Key Results
The online pet store Chewy prides itself on the customer care it provides. It considers both the pets and the pet parents essential to its functions. It prides itself on being able to meet customer demand, exceeding expectations, and having an in-depth understanding of the emerging needs of pets and pet parents in pandemic-driven market conditions. They promise to deliver a personalized service experience every time a customer interacts with them. They were able to analyze the changing market needs during the pandemic and were able to maintain inventory to avoid shortages. In the first quarter of the year 2020, they realized the importance of the strategic placement of their fulfilment centers when they had a 20 million dollar expense in splitting shipments and covering longer delivery routes. As of the third quarter of the year, 2020 Chewy operated through 11 fulfilment centers that covered about seven million square feet of the area used for its storage and operations (Cosgrove, 2020). It is with this strategic infrastructure that Chewy was able to reduce costs and was able to meet its promise of 2-day delivery to 100% of its orders (Kilgore, 2019).
With the first few months of the pandemic being educational for Chewy, they learned about the increasing customer demand and the trends of these demands. As pet grooming services closed and the pet health facilities became either closed or limited, Chewy was able to capitalize on this newly created demand. By increasing its fulfillment centers and stocking up Chewy’s sales and customers both increased. Chewy increased its revenue by 47.4% amounting to approximately 1.70 billion dollars in the second quarter of 2020 compared to 2019 in the same period (Chewy-Q2_2020_ShareholderLetter.Pdf, 2020.). Continuing on the same trend Chewy showed 46.2% revenue growth in the first fiscal quarter of 2021 that ends in May amounting to 2.21 billion dollars. Chewy also reported an increase in its customer by 1.6 million (Chewy, Inc. – Financials, 2020). At the end of quarter 3 for the fiscal year, 2021 Chewy had 20.4 million customers and a 15% growth in the year (Sheth, 2021).
Figure (Net Sales- Chewy Fiscal Year 2020 – 2021 Quarter 3)
Chewy’s increased revenues were a result of a key feature on the website known as “Autoship.” This feature provides pet parents the ease of scheduling the regular products of their pets. Once the feature is checked the customer gets a 40% discount to a maximum value of $20 and with every recurring purchase a 5% discount on their favorite brands (Autoship & Save, n.d.). This feature increased revenue by 26.7% which equated to 1.56 billion dollars roughly a 70% of net sales in the third quarter of the fiscal year 2021. Autoship Customer Sales
Figure (Autoship Customer Sales)
Increased revenue has helped Chewy in reducing its losses from $252 million (2019) to 32 million dollars in 2021 (Q3-2021-Shareholder-Letter.Pdf, n.d.). Even though Chewy has been proactive and has tried to make the best of the pandemic situation, it is still not able to generate profits, which also impacts share profits. The projected quarter 4 and in 2022 are expected to generate profits for the business.
Figure (Net Loss)
Chewy operates with the promise of delivering personalized services to customers. One of its high perceived services is a surprise pet portrait for its loyal customer. Even during the tough times of the Covid pandemic, Chewy delivered these portraits. Also during the pandemic, pet health services were subjected to limited availability, closure, or lockdowns. Chewy initated a service of “Connect with a vet” on its website to provide pet parents a platform to connect with a licensed vet. The service was aimed at providing unparalleled customer service and care. Understanding the need that was generated in the special circumstances Chewy was able to deliver creating brand loyalty in return. Launched in 2020 the service has received a 10/10 score in quality which led to its expansion in both the service hours and days.
The last key result is Chewy’s value and profit on investment in shares. At the start of the year 2021, (14th January) the company’s stock was valued as high as $112 (Chewy, Inc. (CHWY) Stock Historical Prices & Data – Yahoo Finance, 2021). However, the recent inflation, shortage of labor, increased cost of labor, and increased advertisement costs have once again increased market uncertainty. The stock is currently valued at $55 as of December 16, 2021.
Strategy & Recommendations
Chewy keeps customers at the center of its operations. They have been strategizing all their operations, promotions, and functions of the business to increase customer satisfaction and provide unmatched service.
Before diving into the recommendations, it is important to understand that Chewy has probably been able to have an advantage in the past two years. With its ability to foresee that when people will spend more time with their pets, they will spend more on them. This understanding benefitted in terms of high revenues and increased number of customers as Covid imposed restrictions closed brick and motor businesses temporarily and in some cases permanently. With the economies around the world opening up and people getting vaccinated, physical stores are opening up. Materials and products are getting restocked. Hence, the initial advantage of high sales may be impacted in the next fiscal year. The new customers that had purchased from Chewy during the pandemic or people who prefer physical stores may shift back to their usual suppliers; impacting the net sales of the company (Tatevosian, 2021). It is therefore crucial for Chewy to exercise insight into changing market trends.
For the business to retain its customers, it needs to deliver on its service promise and ensure high-level performance as it has done in the past. Especially for its most profitable subscription feature of “Autoship” which has generated recurring sales the business needs to plan strategically. This means that stock, especially the products that are prebooked or subscribed should be delivered as per schedule to meet pet parent expectations and retain them as loyal customers with the business. In case of stock and delivery shortfall, Chewy will see customers switching as many options will be open once again.
The company feature of “connect with a vet” may be highly beneficial to retain customers. Just as humans, once they find a good physician or a pediatrician for their child they would not switch to a new doctor without reason. Similarly, pets for most people are part of the family, as a child. If pet parents are satisfied with the consultation and advice they are given, they will find Chewy as a one roof operation creating ease and accessibility. On the other hand, Chewy’s B2B partnership with veterinarians can also keep customer traffic high as it would be vet recommended.
Since 2019 Chewy has year over year reduced its losses by advertising with a purpose, cutting the cost of operations, and importantly cost of product delivery. However, the biggest challenge of balancing losses and earning profits remains. With increased current economic constraints Chewy will have to respond proactively. With shipping bottle-neck, every business of the world is impacted by shortages and higher costs of transportation. To add to this labor shortage and increased labor costs are further adding to the cost of business operations, reducing profits. With existing, high debt-equity further decisions to sell stocks may be risky.
Conclusion
The online pet business market is highly opportune as it is yet to reach a saturation level. However, the businesses of today’s world are operating in a very volatile environment. There are increased market constraints because of the pandemic, which the world has still not recovered from. In this situation, Chey has made some strategic and profitable business decisions that have paid off. The company has a large profitable number of loyal customers, and the business wants to convert its new customers to loyal ones as well. It has devised services at the right time to address the functional and emotional needs of the customers. In an interview, Singh emphasized the fact that the pet business was a sustainable category and his company has shown sound growth because of its value proposition of customer service and care (Sheth, 2021).
References
Autoship & Save. (n.d.). Retrieved December 16, 2021, from https://www.chewy.com/b/autoship-save-15682
Chewy, Inc. – Financials. (2020, September 10). https://investor.chewy.com/financials/quarterly-results/default.aspx
Chewy, Inc. (CHWY) Stock Historical Prices & Data—Yahoo Finance. (2021). Yahoo! Finance. https://finance.yahoo.com/quote/CHWY/history/
Chewy-Q2_2020_ShareholderLetter.pdf. (n.d.). Retrieved December 16, 2021, from https://s23.q4cdn.com/610444331/files/doc_financials/2020/q2/Chewy-Q2_2020_ShareholderLetter.pdf
Cosgrove, E. (2020, September 15). Chewy’s new limited-SKU warehouse is just for volume surges. Supply Chain Dive. https://www.supplychaindive.com/news/chewys-limited-sku-warehouse-inventory/585101/
Kilgore, T. (2019, June 14). Chewy IPO: 5 things to know about the ‘pet humanization’ products seller. MarketWatch. https://www.marketwatch.com/story/chewy-is-going-public-5-things-to-know-about-the-pet-humanization-products-seller-2019-05-03
Q3-2021-Shareholder-Letter.pdf. (n.d.). Retrieved December 16, 2021, from https://s23.q4cdn.com/610444331/files/doc_financials/2021/q3/Q3-2021-Shareholder-Letter.pdf
Sheth, S. (2021, December 10). Chewy Posts Wider-Than-Expected Q3 Loss; Shares Fall. https://www.nasdaq.com/articles/chewy-posts-wider-than-expected-q3-loss-shares-fall
Tatevosian, P. (2021, October 16). 3 Reasons Why Chewy Stock Is Out of Favor With the Market. The Motley Fool. https://www.fool.com/investing/2021/10/16/3-reasons-why-chewy-stock-is-out-of-favor-with-the/
