These days, virtually everyone will tell you that pet store puppies come from puppymills. A puppymill is basically a place where they produce puppies constantly - it can be a single person, with far too many dogs to care for or raise properly. Their only true goal: to sell puppies as fast as they can for as much profit as they can make. And while yes, most often you'll find a puppy mill behind a pet store Pug puppy, there are also times when puppies from known bloodlines may show up.
Breeders who are less than responsible often simply don't care about where their puppies end up. While the AKC's Limited Registration policy and agreements not to breed an individual dog do go a long way in stopping the casual breeding of less than standard quality animals, they by no means put an end to it. Often people simply ignore the agreement and breed their dog anyway. They have no respect for the breeder's knowledge and simply feel they have a "good reason" for breeding their dog. Often, these pups are not registered with the AKC, so the owner may use the original information provided to use an
alternative registry organization. For many people, registration papers simply don't matter. All they want is to produce puppies to sell to people who don't care about registration papers anyway.
Pet store puppies which come from any source are usually registered with some organization. Registration is not a sign that they are quality dogs, instead the registration, or "papers" are used as a selling point. Backyard breeders who may find it difficult to sell puppies may also discount their puppies for sale to pet stores. Many pet stores encourage local people to provide them with stock for sale. Generally though, the majority of puppies in the pet stores come from puppy mills, who exist solely to produce "livestock" to sell at as a big a profit as they can. Between the pet store and the breeder you most likely will find a number of transfers, showing brokers and handlers who purchased the pup, then resold it, and so on before it ever gets to the pet store.
The puppy mill receives from $50 to $75 per puppy. Sometimes the mill will sell the entire litter lot for a flat fee of $25 or $30 per puppy to get rid of them all at once. The broker who buys from the puppy mill will resell the puppy to the pet store for $200 to $400. Brokers often break up whole litters and send them scattered across the country to different stores. Retail sales often have a mark up of 50% so it's now easy to see how that $50 puppy ends up costing $400 to $800 in a pet store. Plus, you must understand that this puppy is carried as "inventory" for the store, like a stalk of celery. And also like that stalk of celery, the "inventory" is perishable. Puppies are only cute for a very short length of time. Puppies who reach 10 to 14 weeks of age simply aren't "cute" any more, they start to show the size they're going to be, and the store simply cannot market them successfully. At that point, they're starting to lose money because the puppy has been fed more than it's worth. At that point, the store will discount the puppy so that they can move the merchandise off of the shelves.
When a puppy is sold, this creates a vacancy for another to take its place and the circle begins again. So long as pet stores continue to sell puppies, the brokers and stores will continue to make money buying puppies from puppy mills. And so long as the puppy mills have dog brokers who continue to buy their puppies, the puppy mills will exist.
If you wish to play a part in ending the viscous circle of puppy mill sold to dog broker sold to pet store sold to the public then simply do NOT buy from a pet store. Without sales of the dogs, when the stores are required to drop the price below what they have already in the puppy, then they don't make a profit. Without a profit, the store stops purchasing puppies and possibly stops selling live pups. Even if you feel you are rescuing these puppies from the stores by purchasing them, it does nothing more than create an empty display cage that the store then will restock with another puppy.
Further reading on puppy mills and pet stores:
Puppymills.com
About.Com - Puppy Mills: The Truth Behind Pet Store Puppies
Pet Shop Puppies
Dog Owner's Guide: Pet Stores