a little bit more of an emotional attitude, if you will, when it comes to their marketing voice that I think is unique too, so I do think there's opportunity.

There's not to say, "I'm done," by any means. There's lots of work, I'm sure that needs to be done in order to really start growing some share with all the headwinds, especially online, but the opportunities are there and just watch what they talk about to see, what they rolled out one year ago, do they still have it going now, or have they moved on to something else? Clear indicator of whether it worked or not. Keeping an eye on those things and making sure that they still continue to differentiate themselves with their assortments vs their competitors, I think, will be important. Again, that loyalty programme, I think, is something important to keep an eye on as well of what does it turn into or does not, does it change or does not change will also be an indicator.

PR [00:54:39]: Is there anything else you'd like to highlight about Petco or the pet retail industry?

SC [00:54:47]: Nothing comes to mind. We covered a lot.

PR [00:54:50]: In that case, I will end this Interview. Thank you very much for your time and insights.

SC [00:55:00]: Thank you.

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