Chewy to Open Fulfillment Center in Missouri

Sales growth that forecasted to experience over the course of years happened in a mere few months, said Sumit Singh, CEO and director of Chewy, in a Sept. 10 earnings conference call. A surge in auto-ship customers, along with substantial growth in its prescription business and hard goods sales, stand out as highlights of the online retailer’s recent success.

“The strong demand we observed in the first quarter carried over into Q2, and once again thanks to the high-quality execution from the Chewy team, we achieved record net sales growth and customer additions,” Singh said. “In recent months it has become clear that the retail industry in general and e-commerce in particular is going through a period of transformative change; growth curves that were supposed to play out over years have been compressed into quarters and even months.”

During an earnings call on Q1 in June, Singh attributed the company’s strong start to 2020 partly to the shelter-in-place orders that were issues in March due to the COVID-19 pandemic.

Chewy added more new active customers in the first and second quarter of this year than the total active customers the company added across the entirety of 2019, Singh said during the Sept. 10 call.

In the second quarter, Chewy added 1.6 million active customers, bringing its total active customers to 16.6 million. On a year-over-year basis, Chewy added 4.6 million active customers, an increase of 37.9 percent, according to Mario Marte, chief financial officer of the Dania Beach, Fla.-based company.

The company’s new active customers, referred to as cohorts by officials, differ from previous cohorts, Singh said.

“These new cohorts are not only large in number but given their initial engagement levels, they are also potentially significant in their unrealized contribution to our future revenue and profitability,” Singh said.

For instance, unlike earlier cohorts whose choices were limited to only purchasing food and essentials, newer cohorts will have a wider range of options earlier in their life cycle. Rx prescriptions, a variety of hard goods options fueled by the company’s private label products and gift cards are three such examples.

“These expanded offerings allow us to serve the customer more fully from their initial purchase and expedite the capture of greater wallet share,” Singh said. “This in turn allows us to scale their lifetime values, or LTVs, beyond their historical ranges.”

Auto-ship customer sales for the second quartered totaled $1.16 billion, or 68.3 percent of net sales. Auto-ship customer sales increased 45.3 percent year-over-year continuing the program’s uninterrupted growth since launch, according to Marte.

Within the Rx business, Chewy served its broadest customer base on record, according to Singh. Additionally, Chewy’s newest Rx sites in Kentucky and Phoenix became fully licensed in the second quarter to fulfill customer orders nationwide, allowing Chewy to “further improve customer experience and optimize logistics costs.”

“By the end of 2020, our fulfillment center network will consist of 11 centers with over 7 million square feet plus three pharmacy focused fulfillment centers,” Singh said. “We believe this makes us one of the largest dedicated e-commerce fulfillment networks in the U.S. and is certainly unparalleled in the dedicated pet space.”

Chewy has plans to launch an additional fulfillment center in the Kansas City area in the second half of 2021.

Expanding distribution capabilities is just one way Chewy is preparing for the upcoming holiday shopping season, Singh said.

“The rapid changes we’ve seen in retail and e-commerce are likely to rewrite the rules of this year’s holiday and cyber seasons,” Singh said. “Our preparations are already underway so that we are ready to ensure that our systems, inventory and staffing levels are in place and able to adapt to any contingencies. Also, with the holidays in mind, we continue to expand our assortment of innovative, high quality products that surprise and delight our customers.”

Singh gave pet personalization as one example. Chewy recently launched a service that allows pet owners to personalize people products such as coffee mugs, water bottles and picture frames. With a 3D-powered user interface, pet owners can upload images and add customizable text and then interact in real time with a 3D rendition of their item before ordering. Chewy plans to expand this offering to include callers, ID tags and beds, according to Singh.

Chewy’s hard goods business has also continued its strong growth, according to Singh.

“Within the hard goods categories, we expanded our mix of private label products and private label hard goods penetration reached 15 percent of net sales providing clear gross margin benefits,” Singh said. “We remain excited about the progress we are making across multiple initiatives ongoing within the company.”

Reported net sales came in at $1.7 billion for the second quarter ending Aug. 2, increasing $546.3 million, or 47 percent year-over-year, according to officials.

Marte said they remain optimistic about the future, and look forward to the second half of 2020.

“Over the past few years, we have invested in technology, new businesses, fulfillment capacity and in building an extraordinary team,” Signh added. “This has prepared us to quickly adapt to the acceleration of our own growth curve and to provide top-notch service to the growing millions of pet-owning households in the U.S. who depend on Chewy.”

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