Sources: Chewy
Will Chewy build on its current sales momentum once the COVID-19 threat has passed?
Chewy.com, the online pet retailer, has seen an acceleration in sales since late February as stay-at-home orders proliferate across the country. Despite this, CEO Sumit Singh said on the e-tailer’s fourth-quarter conference call last week that the crisis is creating both “headwinds and tailwinds” for the company.
Among the headwinds, Chewy has expanded health benefits and revised paid-time-off and sick-day policies. Between 6,000 to 10,000 new hires will be made to handle the “demand shock” being felt by fulfillment centers.
On its website, customers are being told deliveries are “running considerably longer” than usual. “We believe that being transparent with customers during this time is an important thing to do,” Mr. Singh told Yahoo Finance. He said customer sentiment towards the brand remains strong and “customers are understanding and forgiving during this time.”
Finally, Chewy has made investments in elevated sanitization and cleaning procedures. No any confirmed COVID-19 cases had been found across its worksites as of last week.
On the tailwinds side, the surge in orders is coming from both existing and new customers and isn’t concentrated in hard hit areas, such as New York City.
First-quarter growth is expected to accelerate in the 35-to-37 percent range. Even so, Chewy is not providing full-year guidance due to uncertainties in the marketplace. “In light of the unprecedented nature of the current pandemic, the steps being taken to mitigate the outbreak and the sheer number of other variables outside our control, we believe that this is the best course of action,” said Mr. Singh.
Chewy’s CEO still expects social distancing to change consumer behavior to his company’s benefit. Even before the coronavirus, Chewy was predicting online penetration in the pet category to reach between 20 to 25 percent over the next few years, and its CEO sees it eventually rising as high as 45 percent.
“Occurrences like the one that we’re in right now provide motivation and tailwinds to a shift in consumer pattern and behavior,” he said. “We are yet to obviously see how much of that is going to be sticky over the long term, but there’s definitely going to be an impact.”
- Chewy Announces Fourth Quarter and Full Year 2019 Financial Results – Chewy
- Chewy (CHWY) Q4 2019 Earnings Call Transcript – Motley Fool
- Chewy CEO: ‘We are seeing meaningful lift in new customers’ amid COVID-19 outbreak – Yahoo Finance
- Pet Retailer Chewy Sees Surge In Demand Due To Coronavirus Lockdown – Forbes
Discussion Questions
DISCUSSION QUESTIONS: What are the obvious and less obvious challenges Chewy faces as it executes amid the pandemic? Do you agree that online penetration in the pet category will accelerate due to the crisis?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Carol Spieckerman
President, Spieckerman Retail
The secret to Chewy’s success is never being out of stock, having just about every brand you might need and excellent customer service. There’s no doubt that customer service has suffered some since the crisis began. I suspect the combination of the influx of new customers and workers staying or working from home is the challenge. But as far as I know, monthly deliveries are going out in a reasonable amount of time.
When I visited Chewy’s customer service center, its goal was to have a human answer the phones in four seconds or less. That has clearly gone out the window for now, but I still rely on Chewy to send me my monthly orders.
I think there is HUGE upside here for Chewy. I’ve told the story many times before, but the long and short is all about not being out of stock. It’s easier to substitute food for the family than food for the pet family.
I simply see no reason to buy pet food from stores anymore. The one thing I do buy from stores is kitty litter, as it seems environmentally bizarre to ask a company to ship such heavy items via air. So for now, that means Instacart and Petco.
But I see Chewy as a long term winner.
Prior to the pandemic I had never placed an order with Chewy and have placed several since. Their delivery times may have scooted out a bit but I’ve found them to be predictable so I just place orders a bit further out from when I need them. The big positive is that Chewy has clearly articulated expectations throughout. That hasn’t been the case with many other platforms.
Keeping up with the immediate increase in demand and delivering products in a reasonable time frame is key to customer satisfaction. The less obvious challenge is the supply chain impact of getting products quickly to respond to the increased demand. Once we go back to “normal,” some customers may go back to their previous pet purchasing habits, but a good share of them will find that they really like the convenience of Chewy’s online services – especially for large/heavy items like cat litter and large bags of dog food. Online retailers and online ordering are the big winners of this pandemic.
One thing I saw during the initial hoarding was people purchasing multiple bags of dog/cat food in the convenient 20- to 25-pound bags. I would think that if that need can’t be fulfilled in a timely manner, Chewy could definitely be an option and most people would pay extra to have pet food as most consider pets as family. I see the online segment definitely growing.
The pandemic is teaching consumers new shopping habits. For the consumer that never bought pet supplies online, they are now learning a “new skill.” Many will go back to their old ways once through the crisis, but some will stick to their newfound way of doing business. That’s an advantage for retailers like Chewy.
Full disclosure, I was a Chewy customer before the pandemic. Like others panelists, I feel the company has been fairly transparent in anticipated declines in service (tight delivery windows) but that’s O.K. with me because — well — we are in the middle of a pandemic and they are getting slammed. I think Chewy faces the same opportunities and challenges any e-tailer does in these troubled times, but I do think that when/if this crisis ever is over they will have increased market share permanently much faster than they would have sans COVID-19.
Online penetration for pet food will definitely accelerate, as has delivery for groceries. The challenges that Chewy faces are primarily logistical. Customers can wait a bit more for their pet food, but not too much more. If the delays go on for too long, customers will find other alternative sources. If Chewy can address this issue and keep the delays within a “reasonable” timeframe, they are in very good stead for the short and the long haul.
Chewy is not only being transparent with its customers but is also being transparent with its employees. This will not only pay off in the short run, it will also pay off in the long run. They may not get to your call in four seconds but it is still the goal and they are doing the hiring to make it happen. If you are hiring like Chewy’s now is the time to win the war for talent.
Our balance must be between growth during the crisis and how far things pull back after. In general, I vote with things returning to normal as during the crisis we realize how much we miss shopping. Humanity is, after all, a herd animal and we love the incidental social contacts while shopping as well as shopping with friends.
I’ve observed that this is even stronger with pets as human caretakers love introducing their pets to other pets and other humans (sometimes unwisely, but it’s a reality).
Chewy should be focused on reaping the strength they can from windfall increases in sales but be prepared for things to go back close to where they were before the crisis hit.