Source: Facebook | Chewy
Is Chewy’s Business on Autopilot–er Autoship?
Chewy is off to a positive start in 2023 and the online pet products retailer can thank its Autoship customers for that.
The retailer posted a 14.7 percent year-over-year increase in its first-quarter net sales, improved its gross margin by 90 basis points to 28.4 percent and reported earning per share at five cents, not the loss of four cents expected by analysts.
CFO Mario Marte said that sales to autoship customers were up 18.6 percent in the first quarter.
“Autoship customer sales have grown to represent 74.7 percent of total net sales. Our primary measure of customer engagement, NSPAC (net sales per active customer), grew 14.8 percent year-over-year to $512, driven primarily by our large customer base that spends more with us over time, growing Autoship customer sales and increasing levels of cross-category purchases by our customers. Both NSPAC and Autoship customer sales reached new record highs for the company,” Mr. Marte told analysts on Chewy’s earnings call.
Chewy said the quarter ended with a “modest” increase in active customers compared to the fourth quarter of 2022. The retailer said it had 20.4 million active customers in the first quarter.
The company’s gross margin was “buoyed by lower-than-anticipated promotional activity, overall strength in average order size, and better-than-expected leverage in freight and packaging,” according to Mr. Marte.
Chewy increased its guidance for the fiscal year as it opened a new automated fulfillment center in Nashville (its fourth overall) and prepares to expand into Canada.
“We’re not starting at ground zero in Canada, even though we’re not present in Canada. Our market awareness broadly sits in the mid-twenties. And even though that’s lower than obviously what we enjoy here in the United States, it’s worth noting that it’s not zero,” said Sumit Singh, Chewy CEO.
Mr. Singh believes that Chewy’s focus on service will be as welcomed by Canadians as it is by Americans. He said the pet products market is expected to grow slightly faster in Canada than in the U.S. over the next five years and that online sales penetration is slightly below the American market. Both of these point to opportunities for Chewy, he said.
Discussion Questions
DISCUSSION QUESTIONS: Do you see a correlation between customer loyalty and Chewy’s autoship business? Do you expect Chewy to fare better in Canada than other U.S. retailers have in recent years?
Poll
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loyalty is established first. Once the customer has declared loyalty, then comes the question of how frictionless is it to be on authorship? Can the customer fine-tune the frequency of shipments? Is consumption of pet food an exact science? As to Canada, by its geographic dispersement of population, it is easier – and less expensive – to reach more consumers via eCommerce than with sparsely located stores.
Autoship is a big factor in Chewy’s success, however it’s their outreach to shoppers prior to the auto-ship order being processed that seals the deal for most customers. Giving shoppers a heads up prior to billing and making it easy to adjust order timing is what really instills to trust and creates loyal customers, one of which is me! Without this piece, autoship often does more harm than good as shoppers resent being billed automatically, and resent having to track refill timing by themselves.
Absolutely!
I can’t really speculate on Chewy’s chances in Canada, except that as a pure e-commerce retailer they will not have the brick-and-mortar challenges north of the border that so many other American retailers have faced. Otherwise, it’s clear that autoship (with its high penetration of total sales) is driving the sales right now, but I would also credit Chewy’s very clever and appealing marketing campaign. (Favorite child, anyone?)
Chewy is a very good business that treats customers well, that’s part of their success. However, they also operate in a segment where buying is essential and habitual which makes auto-shipping a useful option. One of the good features of Chewy is that the customer is always informed and remains in control over orders. There are no surprise shipments or charges.
The correlation I see is actually auto ship leads to loyalty.
Retailers with subscription programs understand the value of autoship. It takes decisions out of the choice equation. In this case, it seems pets seem to be more predictive than people. Their needs can be cycled. The variables humans introduce into usage challenge the “every X week” buy.
Canada? There have been more failures than successes. If Chewy is aware of the differences, they will do just fine. Don’t forget the French on the package.
We are loyal Chewy customers and the correlation is first and foremost between customer service and loyalty. The rest, like our ongoing repeat business including autoships is a consequence of that. Chewy’s isn’t offering us anything we can’t get anywhere else. They’re just offering it better and more conveniently. If Canadian customers are as devoted to their pets as we are in the states and if they value great customer service, great product quality and variety, and “order from the couch” convenience, then Chewy should fare better than other retailers. The assumption is that Chewy will be able to leverage its operational expertise and experience to continue to deliver the level of service and product quality that has endeared it to its US customers and to do it at a competitive price.
Here’s the thing. Everybody loves Chewy. The packages come quickly….they’re always in stock, their communication is fantastic and it’s quite easy to get hold of a customer service rep (she said while sitting waiting for a half hour for a Bank of America CSR to help her with a bogus check).
Autoship is a plus, but I think it’s the communication part that’s a bigger deal. I expect Chewy will do well on the top line. The company’s challenge has always been translating great service to bottom line profits, but it’s my hope that they’ll break through that one.
It is very hard to beat Chewy’s product scope and service quality. Personally I really dislike the autoship strategy inflicted by most purveyors, especially those in the supplement business. And don’t even ask me about the MLM sector! What I like about Chewy’s autoship is that their replenishment timing is almost always perfect. As close to JIT as one can get IMHO.
The level of trust Chewy has developed with customers is unparalleled – the pinnacle of loyalty. This level of customer auto-ship success at Chewy is a reflection of the company’s vision and execution from inception – customer obsession, delight and surprise from day one.
Chewy’s autoship option is a case study in how to be customer-centric, friendly, convenient and frictionless. They converted me into a regular customer about a year ago, primarily due to how easy it is to set up autoship, coupled with the fact they proactively send a reminder a few days ahead of the ship date, allowing me to quickly modify the order and/or the ship date. This is how you build loyalty. I’m betting on Chewy finding great success in the Canadian market.
I see a huge correlation. Auto shipping based on a pet’s eating habits is a big convenience factor, and is part of the loyalty calculation. It is a service, one that makes feeding your pet that much easier. They will experience the same if not higher level of success in Canada, count on it!