This is a partial transcript from Your World with Neil Cavuto, August 23, 2001.

NEIL CAVUTO, HOST: From the catwalk to, well, cats. Pets are big business for one Petsmart. So big, the retailer earned more money than Wall Street expected in its latest quarter. So big, its stock up three- fold just this past year.

Joining us now with more is Phil Francis, the CEO of Petsmart.

Mr. Francis, good to have you.


CAVUTO: So what's behind this, all of a sudden, allure with your stock?

FRANCIS: Well, I think last year we had a tough year, as you well know. We fixed broken things in the company. We also changed the business model. And I think people are starting to get a little bit of visibility that we really did fix things and that we really did successfully change our old business model.

CAVUTO: Part of it is you kind of really scrapped your whole store format entirely, from soup to nuts, all of the shelves -- everything is all redone -- why?

FRANCIS: Well, our old store was laid out based upon a distribution system we didn't have. We modernized the distribution system and that let us take almost $300,000 per store out of a store. That freed space and let us move and change fixtures. And so instead of a warehouse club kind of look, we now look like a specialty store.

And beyond that, we organized all the products by pet, rather than having food, for example, in the back and collars in the front. You can walk in the store now, it's lighter, it's brighter. You can see from decor hangings from the ceiling that the dog stuff is where it is, and you can go there. So without the store being smaller, it feels and shops quicker because all the stuff is organized by species, rather than by the logistics system we used to have.

CAVUTO: You like animals, don't you?

FRANCIS: Yes, I do.

CAVUTO: OK, so, because I really think your stores have been designed by an animal lover. I mean, really. I`ve seen people shop -- just showing some video, there -- with their animals. Do you encourage that?

FRANCIS: Well, we love it when they do that. When somebody will shop in our stores, it doesn't make much difference what another competitor does. On a lot of Sundays, you can go into one of our stores and there will be 40 dogs in the store.

CAVUTO: Yes, but I've got to tell you, I've been in there when there were Rottweilers in there, so it can work against...

FRANCIS: Well, the pet lovers have dogs that are well-trained, and they're usually in pretty good shape.

CAVUTO: I don't know.

FRANCIS: People -- when people can bring their dog, they go there so they can tell somebody else that their dog beautiful and be told that their dog is beautiful as well, and it's a great field trip for the human and the pet.

CAVUTO: So the person -- all the people who work in the stores don't mind cleaning up, or keeping on top of that stuff.

FRANCIS: Well, the people in the stores, by and large, self-selected to work at Petsmart just so they could be around animals, so they think it's part of a routine and it's not a burden at all.

CAVUTO: Yes, actually, the people I met, they do love the animals.

Let me ask you where this all goes now. The whole pet industry -- what, it's a $34 or $35 billion industry?

FRANCIS: Various numbers, but narrowly defined, as food and litter and traditional hard goods, it's high 20s, if 30 million. And in our case, we're now thinking about total lifetime care, and that adds vets and that adds what you'd call grooming -- or what you might call kenneling, I'd call hoteling. But for total lifetime care of pets, it might be $150 billion industry.

CAVUTO: Oh, really? That high? But you -- you cover everything, from when they just get into the world to when they're leaving, right? You cover the whole thing. I mean, all the food, all the supplies for all the major animals, right?

FRANCIS: Well, our motto is...

CAVUTO: I mean, the reason why I ask that is there's a fear that you could crowd things -- could you?

FRANCIS: The market is so big and if the whole market is 150 billion, and our sales, we're something like 3 percent of the market, so there's a long way for us to go. Our model is we want you to adopt a pet from us, groom it with us, train it with us, do the vet care with us, maybe one day you'll even hotel it with us. And in that kind of a model, if we had that kind of a relationship with you, what a competitor does isn't going to make very much difference to Petsmart.

CAVUTO: So there's all this Internet push that these other guys were making -- it's a moot point now, right? That's not the way people want to do it. They want to see Fido in there shopping himself?

FRANCIS: I think the Internet is a small part of a successful relationship with the customer, and we think, as the biggest retailer, there's a place for all three channels, but we expect the stores to be the biggest for a long, long time.

CAVUTO: All right. Well, thank you very much, we appreciate it.

Philip Francis, CEO of Petsmart.

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