Photo: Chewy
Chewy takes a bigger bite out of the pet products market
Chewy reported its first quarterly profit yesterday and is looking for big things ahead as market trends and forecasts all appear to be going its way.
The online pet products retailer reported that net sales grew 51 percent to $2.04 billion during the fourth quarter, with a net profit of $21 million. Chewy revealed that its net sales for 2020 grew $7.15 billion, with improvements in gross margin. The retailer, which picked up nearly 43 million new customers in 2020, said positive sales trends in November and December continued into January after the holiday season ended.
CEO Sumit Singh, speaking on the company’s earnings call yesterday, said steps Chewy took to keep frontline employees safe from COVID-19 paid off as its fulfillment centers remained open throughout the year.
He said the pandemic pushed the retailer to accelerate initiatives in 2020, including the opening of the company’s first automated and high-velocity fulfillment centers, its telehealth service, Connect with a Vet chat, personalized products and eGift cards.
Chewy has benefited from an increase in pet adoptions. Mr. Singh said the number of households with pets increased 5.7 percent last year. He said pet profiles for newly adopted pets grew 40 percent on Chewy in 2020.
“We get excited about these insights because 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. Understanding our customers and anticipating their wants and needs help us create sustainable advantages to win in the pet space,” he said.
Chewy’s CEO continues to emphasize that the retailer is currently only competing in 70 percent of the pet space and that moves into healthcare and services will help grab a share of the remaining market.
“Online penetration rates in the retail food and supplies category are estimated to have grown from seven percent in 2015 to 30 percent in 2020, and are expected to reach 53 percent by 2025, which is in line with the current online penetration rate of categories like books and electronics,” he said. “Further, as we are observing, healthcare and services have already begun to shift online, and we believe this trend will continue and accelerate.”
- Chewy, Inc. (CHWY) CEO Sumit Singh on Q4 2020 Results – Earnings Call Transcript – Seeking Alpha
- Chewy Announces Fiscal Fourth Quarter and Full Year 2020 Financial Results – Chewy, Inc.
- Chewy is barking up the right tree when it comes to customer loyalty – RetailWire
- Will Chewy build on its current sales momentum once the COVID-19 threat has passed? – RetailWire
- Chewy gains customers and increases sales, but will it ever be profitable? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Are Chewy’s 2020 results an outlier or a sign of things to come for the pet retailer? Where do you see Chewy’s initiatives best lining up with market opportunities going forward?
Poll
BrainTrust
Unlike some online retailers, Chewy always had a pathway to profitability. The pandemic has allowed them to reach that point sooner both because more people pivoted to online and the universe of pet owners expanded at a faster pace than normal. One thing Chewy does extremely well is retaining the shoppers it has, so while growth may drop back a bit as the company laps tougher comparatives I am optimistic that Chewy will keep much of the trade it has acquired during the past 12 months.
Chewy sales will continue to increase because their total addressable market will increase exponentially when they add pet health care which hasn’t really happened in earnest. They are definitely the behemoth in the pet space and there are no foreseeable headwinds to deter their growth.
Chewy was already on the right road pre-pandemic, and its e-commerce bets paid off more quickly than they could have hoped as a result. There is less incentive for consumers to return to brick and mortar for pet needs post-pandemic, so Chewy remains well-situated to continue on its growth trajectory.
Let’s just ask ourselves — will it be possible for Chewy to grow 51 percent in 2021? Will it be possible for Chewy to add 43 million new customers? How many people who bought new pets during the pandemic will find that it wasn’t such a good idea once they go back to the office, leave their homes for dining and entertainment, or go on vacations? What analyst listening to an earnings call would not ask these questions?
2020 aside, Chewy seems to be taking the right steps for a retail future that is largely online. The loyalty factor may be more important in the pet category than in any other retail category. Their strategy is customer-centric and the growth of the online pet business will only play into the loyalty hand.
There is no doubt that Chewy, along with many other D2C companies, gained incredible market penetration during the pandemic. However they changed their business model to adapt to COVID-19 by investing in automation in their fulfillment centers, allowing customers to access fast and convenient delivery. Besides this technological shift, Chewy, compared to Walmart and Amazon, is a “specialist.” You can’t buy a treadmill on Chewy unless, of course, it’s for your pet!
Consumers today feel more comfortable trusting their precious pets with a company that shows they care. With Chewy’s successful subscription model and their expansion into healthcare, there seems to be no stopping this determined pet-loving company.
Pets.com was ahead of its time. Chewy was at the right place at the right time. The pandemic has seen a shift in buying patterns and I believe those patterns will continue to be consistent and as long as Chewy can keep taking care of its customers and keep them, it will continue to thrive.
A definite a sign of things to come for Chewy. As the pet segment booms, the consumer industry is expanding its universe of “consumers” to include almost 1 billion additional canines, feline, equine, and piscine consumers. With the acceleration of the adoption rate, the need for their care – in terms of products and services – will see an increase. Every CPG and retailer is going after that market, but most have a weak online presence. Chewy’s strength is being digitally native. Their association with PetSmart and further headspace to grow in services definitely puts them in a position of strength.
If you’ve ever bought from Chewy you know the answer. The company does so many things right.
Once you switch, especially if you have more than one pet, you never go back.
I agree with Richard – Chewy was in the right place at the right time. The go-to resource for pet owners during the pandemic. But beyond that – they do a great job of retaining their shoppers. Their birthday, Christmas and bereavement programs are very thoughtful and effective.
They are bringing retail people in and focusing on product categories and services. They are in a really good position to turn to profits.
Their results don’t surprise me. Amazon did the same thing to the book industry — and then the rest of the retail industry. Chewy is disrupting the pet industry in a big way. One big reason is that they have built around a model of convenience. Customers love that.