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Why Petco's Stores Are an Advantage

By Jeremy Bowman – Nov 3, 2021 at 9:45AM

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By using its stores for services, Petco is creating an advantage over online pet retailers.

Based on valuations, investors generally seem to think that brick-and-mortar retailers are at a disadvantage against their e-commerce competitors, but that's not always the case.

In this episode of "Upgrade or Topgrade" recorded on Oct. 15, Fool contributor Jeremy Bowman and Millionacres editor Deidre Woollard discuss why Petco's(WOOF 1.49%) stores are an advantage, acting as a hub for services like grooming as well as pet food and other products.

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Jeremy Bowman: Yes. I think Petco, I was thinking about this stock. I just liked it more and more as I got to know about it better. I think they're doing something pretty unique. First of all, they have about 1,500 stores nationally and I think only PetSmart is the only other retailer or pet retailer with that footprint.

Deidre Woollard: Right.

Bowman: Compare to Chewy, you might think that brick-and-mortar foundation is a weakness, but I think the way they are using it and converting to this ecosystem, as you said, this one-stop shop or one-stop pet-care center can be really powerful especially when you think about all these services like grooming and veterinary care, they're opening full-scale animal hospitals in their stores. They are going after the pet care market from all angles and insurance as well. I think there's a lot of potential there.

Woollard: Yeah, absolutely. Can you see my screen?

Bowman: Yes.

Woollard: I just wanted to share this slide from their deck to see just take a look at that revenue. That makes me happy. Their pet care center revenue increased. They're really seeing that increased growth. One of the things I thought was interesting too is their live aquarium business that is also growing a lot. So much of this though is tied to the pet wellness and pet health. I think that that's one of the reasons that I like this company and I like the two of Chewy and Petco coming head-to-head on this idea of pet wellness, in particular, the pharmacies, the food. All of those factors are really interesting when you start to think about where these companies are going and what the trends are that consumers are going to tap into and where they're going to see the most amount of growth.

Bowman: Yeah. I think they are both approaching this from different angles. I think one thing I like about Petco, too, are the physical store models. I mean, I think e-commerce is great in this that there's a lot of reasons to like e-commerce stocks like Chewy but I think especially for a pet owner, part of having a dog certainly, is the sense of community with maybe other dog owners. You take them outside, taking them to the dog run, and stuff like that. I think it's nice to have a place you might go and you can meet other people like that. Maybe you don't know what to feed him right now, it doesn't like what it's eating, you want to talk to somebody about that. You can get more of a personal experience than you're going to have just shopping online.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chewy, Inc. The Motley Fool has a disclosure policy.

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