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  In general, they use safe organic dye. It's not really the latest craze. It's been going on for ages and some groomers dye their dogs in competitions. It's not hurting the animal, if anything it's something for the owner and dog to do together (the competitions). I've seen people dress their dogs in worse ways than putting washable dye on them. 
 People will do weird things, personally I like letting my dog be a dog, but I don't think i'm in any position to look down on them especially if no one is getting hurt.
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