Lowe's will open Petco shops inside some stores, as it looks beyond appliances and paint

Lowe’s will soon test a new offering: A Petco shop inside its stores where customers can buy dog food and cat litter, and even visit with a vet, while shopping for paint and other supplies for home projects.

The two retailers announced a deal Thursday to pilot the store-in-store locations. The first one will open near San Antonio in early February, with 14 additional locations planned in Texas, North Carolina and South Carolina by the end of March.

The companies declined to share financial terms or the length of the deal.

Lowe’s and Petco have been pandemic beneficiaries, as Americans took on do-it-yourself projects and adopted pets while spending more time at home. In the coming months, however, the retailers could face a more challenging backdrop if consumers feel squeezed by rising inflation or decide to spend a larger chunk of the budget on vacations and nights out instead of pet accessories and home projects.

Lowe’s has looked to new merchandise categories to keep sales growing, along with capitalizing on the strong real estate market. It added more home decor to its website and stores. It launched an initiative to sell and install items that allow seniors to age in their own homes. And it began piloting fitness equipment, such as treadmills, rowers and dumbbells, at about 20 of its stores. It already carries some pet goods, such as dog beds and pet-proof carpeting.

For Petco, the curated version of its stores is a way to get in front of more shoppers and potentially nudge them to visit its larger stores and website as it competes with online players such as Chewy.

Petco Chief Merchandising Officer Nick Konat said he expects the shops will especially resonate with DIY-inclined millennials. During the pandemic, many of those 20- and 30-somethings led the way with “nesting” trends, as they bought homes or moved into bigger places, adopted cats or dogs — and in some cases, saw pets as a “trial run” before having children, he said.

“They’re a high-spend customer and they really take care of their pet like their family,” he said. “And they’ve also been doing the same with their homes, with a lot of them being new homeowners or new renters.”

Each shop will feature Petco’s logo and merchandise for cats and dogs, including some of its exclusive labels, such as its food brand, WholeHearted, and fashion brand, Youly, along with national brands. It will carry more than 700 items that customers can buy online and pick up in store, if they live near a Lowe’s store that’s part of the pilot. Some stores will also offer services from veterinarians and pet professionals who visit the sites, including for vaccination, microchipping, prescription pest prevention and mobile grooming.

The store-in-store will vary in size, but the first location will be about 1,000 square feet and will be placed at the front of the store, said Bill Boltz, Lowe’s executive vice president of merchandising.

The shops will be staffed by a Petco employee, in addition to ones from Lowe’s, Konat said.

Other retailers have similar partnerships. Target struck a deal with Ulta Beauty to open curated shops inside hundreds of its big-box stores — and has similar shop-in-shops with Apple and Disney at select locations. Kohl’s signed an agreement with Sephora to have its beauty shops in stores. Kroger will carry some Bed Bath & Beyond merchandise at select stores, and Macy’s is rolling out Toys R Us shops.

As of Wednesday’s close, Lowe’s and Petco’s shares have both fallen about 12% this year. Lowe’s and Petco shares closed at $228.10 and $17.43 on Wednesday, respectively. Lowe’s shares have risen by nearly 31% over the past 12 months, which puts its market cap at $153.68 billion. Petco’s shares have fallen about 37% over the past 12 months, giving it a market value of $5.27 billion.