Pet-supply shops grow while other retailers fade

The list of retailers standing strong in the recession continues to shrink along with the ranks of retail employees, which lost another 21,000 jobs last month.

Retail chains suffering the most are focused on electronics, jewelry, apparel and office supplies, according to the real-estate-data firm CoStar Group. (Think Circuit City, Shane Co., Eddie Bauer and Office Depot.)

The biggest expansion this year will come at dollar stores, warehouse clubs, drugstores, grocery stores, discounters — and pet-supply chains.

Dedicated pet-supply shops, which came of age over the past couple of decades, have won the wallets of shoppers who refuse to be cheap with their animal companions. In May, PetSmart posted a 12 percent quarterly profit boost and plans to open 40 stores a year for the foreseeable future.

Locally, the Olympia-based chain Mud Bay opened its 17th store last month, in Sumner, and is moving to a larger space in the Greenwood neighborhood of Seattle.

Consumers have come to think of high-quality pet food as a necessity.

"Our pets didn't cause this financial meltdown, they didn't take any TARP money, they didn't get any bonus. They're just little creatures used to eating what they eat. Why should we take it out on them?" said Lewis Mandell, a professor of finance and economics at the University of Washington, explaining both big-picture consumer behavior and that of his family toward their two chihuahuas.

Consumers will spend $45 billion on pets this year, according to the American Pet Products Association. That includes everything from veterinary bills to Ol' Roy dog food at Wal-Mart.

Pet-supply stores have carved out a loyal niche among customers who used to pick up cans of Alpo along with milk and paper towels at the grocery.

"They've done a great job of pulling the customer away from supermarkets," said Jim Peko, a principal at Grant Thornton's corporate advisory and restructuring practice in New York.

The shops gain loyalty by offering extra services, such as grooming, training and veterinary care, and they educate customers about pet nutrition.

The result is recession-resistant, although not recession-proof, growth. Mud Bay has seen a slowdown in sales but still expects same-store sales to grow by 2 to 10 percent this year, said co-CEO Lars Wulff.

It has brought costs in line by cutting wages and laying off four workers, he said.

Still, "we're also profitable year-to-date, and we expect to remain profitable for the full year."

Mud Bay recently put about half of its 160 employees through a financial-literacy course to help them read the company's books, which it shows to workers despite being privately owned.

"You can centralize power and suck out all the judgment and decision-making, or you can distribute it, and the latter seems like a lot better approach for a sustainable competitive advantage," said Wulff, who is co-CEO with his sister, Marisa Wulff.

Their mother, Elsa, started the business in 1988 as a farm feed store. As the city encroached on the store, and pets became more plentiful than pigs and chickens, Mud Bay shifted its focus and the owners decided to become experts in pet products.

"This is where retail can make a real contribution," Lars Wulff explained. "We can read the scientific studies, we can interview the veterinary nutritionists, we can visit the manufacturing facilities, we can collect anecdotal data about how well a food feeds."

Individual pet owners don't have time for that legwork, he said, "so we can amortize it over 40,000 dogs and cats."

The food at Mud Bay might cost a little more on a daily basis than customers paid elsewhere, but after seeing the improvements that a certain food makes in their pet's appearance and behavior, he said, "they realize they can get more bang for their buck economizing elsewhere."

Still, customers' financial woes have pushed Mud Bay and other pet-supply stores to carry items they might not have otherwise.

Mud Bay recently added Skoki dog food, which comes only in a 40-pound bag for $39.95. The chain prefers to offer a range of bag sizes.

Katie Rockwell, owner of Urban Beast in South Lake Union, has started carrying lower-cost pet foods that still meet her criteria.

Her sales are down, she thinks partly because her stylized shop looks like a pet boutique from the sidewalk. She works to keep prices competitive with chains, but knows that her margins are narrower because she is buying for just one store.

Natacha Estrade, a longtime Urban Beast customer, was laid off last week but said she plans to keep shopping there for her 5-year-old English bulldog, Bacon.

"The food we get for him is top-of-the-line," Estrade said. "If we downgrade his food, he could end up having health problems and we'd end up paying more in the end."

Shop owners say that pet owners are buying fewer toys and treats, and stores that do not offer a selection of foods have struggled.

Sydney Cicourel, of Kirkland, closed the University Village location of Buster & Sullivan pet boutique in January, after having already closed stores in Malibu and Manhattan Beach, Calif.

She and her two daughters lost $1.5 million on the stores and never considered selling food to attract more customers. Now, they focus on Buster & Sullivan's online store and protesting at pet shops that do business with puppy mills.

By the time they closed the shops, Cicourel said, "We were exhausted and hated retail."

— Melissa Allison

Callahan Concierge has opened a new store in downtown Kirkland. For $29 a week and up, Callahan will handle customers' grocery-shopping and dry-cleaning runs. Customers can e-mail a list of their items and pick them up outside the store. Or for $35 an hour and up, Callahan will make deliveries to customers' boats at the Kirkland docks. Callahan was created four years ago in Seattle as an in-home, personal-assistant service. — AM

Amazon.com has begun selling a new line of cooking products with Seattle restaurateur Tom Douglas. Dubbed Tom Douglas by Pinzon, the line includes kitchen utensils, cutlery, grilling tools and wine glasses. It's described as "urban-Asian," with such items as a carbon-steel wok, bamboo stir tongs and wok strainer. Pinzon is one of four private labels that Amazon sells. The others are Strathwood (outdoor furniture, lighting and décor), Denali (power tools) and Pike Street (bedding and bath). — AM

Tax-preparation firm H&R Block plans to open a new location this summer at Kent Station. Mama Stortini's Ristorante, serving Southern Italian food, opened there recently, while restaurant Kaiten Sushi plans to open at Kent Station in September. — AM

Chocolopolis on Queen Anne will offer a week of tasting events and discounts beginning July 12 to celebrate its one-year anniversary. Events include a Bastille Day tasting of chocolates from France, a pairing of chocolate with Dry Soda (also from Seattle), and sampling of chocolates from Claudio Corallo. For information, call 206-282-0776. — MA

Retail Report appears Fridays. Melissa Allison covers the food and beverage industry. She can be reached at 206-464-3312 or mallison@seattletimes.com. Amy Martinez covers goods, services and online retail. She can be reached at 206-464-2923 or amartinez@seattletimes.com