Pet owners in Dallas, Georgia, now have another option for getting care for their critters. Mega-retailer Walmart (WMT 0.77%) has opened a pet care center attached to its store there, complete with vet service, grooming, and more. It's not the first time pet parents have been able to access such services at a Walmart. Partnered with veterinarian care company PetIQ, there are several dozen Walmart stores that already operate vet and grooming centers.

This one's different, though.

This particular pet services site has its own front door and is clearly more aggressive in terms of scope and depth of services. Walmart's announcement of the new site further acknowledges: "It's our goal to bring the Walmart Pet Services model to other communities we serve in the future."

That's something that should worry pet supply stores ranging from Petco Health and Wellness (WOOF 11.61%) to PetSense to online-only pet retailer Chewy (CHWY 5.35%). Walmart may not be shaking up the pet market this year, or even next. But it could be making big waves in the business soon enough.

Already there, and already drawing a crowd

At first blush, it's just another place to help take care of your pet. No biggie. They're everywhere.

Don't dismiss the potential draw of a Walmart-branded network of veterinarian or grooming venues, however. It may manage far fewer prospective sites for vet and pet centers -- as of the latest look, Walmart operated 4,616 stores peppered across the U.S., versus the country's 30,000 or so veterinarian offices and its roughly 13,000 pet stores, according to IBIS World.

Nevertheless, Walmart's foray into the business could still alter the industry's landscape. More than two-thirds of the people living in the U.S. already make regular visits to a Walmart anyway, as more than 90% of U.S. residents live within 10 miles of one of the company's stores. Bringing Fido or Fluffy along for one of those trips wouldn't be a big burden.

Also bear in mind that by virtue of already being the U.S.'s biggest grocer (controlling one-fourth of the market), it enjoys even greater market share in several non-grocery categories. Walmart is already likely one of the nation's most important pet product retailers. Tacking grooming or veterinarian services onto these sales isn't a particularly big leap from where it is.

The kicker: This industry is highly fragmented within the United States. That's arguably the prospect that should concern shareholders of outfits like Chewy and Petco the most. The industry's dedicated pet stores have left themselves in a weakened condition just because there are so many of them competing with one another. Walmart's move could make things more difficult for all of them by consolidating business from customers who have no particular store loyalties, but who value convenience.

Petco is just the canary in the coal mine

Giving credit where it's due, Petco mustered some growth in a tough environment during its second quarter. Overall sales were up 7%.

On a same-store basis, though, its growth was a less impressive 3.2% (more or less in line with inflation). Moreover, adjusted income fell from $27.2 million in the same quarter a year earlier to $16.3 million this time around, extending a weakening trend that first took shape a quarter earlier. Its paper-thin margins remain paper-thin. The slowing trend isn't expected to abate meaningfully in the coming year either.

WOOF Revenue (Quarterly) Chart

WOOF Revenue (Quarterly) data by YCharts

The thing is, it's not just Petco that's on the defensive. Petco is just a proxy for all the U.S.'s pet supply stores.

What gives? Inflation, deeper discounting, and even an outright decline in pet ownership are all taking a toll. The American Pet Products Association reports the proportion of U.S. households with a pet slipped from 2021's tally of 70% to only 66% last year, sliding below pre-pandemic levels of 67%. And, while those folks who still own furbabies generally continue to pamper them, they're spending less when and where they can. BNP Paribas' packaged foods analyst Max Gumport, for instance, notes that premium dry dog food's share of the U.S. market tumbled by 2.9 percentage points during the three-month stretch ending in July.

Connect the dots. The pet care and supply business's long-term growth may finally be running into a wall of reality. That's as true for Chewy as it is for Petco, even though Chewy's online-only business model is a more cost-effective one to manage. And to be fair, Walmart's existing pet business is dealing with the same headwind.

Person playing with a dog.

Image source: Getty Images.

Walmart's got an edge on its competition, though. That's its scale and reach. The U.S.'s biggest retailer is... well, the U.S.'s biggest retailer, allowing it to distribute its fixed costs across more locations while at the same time using its non-pet merchandise to draw in pet owners (and vice versa).

Conversely, platforms like Chewy and store chains like Petco Health and Wellness are hyper-focused on one market and are working with a smaller, more dispersed footprint. This tightly focused strategy worked at one point in time. The advent of the internet and the subsequent rise of online ordering and hypermarkets, however, has turned this former strategic advantage into a liability. It's now arguably too costly to cater to one single market with relatively small stores.

Good for Walmart, bad for everyone else

It's not necessarily the end of the world for Walmart's pet-oriented rivals. Chewy is still arguably a superior shopping option than Walmart for people who do the bulk of their pet shopping online, for example.

On balance, though, Walmart's ongoing evolution into a lifestyle company is too big for any outfit in the business to ignore. From human healthcare to at-home technology installation services to beer, liquor, and wine sales that include Walmart's own private-label premium wines, the retailer is aiming to be a one-stop shop. Pet care was the next obvious step.

And, given that the retailer intends to more than double the number of health clinics it was operating as of the end of last year by next year's end -- a program launched in 2019 at the very same Dallas, Georgia, store that's now home to a stand-alone veterinarian clinic, by the way -- there's every reason to believe the company will be similarly aggressive on the pet care front.

Up for grabs is a bigger piece of the U.S. pet market, which the American Pet Products Association estimates was worth $136.8 billion last year. That's not chump change either. For perspective, Walmart's U.S. stores did $421 billion worth of sales last fiscal year.