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PetstoreFinalPaper.pdf

Petstore Supply Chain Management Report

STUDENT NAME

California State University San Bernardino

SCM 607

XXXXX 2018

PETSTORE COMPANY Supply Chain Management Report

Table of Contents Company History ................................................................................................................ 1

Evaluation of the Supply Chain Processes.......................................................................... 3

Supply Chain Performance Drivers .................................................................................... 4

Network Design .................................................................................................................. 6

Supply Chain Risk Mitigation ............................................................................................ 7

Forecasting Practices .......................................................................................................... 8

Sales & Operations Planning .............................................................................................. 9

Inventory Management Practices ...................................................................................... 10

Use of Transportation ....................................................................................................... 11

Sourcing Decisions ........................................................................................................... 12

Information Technology for Supply Chain Optimization ................................................. 13

Supply Chain Sustainability with Learning Outcomes & Recommendations .................. 14

References ......................................................................................................................... 17

PETSTORE COMPANY Supply Chain Management Report

1

Company History

Founded in 1965, the mail-order veterinary supply business, UPCO, changed its name to

Petstore in 1979. The business started in San Diego, California and expanded all the way to

Oregon by 1980, creating 40 retail store locations. By 1988, Petstore had acquired two smaller

pet supply chains and more than tripled its number of store locations, entering the Washington

and Texas markets. Live animals were introduced in the late 80s as well. By 1992, Petstore had

opened its first East Coast stores in New Jersey and coined their signature phrase, “Where the

Pets Go.”

By 1994, Petstore was the largest pet specialty retailer, operating in 13 states with 218

stores. They went public under the ticker symbol PETC. The company has gone back and forth

from being publicly traded to privately held. It was bought out by Leonard Green Partners and

Texas Pacific Group in 2000, but again went public in 2002. The company became privately

held again in 2006 by investment groups led by TPG. Ten years later, the company was acquired

by CVC Capital Partners and Canada Pension Plan Investment Board. It continues to be

privately held to this date.

In the late 1990s, Petstore added grooming services and the industry’s first loyalty

program. They also created the Petstore Foundation, a charity that focuses on animal welfare

through adoption events, veterinary services, and research initiatives. By 2001, Petstore had

launched its online platform, Petstore.com and had expanded to over 600 stores in 48 states by

2002. Petstore Park opened in downtown San Diego to host the major league San Diego Padres

team in 2004 and had stores in all 50 states by 2008. By 2013, Petstore also opened stores in

Puerto Rico and Mexico. As of 2017, the company held over 1,500 store locations, including

more than 85 of its smaller, “Unleashed,” stores.

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Petstore has a long and consistent history of focusing on animal welfare and the creating

a better world for animals and animal lovers. Their vision statement: “Healthier Pets. Happier

People. Better World.” guides the company’s focus. To date, the Petstore Foundation has raised

over $250 million and helped over 6 million animals find new homes (Our Mission n.d.). They

have also created the first National Pet Food Bank to help families going through hard times

keep their pets. Petstore has also been long term partners with the San Diego Humane Society

and was a founding sponsor of the Human Animal Bond Research Initiative.

Another area that differentiates Petstore regarding their commitment to animal welfare is

that they are very particular about the types of pet food they will carry. Since 2014, the company

has refused to carry any dog or cat food or treats made in China. In 2018, they took their

commitment to providing excellent food choices a step farther and announced that they will

phase out all food and treats with any artificial colors, flavors, or preservatives. Petstore has

also been expanding its pet services to offer in-store veterinary hospitals throughout the United

States (Company History, n.d.).

As the company is now privately held, it can sometimes be difficult to get specific details

on aspects of the operations and planning. The company is very private when it comes to its

metrics and the specifics of its operations. This lack of public information can be seen

throughout various areas in the remainder of this paper. Rather than specific details about every

aspect of the company’s practices, there will be areas within the paper that reflect general

recommendations for best practices that Petstore is most likely following as a persistent industry

leader.

PETSTORE COMPANY Supply Chain Management Report

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Evaluation of the Supply Chain Processes

Petstore’s supply chain is designed around meeting customer expectations effectively and

efficiently. In order to do this, the company must ensure that there is communication of

information across the entirety of the supply chain. This requires the integration of data from the

point of sale all the way to the suppliers. Decision makers will need accurate and timely updates

in order to properly adjust their plans and account for product movement along the entire supply

chain. Adequate information is key to making every decision from quantity of inventory supply

requests to the placement of facilities to best meet customer demand.

Location of facilities is increasingly important as transportation costs increase over time.

A well distributed supply chain network helps ensure that retail locations and customers are

provided with responsive and rapid service at all times. Failure to provide for these expectations

could easily result in loss of sales and customer loyalty to competitors who may be better able to

provide alternative services to customers. With the increase in e-commerce and physical

locations, distribution center locations must be strategically planned in order to service the

markets most efficiently.

In 2016, Petstore christened their 10th distribution center, located in Nevada. The facility

services over 200 Petstore locations as well as online orders. The new distribution center was

opened as a part of the company’s aggressive growth strategy. It was developed specifically to

suit the company’s needs and be environmentally friendly (Johnson, 2016). This distribution

center will be discussed further in different sections of the report as it is relevant. However, it is

important to note here that the decisions made in the development of such a recent facility are

most likely indicative of the direction of trends within the company’s decision-making processes.

PETSTORE COMPANY Supply Chain Management Report

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There is clearly a focus on expansion and fulfilling their obligations in an efficient, updated, and

environmentally friendly way.

Petstore also brought a new Executive Vice President of Supply Chain and Inventory

onboard in 2018. Laura Wilkin, a seasoned leader with a retail background, is now responsible

for the company’s inventory management operations. Bringing on an executive with over 30

years of experience in supply chain operations should help Petstore remain competitive in the

rapidly changing industry. Their CEO, Brad Weston, stated that, “Laura will lead efforts to add

capabilities and capacity throughout our supply chain to ensure our customers can get what they

want, whenever and wherever they want it” (Pet Age Staff, 2018).

It is clear that Petstore takes their supply chain processes very seriously. They make

decisions after careful data driven consideration and are willing to hire experienced veterans to

lead their expansion and operation initiatives. As a multinational corporation operating with a

global supply chain network, failure to address any supply chain pain points can drastically

undermine the bottom line.

Supply Chain Performance Drivers

As a privately held company, Petstore must continuously provide its investors with

acceptable financial performance measures. These stakeholders are concerned with the return on

their equity as the main summary measure of the company’s performance. They will also be

interested in the other supply chain performance drivers such as the return on assets, return on

financial leverage, accounts payable turnover, inventory turnover and the property, plant and

equipment turnover.

Each of these supply chain drivers requires that the company continuously adhere to the

customer demands and satisfy the trends in the market. One such trend is exhibited in the

PETSTORE COMPANY Supply Chain Management Report

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“humanizing” of food for dogs and cats. Pet owners are increasingly willing to spend higher

amounts than ever before on their furry companions. Over the last several years, sales of dog

and cat food and treats have steadily increased. As American snacking trends increase, so too do

their tendencies to treat their pets with one in eleven pet owners claiming that they feed their pets

some form of food toppers like a sauce or gravy as a treat and expression of love. These owners

tend to highly value quality ingredients in both the food and treats that they offer their pets. This

is primarily because, as pet owner’s views of their companion animals become more humanized,

the health of their companions become a top priority (US Pet Food Market, 2018).

Satisfying these customer desires is one way that Petstore can create customer loyalty.

The company has taken significant steps toward this goal and in recent years has begun phasing

out all pet foods with artificial flavorings, colors, and preservatives. These items are no longer

being carried because data has shown that customers display a marked preference for food and

self care products of their own that are free of such synthetic ingredients. In order to

differentiate itself and remain competitive in the market, Petstore is betting that this trend will

extend to customer purchases for their animal companions (SupplyChainBrain, 2018).

Another performance driver that Petstore must consider is the supply chain

responsiveness expected by today’s customers. Amazon has set the standard for expectations in

the e-commerce industry and because of their two-day Prime free shipping offerings, rapid

inventory availability is vital to a good customer experience. Petstore.com has attempted to offer

its customers an acceptable experience by advertising free shipping for orders over $49.00 as

well as discounts on repeat deliveries.

PETSTORE COMPANY Supply Chain Management Report

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Network Design

Petstore has always needed to work strategically to design its distribution network. It

must balance the costs of meeting the customer’s needs with the value that it provides. Facilities

and distribution centers must be located in areas that can provide responsive service to both

storefronts and online shoppers. Their latest distribution center site located near Reno, Nevada

was chosen for several important reasons. Petstore’s Chief People Officer stated, “As we looked

at the geographic criteria, proximity to our stores and being near central transportation is

important. We wanted a location that would be good for our northwest and have a skilled

workforce we could hire” (Johnson, 2016).

The best way to ensure that the company’s facilities and stores are opened in the most

beneficial locations is to make data driven decisions regarding site locations. In the next section,

Petstore’s use of Esri’s ArcGIS Business Analyst software to make informed decisions about site

locations will be reviewed. The software has become an integral part of the decision-making

process for Petstore for each new location selection.

Retail locations and cost are not the only things that must be considered when it comes to

network design. Petstore must also consider the customer’s desires, sustainability, and corporate

responsibility. One example of meeting both customer desires and adhering to corporate

responsibility was discussed earlier when the company had to redesign its supply network to

exclude all food and treat items with ingredients from China.

Another important aspect of customer preference regarding network design is in how they

order and obtain their merchandise. In 2018, Petstore began utilizing Yantriks in order to allow

customers to buy products online and pick them up in store. The Yantriks Personalized

Fulfillment Platform gives customers the opportunity to see if their desired item is available at

PETSTORE COMPANY Supply Chain Management Report

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their local store and allows them to make their purchase to be picked up the same day (Amigud,

2018).

Supply Chain Risk Mitigation

In order to help mitigate the risks associated with opening new locations, Petstore has

been utilizing the Geographic Information Systems technology put out by the Redlands,

California-based industry leader, Esri, since 2006. Prior to this site selection method, the

company relied on a site selection committee that had a good track record, but the company

wanted to utilize a more scientific selection process that would allow them to feel more confident

in their location investments.

Opening a new store requires significant expenses and commitments and accurate site

selection can help minimize the risk of costly mistakes. Shawn Hanna, the Director of Financial

Analysis at Petstore, stated that by implementing this risk mitigation software solution,

“[Petstore] successfully avoided the downside risk associated with several locations, which more

than pays for our investment in the ESRI solution” (Pillar, 2010). By utilizing industry

benchmarks and tracking metrics regarding avoided losses as well as key performance indicators

from locations opened utilizing the new process, Petstore is able to prove that their Esri software

risk mitigation strategy is effective.

Petstore is also attempting to mitigate the risks it faces in losing market share to Amazon

and other online retailers. Petstore.com offers customers a good online experience with a clean

and user-friendly site, but that does not ensure that pet parents will continue to come to a

specialty site when they could just as easily buy their pet the desired items on Amazon at the

same time that they also purchase other things for themselves that are unrelated to the pet

industry. Petstore must continue to ensure customer loyalty by remaining relevant and offering

PETSTORE COMPANY Supply Chain Management Report

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value. This requires innovation and the willingness to try new offerings for both their new and

existing customers.

One method they are using to “Amazon-proof” themselves is to begin focusing on more

service-based offerings. In 2018, Petstore launched a pilot store in San Marcos, California. This

store, called Petstoreach, offers a limited assortment of products, but only about a third of the

store is shelf-space for inventory. The remainder of the store is focused on offering in-person

services that could not be replicated through an online platform. These services include pet

training, veterinary care, grooming, dog walking and other services. They are also testing a

membership offering that will hopefully ensure further customer loyalty by giving members

discounts on merchandise as well as a number of free veterinary visits at the store every year.

Petstore plans to carefully review and consider customer feedback from this experiment and

make modifications as needed (Thomas, 2018).

Forecasting Practices

Since it is a privately held company, Petstore is not very forthcoming about the methods

it uses to forecast sales. However, as one of the industry leaders, it is safe to assume that they

are utilizing multiple methods of forecasting. By using multiple forecast methods, the company

can create a combined forecast that is more effective than using any one method alone. It is not

at all unlikely that they are using time series forecasting to analyze their historical demand and

make assumptions that past demand is a good indicator of future demand. They are most likely

also using causal forecasting to evaluate certain environmental factors, such as the state of the

economy and trends in pricing.

Petstore has proven that it is willing to step out of the ordinary and test innovative

offerings, such as more service-oriented storefronts and focusing on selling products with no

PETSTORE COMPANY Supply Chain Management Report

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artificial flavors or ingredients. These innovations are not without risks. It would be foolhardy

for the company to proceed in such matters without some level of simulation forecasting. By

simulating potential consumer choices, Petstore can make more confident decisions regarding

less drastic moves, such as price promotions. Simulations will also give them some idea of what

to expect on their more costly investment ideas. Although no forecast is ever entirely accurate, it

is safe to say that by this time, the company has developed a reasonably sufficient method for

determining the demand to be expected at any given time.

Sales & Operations Planning

The company must constantly work to properly manage its supply with demand through

sales and operations planning. This can significantly help the performance of products with a

predictable variability. By taking predictable variability into account for strategic decisions,

Petstore can avoid many demand problems like high levels of stockouts during high demand

times and high levels of inventory during low demand times.

It is important for a company with such a large footprint in the industry to ensure that

their sales and operations teams are working toward the same goal. There must be a constant

flow of communication in both directions so that planning and executing the delivery of products

to the customers takes place as predicted. Creating a system of communication through all levels

of the supply chain assists in creating an optimized aggregate plan. Because the company is so

large, Petstore is able to see great benefit from aggregate planning to determine levels of

capacity, production, stock-outs, inventory, and pricing. Promotional timing is key to managing

demand.

PETSTORE COMPANY Supply Chain Management Report

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Inventory Management Practices

Like most retailers, Petstore can vary the amount of workforce it employs at any given

time. When necessary, the use of a seasonal or temporary workforce can be employed. They

can also vary their available workforce by altering scheduled employment shifts. This allows for

capacity management at its facilities.

Many of the products offered at Petstore stores are not actually produced by the company

itself. This means that inventory must be managed by the amounts purchased from suppliers and

held in inventory. Seasonality of each available item must be considered. Although pet food is

necessary throughout the year, other items may prove to have a predictable variability.

Responding to predictable variability in demand appropriately is important. By managing supply

and demand for these items, Petstore can minimize their increased costs and decreased

responsiveness.

This can be done using a tailored capacity management technique that synchronizes

production and inventory rates with the expected demand, while also utilizing a level strategy to

build up inventory on non-perishable goods in anticipation of future demand. A mixed strategy

for inventory control is best because lay offs are never good for workplace morale or company

image. However, many of Petstore’s products are perishable and not all are seasonal, so a

straight level strategy would not be ideal. It is important to utilize a first in first out shelf

stocking method in order to minimize spoilage. This means that employees stocking shelves

must be trained to ensure that new product is placed at the back of the shelf and older product is

moved to the front.

PETSTORE COMPANY Supply Chain Management Report

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Use of Transportation

Transportation of products throughout the supply chain network accounts for a large

portion of the overall cost of operations. It is therefore very important to make design, planning,

and operational decisions strategically to ensure that costs are minimized without adversely

affecting expected responsiveness. It is assumed that Petstore primarily utilizes water

transportation methods to ship product from suppliers overseas to their distribution centers in the

United States. Rail and truck shipments no doubt account for the majority of the land

transportation, making the supply chain’s transportation system intermodal. As mentioned

previously, distribution centers are used to store and process bulk amounts of product for local

stores and they must be located strategically to provide the most benefit to the bottom line,

including decreasing transportation costs.

In 2015, Petstore also partnered with Instacart, to create a same-day delivery service

called PetstoreNow. Petstore’s Chief Marketing and Digital Officer, Michael Zuna, stated that

Petstore’s younger pet parents want a more “on demand resolution to their pet purchases.” With

so many tech-savvy Millennials treating their pets like real children, this customer need comes as

no surprise. Zuna stated, “The value proposition was firing on all cylinders and it quickly

became obvious to us that there was enormous opportunity for competitive differentiation here”

(Enright, 2016).

Petstore must weigh the cost of this new service against the value it provides to their

customers and decide how much they are willing to supplement the cost of at-home delivery.

The same decision must also be made regarding their repeat delivery and regular home delivery

orders. At present, Petstore offers discounted purchase rates on some items for repeat delivery as

well as free shipping. Customers making one-time purchases must pay for shipping their items

PETSTORE COMPANY Supply Chain Management Report

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unless the total purchase amount exceeds $49.00. For PetstoreNow services, the current

promotion offers free delivery on first orders.

Sourcing Decisions

Petstore is exceedingly particular about its sourcing decisions. Because a part of the

company’s vision is to focus on “Healthier Pets,” their decisions regarding product procurement

must remain in alignment with that goal. They must also consider the customer’s demand and

trends in desires. The ever-increasing trend toward people making more informed and healthier

choices about what they put in their body has certainly caught the attention of Petstore’s

decision-makers. It stands to reason that with the uniquely emotional position the pet supply

industry has, it is important that such trends be considered. Customers looking for smarter

choices in their own diets often want to ensure that their beloved pets are eating as well as they

are. The company has taken several significant steps toward this goal.

In 2014, there was a series of complaints about pet illnesses and deaths after apparently

ingesting treats made in China. The U.S. Food and Drug Administration conducted an

investigation, but had not concluded that the treats were, in fact, at fault for the problems.

Petstore, however, took customer complaints to heart when they asked that the company

discontinue selling treats from China. Petstore had already begun cutting down on the number of

treats that it sourced from China three years prior, but when pet parents made their voices heard,

the company announced that it would discontinue sourcing food from China completely

(Thixton, 2014).

In addition to these quality and customer preference considerations, the company must

also consider other aspects when making sourcing decisions. Cost, availability, and

responsiveness of the suppliers will undoubtedly play a role in the final decisions Petstore makes

PETSTORE COMPANY Supply Chain Management Report

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on who it retains as a supplier. The supplier’s reputation is also important as it can affect the

brand image of Petstore. In 2016, the company dropped their relationship with a supplier of

small animals after a USDA investigation was opened against them because of allegations of

mistreatment of animals. Petstore stated that the supplier was found to be operating outside of

the required animal care standards that Petstore established (Bowerman, 2016).

Information Technology for Supply Chain Optimization

Like any successful company in this day and age, Petstore utilizes numerous types of

technology in its everyday operations and planning practices. As the first in the industry to

implement a loyalty program, Petstore is no stranger to tracking customer data at the point of

sale. This data can be used to create more meaningful offerings and advertisements. In 2016,

the company signed with Toshiba Global Commerce Solutions to begin implementing a new

retail point-of-sales technology to increase their focus on the customer journey and allow for a

more unified cross-platform experience (Grill-Goodman, 2016).

The company continues to prove its willingness to adapt to changing technologies and

remain innovative. Petstore recognized early on that there was a strategic opportunity offered in

the new voice-assistant technologies on the market. In order to remain top of mind as the best

source for consumers to gather pet-related information and to find pet products, the company

would have to ensure that their message was the one that was heard first when consumers

reached out to their voice assistants. To accomplish this, the company acquired the Petstoreach

brand in 2017 and began working to create an artificial intelligence system that would work with

voice to offer new ways for customers to engage with their brand. In July of 2018, Petstore went

live with their voice-activated programming initiative on Amazon Alexa and Google Assistant

(Kaplan, 2018).

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As mentioned previously, Petstore utilizes Esri’s ArcGIS Business Analyst software to

analyze the viability of its new store locations. This location-based market intelligence software

is able to offer incredible detail on demographics, lifestyles, and the spending habits of an area

down to the neighborhood level. By combining this data with their own internal information,

Petstore is able to successfully utilize technology to mitigate risk and improve their ability to

assess a new location’s sales potential. Use of this technology allows for data-driven decision-

making when it comes to location selections as well as prospective customer predictions

(ArcGIS, n.d.).

Petstore also integrates innovative technology into its new distribution center in order to

increase efficiency at fulfilling orders and minimizing ongoing facility operations costs. Their

latest distribution center offers LED lights that use motion sensors to decrease unnecessary

usage. The lights are also equipped to harvest sunlight as well as to adjust their own brightness

based on the level of natural light outside. The air conditioning system also detects the weather

status outside and can capture it to offset excessive usage of conditioning while still keeping the

room temperature consistent. Another installment in the center is a voice picking system that

allows workers to get instructions from wireless headsets (Johnson, 2016).

Supply Chain Sustainability with Learning Outcomes &

Recommendations

Customers are indeed becoming increasingly concerned with the environmental impact

that is made by the companies at which they shop. It is important for Petstore to continue to be

conscious of their footprint. In order to satisfy customer desires, however, they must also offer

customers ways to feel that they too are making a difference. Petstore has done this by “going

PETSTORE COMPANY Supply Chain Management Report

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green” in several product lines it carries, including their own Planet PETSTORE line. The earth-

conscious line of toys, grooming, home products, and pet accessories focus on affordable

offerings made primarily of recycled and natural materials made from sustainable sources.

Packaging materials on these products are also made of sustainable and recycled materials (West,

2011).

Petstore has historically proven that they value sustainability. As an industry leader, they

are able to hire staff that is specifically dedicated to focusing on sustainability. They are aware

of the major environmental impacts that occur because of their supply chain processes and work

to minimize them. In 2014, the Pet Industry Sustainability Coalition (PISC) interviewed

Petstore’s Vice President of Sustainability, Safety & Environmental Health, Jim Thomas.

Petstore was the first retailer to join the coalition and Thomas stated that as part of their vision to

build a “Better World,” the company must work with other “like-minded companies interested in

reducing energy use, decreasing waste and conserving precious natural resources…Pet parents

really care about the environment and [Petstore’s] job is to provide them with products that are

aligned with their values” (Bolton, 2014).

PISC is not the only organization concerned with sustainability and ethics with which

Petstore associates itself. Another example of such organizations is Habitattitude, an

environmental protection agency committed to not releasing unwanted fish or aquatic plants into

public areas. Petstore lists this agency in its resource center and on its animal care sheets to

encourage public education regarding the dangers of introducing non-native animals to the wild.

In 2017, Petstore was recognized as one of the world’s most ethical companies for the

sixth consecutive year by the Ethisphere Institute. Only three companies received the honor in

2017. The recognition is only given to companies that “recognize their role in society to

PETSTORE COMPANY Supply Chain Management Report

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influence and drive positive change, consider the impact of their actions on their employees,

investors, customers, and other key stakeholders and use their values and culture as an

underpinning to the decisions they make every day.” The institute developed an Ethics Quotient

framework to enable quantitative analysis of these aspects in five key categories: ethics and

compliance program, corporate citizenship and responsibility, culture of ethics, governance, and

leadership, innovation and reputation.

Moving forward, it is important that the company continue to guard against any threats

that might tarnish its brand reputation. These threats could occur internally, through breakdown

of the systems or bad employee behaviors, or it could come from external sources, such as

unethical supplier practices. As an American household name, Petstore’s brand is its most

valuable asset.

With so many aspects of the company’s daily operations kept private, it is difficult to

offer recommendations for areas of improvement. All evidence seems to point to the conclusion

that Petstore is doing an excellent job and remains both an upstanding and socially responsible

company. They have obviously taken great care to practice their vision in all aspects of their

decision-making processes. By continuing to remain vigilant and adhering to their vision of

“Healthier Pets. Happier People. Better World,” Petstore can continue to drive positive changes

in the industry and remain an exemplary leader in the pet supply industry.

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