Two Giants, One Aisle: The Diverging Fates of Petco and PetSmart

Americans will spend more than $157 billion on their pets this year — a figure that has roughly doubled in a decade and shows no signs of plateauing. At the center of this enormous economic engine sit two retailers whose names have become almost interchangeable in the public imagination: Petco and PetSmart. But behind the matching pawprint logos and warehouse-style aisles, these companies are living radically different lives. PetSmart, the larger chain by every meaningful measure, operates nearly 1,700 stores under the steady hand of private equity titan BC Partners, carries an A-81 credit rating from CoStar, and quietly generates an estimated $9 to $10 billion in annual revenue. Petco, publicly traded on NASDAQ under the ticker WOOF, has watched its stock crater to roughly $2.45 a share, is actively shrinking its footprint, and carries a debt load north of $1.3 billion. For commercial real estate investors, municipal planners, and anyone trying to understand the future shape of American retail, the story of these two companies is not a tale of twin destinies. It is a case study in how capital structure, strategic timing, and the willingness to cannibalize your own business model can mean the difference between dominance and distress.

From mail-order vitamins to the megastore era

The origin stories are separated by two decades and reveal fundamentally different entrepreneurial instincts. In 1965, Walter Evans — co-owner of a Missouri veterinary supply distributor called United Pharmacal Company — launched a mail-order pet supply business out of San Diego County with five employees. The operation was modest, almost pastoral. It wasn't until 1976 that Evans opened his first actual retail location, in La Mesa, California, selling the kind of flea powders and rawhide chews that suburban dog owners drove across town to find. The company didn't even adopt the Petco name until 1979.

PetSmart arrived with considerably more swagger. Jim and Janice Dougherty, who had already proven the concept of a discount pet food warehouse in Las Vegas, incorporated their new company in Phoenix in August 1986 with a million dollars from Phillips-Van Heusen Corporation and a warehouse-style retail concept they called PetFood Warehouse. The Doughertys' insight was almost brutally simple: pet food was heavy, margins at grocery stores were fat, and nobody had yet applied the Home Depot playbook — cement floors, towering shelves, ruthless pricing — to the pet aisle. By 1989, the company had rebranded to PETsMART (a name chosen through a contest among associates, after property developers balked at leasing to anything with "warehouse" in the title), and the Doughertys had been pushed aside in favor of professional management.

The 1990s were boom years for both chains, but each company pursued expansion with a distinctly different metabolism. Petco, under turnaround CEO Brian Devine, opened its first East Coast stores in 1992 and hit its IPO on NASDAQ in 1994 with 218 locations and $189 million in sales. PetSmart moved faster and louder: it went public in July 1993, opened its 100th store by 1994, formed PetSmart Charities as an independent nonprofit, and — in a move that would shape the pet industry for decades — struck a partnership with Banfield Pet Hospital to embed veterinary clinics inside its stores. By the end of the decade, PetSmart had 500 stores and was attempting to conquer the United Kingdom with the acquisition of Pet City, a gambit that would eventually unravel at substantial cost. Petco, meanwhile, had pioneered the industry's first loyalty program — PALS Rewards, launched in 1997 — and crossed the $839 million revenue mark.

The private equity merry-go-round

No account of these two companies is complete without reckoning with the private equity firms that have owned, leveraged, sold, and re-leveraged them in an almost continuous cycle since the early 2000s. The financial engineering that has shaped Petco and PetSmart is as central to their identities as any grooming salon or bag of kibble.

Petco has been taken private and brought public three separate times — a distinction shared by almost no other American retailer of its size. Leonard Green & Partners and Texas Pacific Group took the company private in 2000, brought it back to NASDAQ in 2002, then executed a second leveraged buyout in July 2006 for $1.8 billion after the stock had cratered amid distribution accounting irregularities. That second period of private ownership lasted a full decade, during which Petco expanded into Puerto Rico and Mexico and opened its first in-store veterinary hospital. In February 2016, CVC Capital Partners and the Canada Pension Plan Investment Board acquired Petco for $4.6 billion — loading the company with debt that continues to weigh on its balance sheet today. The third IPO came in January 2021, raising $864 million and christening the company with a new name: Petco Health and Wellness Company, Inc. CVC and CPPIB retained roughly 85% of outstanding shares, and as of March 2025, CVC still controls more than 60%.

PetSmart's private equity saga has been, if anything, even more dramatic. After two decades as a publicly traded company, PetSmart announced in December 2014 that it would be acquired by a consortium led by BC Partners for approximately $8.7 billion — $83 per share, a 39% premium to its unaffected stock price. The deal, the largest leveraged buyout of an American company that year, was driven in part by activist investor Jana Partners, which had amassed a 9.9% stake and aggressively pushed the board toward a sale. The transaction closed in early 2015, and PetSmart disappeared from the NASDAQ.

What happened next was more consequential than the buyout itself. In April 2017, PetSmart acquired Chewy, the scrappy online pet retailer founded by Ryan Cohen and Michael Day, for approximately $3.35 billion. It was a bold bet — and it paid off spectacularly. Chewy went public in June 2019 at $22 per share, soared 86% on its first day of trading, and was valued at $8.77 billion. BC Partners then executed a complex and controversial maneuver, transferring roughly 36.5% of Chewy's equity outside the reach of PetSmart's lenders — a move that creditors called a fraudulent transfer and that was eventually resolved through hard-fought amendments. By March 2021, PetSmart had fully divested its Chewy stake, and the two companies became wholly independent. BC Partners has reportedly generated a return of roughly three times its original investment, and in 2023, it brought in Apollo Global Management and Singapore's GIC as minority co-investors — a signal of confidence that PetSmart's best years may still be ahead.

The financial scoreboard in 2025

The divergence between these companies is nowhere more visible than on the balance sheet. Petco, as a public company, lays its financials bare. For the fiscal year ending February 1, 2025, Petco reported net revenue of $6.1 billion, down 2.2% from the prior year. It posted a GAAP net loss of $101.8 million and adjusted EBITDA of $336.5 million. Its stock, which debuted at roughly $18 per share in January 2021, traded near $2.45 in early March 2026, giving the company a market capitalization of barely $689 million — a fraction of the $4.6 billion CVC paid for it a decade ago. Analysts are split: of seventeen covering the stock, only two rate it a buy, while Bank of America has slapped an underperform rating with a $1.50 price target. The company's net debt stood at $1.36 billion as of its most recent quarterly report, and in January 2026, it completed a $1.5 billion refinancing that included $600 million in senior secured notes at 8.25% interest — the kind of rate that signals lenders see meaningful risk.

There are glimmers of recovery. Under CEO Joel Anderson — the former Five Below chief who took the helm in July 2024 — Petco has improved its adjusted EBITDA margin, generated positive free cash flow, and guided toward $395 to $397 million in adjusted EBITDA for fiscal 2025, a double-digit improvement over the prior year. Gross margins expanded by roughly 120 basis points in the second quarter. Anderson has framed the effort as a "multi-phased transformation," and the company has reached $150 million in cumulative cost savings. But the top line keeps shrinking: net sales fell 3.1% year-over-year in the third quarter, and comparable store sales declined 2.2%.

PetSmart, shielded by its private status, discloses far less. Statista estimates its U.S. revenue at roughly $9 to $10 billion, and BC Partners has stated publicly that revenues increased more than 40% under its ownership. The company's CoStar credit rating of A-81 — categorized as "Very Low Risk" — stands in stark contrast to Petco's B-54, or "Low Risk." PetSmart has not announced any mass store closure program. It continues to operate nearly 1,700 locations across the United States, Canada, and Puerto Rico, and foot traffic data from Placer.ai shows that PetSmart commands approximately 62% of all pet-store visits, compared to Petco's 38%. PetSmart shoppers are also stickier: more than 21% visit at least twice per month, versus roughly 18% to 19% at Petco.

A tale of two footprints

For the commercial real estate professionals who constitute MMCG Invest's core readership, the physical dimensions of these chains matter enormously. PetSmart occupies approximately 37.8 million square feet of space nationwide, roughly 85% of it retail. Petco's footprint is considerably smaller at 24.5 million square feet, with 81% classified as retail. The difference reflects not just store count — PetSmart's 1,700 stores versus Petco's roughly 1,400 — but store format. A typical PetSmart location runs 18,000 to 26,000 square feet, the full big-box treatment with wide aisles, a grooming salon, a Banfield or PetSmart Veterinary Services clinic, and frequently a PetsHotel boarding facility. Petco stores average closer to 14,000 square feet, supplemented by about 115 smaller-format Unleashed by Petco locations that run 4,000 to 6,000 square feet in urban markets.

Both chains lease the vast majority of their locations, typically under double-net structures where the tenant covers property taxes and insurance while the landlord retains responsibility for roof and structure. PetSmart's top landlords read like a who's who of institutional retail real estate: Kimco Realty, the nation's largest shopping center REIT, counts PetSmart among its tenants across multiple markets, and single-tenant PetSmart properties are staples of the net lease investment market. Petco's real estate relationships skew more toward industrial and logistics: Link Logistics, the Blackstone subsidiary that dominates last-mile warehouse space, and AEW Capital Management figure prominently in its distribution network. Both chains operate seven to eight major distribution centers, though PetSmart has aggressively shifted fulfillment to its stores — as of 2025, 90% of PetSmart's online orders ship directly from store locations, a model that simultaneously boosts store-level revenue utility and reduces dependence on centralized warehousing.

According to MMCG estimates, the U.S. pet store industry generates approximately $33 to $34 billion in annual revenue, with PetSmart and Petco together capturing roughly 40% to 47% of the total. Their target demographics overlap almost perfectly: suburban power centers and strip malls anchored by grocery stores or big-box retailers, in trade areas with medium-to-high household incomes and elevated pet ownership rates. But PetSmart has historically secured stronger co-tenancy, positioning its stores adjacent to Walmart, Target, and Home Depot in high-traffic retail corridors. Petco has compensated with greater format flexibility, using its Unleashed concept to penetrate dense urban neighborhoods where a 20,000-square-foot box would be impossible to site.

The services moat neither company can afford to lose

The most consequential strategic shift in the pet retail industry over the past decade has been the pivot from product to services — and both Petco and PetSmart have staked their futures on it. The logic is straightforward and existential: Amazon can ship a 30-pound bag of kibble to your door in two days. Chewy will auto-ship it monthly with a discount. Walmart will match the price. But none of them can clip your golden retriever's nails, express her anal glands, or administer a rabies vaccine. Services are the moat.

Petco's rebranding from "Petco Animal Supplies" to "Petco Health and Wellness Company" at the time of its 2021 IPO was not merely cosmetic. The company has opened more than 100 Vetco Total Care veterinary hospitals inside its stores, launched mobile Vetco vaccination clinics, partnered with JustFoodForDogs to sell human-grade fresh pet food from in-store kitchens, and built its Vital Care membership program around bundled wellness services. In recent quarters, services have been Petco's only growing business line, delivering positive net sales growth of roughly 1% even as overall revenue declined. CEO Anderson has explicitly called the services portfolio "what fortifies our competitive moat."

PetSmart has been playing this game longer and at greater scale. Its partnership with Banfield Pet Hospital dates to 1994 — three decades of embedded veterinary clinics that have become as much a part of the PetSmart experience as the fish tanks near the entrance. More recently, PetSmart has launched its own veterinary services division, recruiting independent veterinarians to operate clinics inside stores under a franchise-like ownership model that gives doctors autonomy while PetSmart provides the real estate, back-office infrastructure, and patient flow. The chain operates more than 200 PetsHotel boarding facilities, runs grooming salons staffed by academy-trained stylists in virtually every location, and offers in-store dog training classes that function as both a revenue stream and a customer acquisition funnel. In 2021, PetSmart launched an online pharmacy, adding yet another recurring-revenue service line to its portfolio.

The question is whether services alone can offset the relentless erosion of product sales to e-commerce. The data suggests the erosion is accelerating. In-store pet food sales declined 14.2% between 2020 and 2025, according to Euromonitor, while e-commerce pet food sales surged 45.7% over the same period. Packaged Facts projects that e-commerce will account for roughly 53% of all retail pet product sales by 2025, up from just 16% in 2017. For a chain like PetSmart that derives 85% of its square footage from retail, that trajectory demands a fundamental reimagining of what the store is for.

The Chewy problem and the Amazon shadow

No discussion of Petco and PetSmart's competitive positioning is complete without confronting the two digital juggernauts reshaping the industry. Chewy — the company PetSmart bought for $3.35 billion and then watched become an $11.86 billion revenue powerhouse — has become the dominant force in online pet retail. Its Autoship program, which generates nearly 80% of total revenue, has created the kind of sticky, subscription-based relationship that brick-and-mortar retailers dream about. Chewy turned profitable in fiscal 2024, posting $393 million in net income, and has begun opening its own physical veterinary clinics under the Chewy Vet Care banner — eleven locations across four states, with plans for eight to ten more this year. It is, in other words, no longer content to remain a purely digital competitor.

Amazon looms even larger. The company captures roughly 32% of all online pet product purchase intent, according to industry tracking data, and has launched private-label brands including Wag and Solimo to compete directly on pet food margins. Among pet owners who buy online, 59% order from Amazon, compared to 41% from Chewy and 33% from Walmart. PetSmart's online operation generated an estimated $922 million in e-commerce revenue in 2025, while Petco's digital sales run approximately $1.25 billion — meaningful numbers, but dwarfed by Chewy's nearly $12 billion and Amazon's vast pet supplies ecosystem.

Both brick-and-mortar chains have responded with omnichannel investments. PetSmart has struck delivery partnerships with DoorDash, Instacart, Uber Eats, and Shipt, making same-day delivery available from nearly 1,500 locations. Its Treats Rewards loyalty program boasts more than 62 million members. Petco's Vital Care program claims over 24 million members, though the company acknowledged in 2025 that it was deemphasizing the current program in favor of a planned relaunch in 2026 designed to create "a more personalized long-term loyalty experience." Neither company's digital operation approaches the sophistication or scale of Chewy's platform, and neither has yet cracked the code on making e-commerce profitable at the unit level without cannibalizing higher-margin in-store traffic.

Who works the floor, and what do they earn

The workforce gap between these companies is significant and telling. PetSmart employs roughly 50,000 associatesacross its nearly 1,700 stores, while Petco operates with approximately 29,000 — a ratio that suggests meaningfully different staffing models and service levels per location. Entry-level positions at both chains pay between $14 and $17 per hour, roughly at or slightly above the prevailing minimum wage in most markets. Groomers represent a critical and scarce talent pool: experienced PetSmart groomers report earning $20 to $35 per hour including tips and commissions, while Petco groomers report a similarly wide range of $14 to $33. Both companies require extensive training — PetSmart's grooming academy mandates 800-plus hours of hands-on instruction — and both struggle to retain stylists in a market where independent grooming businesses offer more autonomy and often better compensation.

Store managers reveal the starkest compensation gap. PetSmart store managers earn an estimated $66,000 annually, compared to roughly $42,500 at Petco — a difference of more than 55% that likely reflects PetSmart's larger average store size, higher revenue per location, and greater service complexity. Employee sentiment, as captured on Glassdoor, is nearly identical and middling at both chains: PetSmart scores 3.2 out of 5 based on more than 10,900 reviews, while Petco earns 3.1 from roughly 6,900 reviews. At both companies, only 40% of employees would recommend the job to a friend. Common complaints include insufficient hours for part-timers, aggressive sales quotas, and corporate management perceived as disconnected from store-level realities. Groomers at PetSmart rate their experience below the company average, citing unrealistic appointment quotas and a work-life balance score of just 2.5 out of 5.

Riding the tailwinds of humanization and premiumization

The macro forces shaping the pet industry are overwhelmingly favorable, and they help explain why private equity firms keep pouring capital into this sector despite its obvious competitive pressures. The American Pet Products Association reports that 94 million U.S. households — 71% of the total — now own at least one pet, up from 82 million just a year earlier. Pew Research finds that 97% of pet owners view their animals as family members. This "humanization" of pets is the single most powerful tailwind in consumer retail, driving spending on everything from fresh organic dog food to pet insurance to birthday party supplies.

The premiumization trend has been especially potent in pet food. According to MMCG database analysis, the pet food and treats segment alone accounted for $65.8 billion in U.S. sales in 2024, and 77% of pet owners say they are willing to pay more for healthier options. Fresh food brands like The Farmer's Dog and Nom Nom (now owned by Mars) have moved from niche curiosity to mainstream consideration. Pet supplement sales are surging — dog supplements grew 9.2% to $633 million, while cat supplements leaped 27.9%. Petco's decision to remove artificial ingredients from its own-brand food and to partner with JustFoodForDogs positions it well for this trend. PetSmart's recent exclusive launch of Edgard & Cooper, a European premium brand distributed through General Mills, signals a similar bet on premiumization.

Pet insurance represents another explosive growth vector. North American gross written premiums hit $5.2 billion in 2024, up more than 20% year-over-year, yet penetration remains extraordinarily low: just 5.5% of American dogs and 2% of cats carry insurance. Industry projections suggest the market could reach $10 to $20 billion by 2030. Both Petco and PetSmart have begun integrating insurance offerings and wellness plans into their service ecosystems, though neither has yet established a dominant position in this rapidly growing category.

The generational shift in pet ownership may be the most important long-term trend of all. Millennials now represent the largest cohort of pet owners at roughly 32%, while Gen Z is the fastest-growing segment — their pet-owning households surged 43.5% from 2023 to 2024. These younger owners are more likely to humanize their pets, more willing to pay premium prices, more engaged with subscription services (61% of Gen Z pet owners use subscriptions versus 39% of Boomers), and more receptive to digital-first shopping experiences. They are, in other words, precisely the demographic that Chewy and Amazon are best positioned to capture — which makes the services-and-experience strategy of the brick-and-mortar chains even more critical.

What the credit ratings tell commercial landlords

For net lease investors and commercial real estate professionals evaluating pet retail tenants, the credit quality gap between PetSmart and Petco has become impossible to ignore. PetSmart's CoStar rating of A-81 (Very Low Risk) and S&P rating of B+ place it in a category of tenant that institutional investors can underwrite with relative confidence. Petco's CoStar rating of B-54 (Low Risk) and S&P rating of B — one full notch below PetSmart — reflects its higher leverage, declining revenue trajectory, and ongoing store closures.

The cap rate data tells the story in numbers. Recent PetSmart net lease transactions have priced at 5.70% to 6.35%, with prime locations in Southern California achieving sub-5% cap rates — a 2025 transaction in the region involving a PetSmart with 17 years of remaining lease term reportedly set a national cap rate record for the brand at $18.5 million. Petco properties typically trade at 6.25% to 6.75%, a spread of 50 to 100 basis points that reflects the market's assessment of differential credit risk. Both chains typically sign 10-year NN leases, though PetSmart's more recent lease structures have shown improved terms: the Torrance, California PetSmart listed in 2025 featured a 12-year term, $34-per-square-foot rent, 10% escalations at years six and eleven, and four five-year renewal options.

Beyond the credit metrics, PetSmart's stability as a tenant is reinforced by fundamental operational strength. The chain has not announced any mass closure program. Its foot traffic dominance and higher repeat visit rates suggest durable customer demand at the store level. And the shift to fulfill 90% of online orders from store locations transforms each PetSmart from a pure retail box into a de facto distribution node — making the physical location more valuable to the company and, by extension, more likely to be renewed.

Petco's tenant profile is more complicated. The planned closure of 20 to 30 stores in fiscal 2025 — following 25 net closures in fiscal 2024 — introduces vacancy risk for landlords in affected markets. The company's debt refinancing at 8.25% indicates that credit markets are pricing in meaningful risk. Yet Petco's improving EBITDA, positive free cash flow, and experienced new management team under Joel Anderson offer a plausible path to stabilization. For investors with higher risk tolerance and a view that Anderson can execute the turnaround, Petco properties at wider cap rates may offer attractive risk-adjusted returns — particularly in strong suburban trade areas where re-tenanting to another pet retailer or service provider would be feasible.

Decade ahead: one company expanding, one fighting for survival

The competitive dynamics of American pet retail in 2026 do not favor the merely adequate. Chewy is opening physical clinics. Amazon is relentless. Walmart is embedding pet services centers and offering free virtual vet visits to its Walmart+ subscribers. Against this backdrop, PetSmart's advantages compound: larger footprint, stronger credit, deeper service infrastructure, stable private ownership with a long investment horizon, and the operational freedom that comes from not having to manage quarterly earnings expectations. BC Partners' decision to bring in Apollo and GIC as co-investors in 2023, rather than pursuing an IPO, suggests the firm believes there is significant value still to be unlocked — and that the public markets, with their short-term pressures, are not the right venue for that work.

Petco's path is narrower but not foreclosed. Anderson's transformation playbook — the same one that took Five Below from 361 stores and $500 million in revenue to more than 1,600 stores and $3.5 billion — emphasizes operational discipline, store-level profitability, and patient reinvestment. The company's services business, particularly its veterinary hospitals and grooming operations, generates the kind of recurring, high-margin revenue that can sustain a smaller footprint. If Anderson can stabilize comparable store sales, continue deleveraging, and relaunch the loyalty program effectively, Petco could emerge as a leaner, more profitable company by 2028 — even if it never regains its former scale.

The deeper lesson embedded in this comparison extends beyond pet retail. It is about the relationship between capital structure and strategic flexibility — between the freedom to invest through cycles and the obligation to service debt through downturns. PetSmart, despite being owned by a private equity firm whose business model is fundamentally about leverage, has managed its balance sheet and its business with a discipline that has produced a stable, expanding operation and a credit profile that institutional real estate investors trust. Petco, burdened by the cumulative weight of three IPOs, two leveraged buyouts, and a $4.6 billion acquisition price that bears little resemblance to its current $689 million market capitalization, is executing a survival strategy that doubles as a turnaround. Both companies sell the same products to the same customers in the same suburban shopping centers. But the similarity ends at the storefront. Behind the glass, two very different companies are running two very different races — and the distance between them is growing.

March 10, 2026, by a collective of authors at MMCG Invest, LLC, SBA feasibility study consultant

Sources:

• Petco Q3 2025 Earnings Release (ir.petco.com)

• Petco Annual Report / 10-K filings (SEC EDGAR)

• Petco $600M Senior Secured Notes pricing announcement (Stock Titan)

• Chewy IPO prospectus (SEC EDGAR S-1)

• The Boulder Group — Net Lease PetSmart & Petco Property Profiles & Cap Rates

• Triple Net Investment Group — PetSmart NNN Properties

• Realized1031.com — PetSmart Tenant Profile

• Marcus & Millichap — PetSmart Torrance CA listing

• Hanley Investment Group — PetSmart Yakima transaction

• American Pet Products Association (APPA) — 2025 State of the Industry Report

• NAPHIA — North American Pet Health Insurance Industry 2025

• American Veterinary Medical Association (AVMA) — Pet Insurance 2024

• Pet Food Processing — US pet food industry 2025

• Grand View Research — Pet E-commerce platform data

• Wikipedia — Petco, PetSmart, Banfield Pet Hospital

• Retail Dive — PetSmart/Apollo investment; Petco downgrades

• CNBC — Chewy IPO coverage

• PE Insights — BC Partners/Chewy recap deal

• Renaissance Capital — Petco IPO terms

• Unionmetric - Feasibility Analysis of Pet Ttore

• Business Wire / PetSmart Corporate — 1,600th store milestone

• CityBiz — PetSmart Ken Hicks CEO appointment

• Modern Retail — PetSmart store-fulfillment model; Petco Vital Care growth

• Glassdoor — Petco & PetSmart employee reviews, groomer pay

• ZipRecruiter — Store manager salary data

• Zippia — PetSmart salary overview