Are Chewy and PetSmart better off apart?
What started as a relationship with such promise is coming to an end. That’s the story of Chewy and PetSmart. A little more than three years after PetSmart’s acquisition of the online pet products retailer was announced, the private equity owner of the companies has decided to split them apart.
The deal, according to a Bloomberg report last week, would enable BC Partners to “recapitalize PetSmart with $1.3 billion of equity and $4.65 billion of debt raised from institutional money managers.”
Splitting the companies at this time is designed to take advantage of an atmosphere in which pet product merchants are benefitting from the increased time that consumers are spending at home with their four-legged family members.
Last month, Chewy announced that it had opened its first “limited-catalog fulfillment center” in Kansas City to handle the “demand shock” in orders it has felt since the pandemic broke out. The e-tailer saw its shipping volume jump 50 percent in March versus February, which led to an unusually high amount of overstocks and other logistical problems that Chewy has sought to resolve.
The online pet products seller is also still struggling with profitability. The company’s management has continued to point to market share as the key to achieving a future that has it firmly in the black.
Management has consistently held that online selling of pet products is still in its infancy, and that adoption, assisted by the pandemic, is only going up. Chewy CEO Sumit Singh told CNBC last year that he believed his company could move from its then 14 percent market penetration to as much as 30 percent in a few years. He noted that Chewy was capturing about 40 percent of its customers’ spending on pets and that there was room for improvement in that area, as well.
As for PetSmart, it has also benefited, no doubt, from the same factors that have driven Chewy’s business as well as that of others in the category.
When PetSmart made the deal to acquire Chewy in 2017, its former CEO Micheal Massey said, “Chewy’s high-touch customer e-commerce service model and culture centered around a love of pets is the ideal complement to PetSmart’s store footprint and diverse offerings.” The question now is whether PetSmart learned what it needed to learn from Chewy before the breakup.
- PetSmart Announces Notes Offering – PetSmart Inc.
- BC Partners to Split PetSmart, Chewy in $6 Billion Recap Deal – Bloomberg
- Will Chewy.com help PetSmart gobble up the online pet market? – RetailWire
- Will limited-assortment warehouses help Chewy avoid ‘demand shock’? – 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: What do you expect to see from Chewy and PetSmart following their split? What will it mean for Petco and other retailers in the pet products space?