Following Chewy’s first profitable quarter—the company reported a net income of $21 million in the period between November and January—Sumit Singh, CEO of the online retailer, is feeling pretty confident in the company’s ability to build upon its momentum.
In an earnings call with investors on March 30, Singh outlined three trends the company intends to capitalize on to propel growth going forward: the size of the U.S. pet market, the growth in e-commerce’s penetration in the U.S. pet market and the increase in the number of pet-owning households in 2020.
Singh made it clear he feels the company won in 2020 thanks in part to the pandemic, citing a 40 percent increase in the creation of profiles for newly adopted pets and a 35 percent year-over-year increase in the creation of pet profiles for puppies and kittens.
“ … That newly adopted Chewy puppy is going to grow up, eat more food and shred more toys, leading to a long-lasting relationship with us, resulting in a stream of recurring revenues for years to come,” he said. “Understanding our customers and anticipating their wants and needs helps us create sustainable advantages to win in the pet space.”
As the company moves forward, its focus will continue to be on expanding its customer base, Singh said, as well as investing in its fulfillment centers (FCs).
“ … We expect to see productivity gains accelerate in 2021 from the technology and automation investments we have made in our fulfillment center network,” Singh said. “You may recall that in October 2020, we opened our first fully automated FC. A month earlier than that, we began realizing a different style of efficiency when we opened our first limited catalog, high velocity FC. Given their launch timing, these FCs provided only modest ramp benefit to us in fiscal 2020. In 2021, we expect to realize accelerated productivity gains from their full year operations.”
Singh said that in Q2 2021, Chewy also expects to open its second automated fulfillment center, in Kansas City, Mo., and another limited-catalog facility in Q3 2021. In 2022, Chewy will begin automation retrofits at select fulfillment centers, Singh added.
These fulfillment centers might be enough to help Chewy stave off competition from Amazon, which declared its pet business a priority in 2018 and has added more pet products into its one-day delivery service selection, according to a Financial Times article.
Singh argued, “Amazon’s core advantage in other product categories—fast delivery—holds less importance in the pet sector. Almost 70 percent of Chewy’s total sales come via its Autoship program, where customers sign up for regular deliveries of food or other essentials, often at a discount,” the Financial Times, a London-based newspaper, reported.
Still, despite its lucrative Autoship program, sales from which totaled $1.23 billion in the company’s third quarter ended Nov. 1, it’s likely that Amazon will not be Chewy’s biggest competitor going forward. “Established bricks-and-mortar players adapting to the new era of retail” could be the bigger threat to Chewy, the Financial Times article noted.
Pet specialty retailers, from bigger chains to one-store operations, have incorporated new practices and procedures such as same-day delivery and curbside pickup into their businesses since the pandemic began—and many plan to keep these policies in place long after the pandemic subsides.
For example, as shelter-in-place orders quickly took effect, Odyssey Pets, a pet store in Dallas, began home-delivery services, put together an online purchase website and started collecting customers’ credit card numbers for no-touch payments.
“We have instituted so many new policies,” Sherry Redwine, co-owner of Odyssey Pets, told Pet Product News (PPN) in January. “Some we will keep even after the pandemic.”
While it might be hard for pet stores to compete with Chewy on delivery and its Autoship service, Steve King, CEO of the American Pet Products Association (APPA), told the Financial Times that there are just some areas in which Chewy can’t compete with brick-and-mortars.
“Being able to come into a retail store and have your pet groomed, or get trained, is something that the online folks largely can’t compete with,” King said in an interview with the Financial Times. “[And] you’re more likely to identify a new product that meets a particular need by going into your local pet store and getting some advice.”
Services and, by extension, advice for pet owners are part of Chewy’s overall strategy. In October, the company launched its Connect With a Vet telehealth service, which connects pet owners directly with a licensed veterinarian to get answers to some of the most commonly asked questions, receive advice, discuss concerns they might have regarding the health and wellness of their pet, and even get referrals to their local vets or emergency clinics, according to company officials.
“ … As we are observing, health care and services have already begun to shift online, and we believe this trend will continue and accelerate,” Singh said during the earnings call. “Equally importantly, we believe these shifts in favor of e-commerce channels are durable and largely permanent. This is where we believe Chewy has won and will continue to win for years to come.”
As Chewy executes its growth strategies, brick-and-mortar retailers can bolster their strengths and become the biggest threat to Chewy.
“If independents can be aggressive with services within their store [like] grooming, self-service grooming and maybe veterinary services, I think they can compete, because Chewy is never going to be able to groom a dog online,” Paul Allen, CEO of Woof Gang Bakery, a specialty pet retail and grooming franchise with more than 100 stores in the U.S., told PPN in October. “Services are such an important part of our business. But [for] brick-and-mortars of all sizes, that’s what’s going to set us apart.”
For more on PPN’s coverage of Chewy, read: