Michelle Dougherty from Houston, buys everything for her dog Zito through Chewy Inc.
Not only does Dougherty buy Zito’s food, pet pajamas and toys from Chewy, but she buys his prescription medication from there as well.
“The site has a database of vets and you can assign yours to your pet’s profile. When it’s time to refill, Chewy contacts the vet for you – usually within 24 hours,” Dougherty said. “Together with their customizable auto shipment options, this amounts to a ‘set it and forget it’ for Z’s meds.”
The ability to do all of her shopping and get her pets medication in one place without having to actively refill her pets prescriptions, since Chewy does it for her, is the main reason Doughtery uses Chewy.
“I don’t see how any other option could top this convenience, so we will continue using Chewy for all our pet needs,” she said.
Chewy is launching new ventures in animal health and wellness, aiming to grow into a company that does more than sell pet products. The plans would shift the company’s focus beyond its product line with its roots in pet food to include toys, medication and more.
Chewy went public in June 2019. Less than a year later, the coronavirus pandemic hit the United States. Brick and mortar stores around the country closed due to lock down restrictions. Even some stores selling pet products were deemed essential and didn’t close, but their business suffered. Consumers had to find alternative methods to shop for their pets’ needs.
It was also during this time that pet adoptions reached record highs. According to the ASPCA, one in five households acquired a new dog or cat since the start of the pandemic.
Chewys popularity hit its peak during the beginning of the COVID-19 pandemic, when customers looked to companies to ship products to their homes when brick and mortar stores were temporarily shut down. With its success among pet parents thanks to its Autoship service, specifically during the pandemic, Chewy seemed to be doing incredibly well. However, the company has never turned a profit and has continued to disappoint Wall Street analysts and investors. In an attempt to regain investor interest, as well as to eventually become profitable, Chewy representatives have touted its new focus on pet health and wellness.
Chewy relies on recurring deliveries of products to customers under a service called Autoship, which accounted for over 70% of net sales in its most recent quarter, up from over 66% of sales before it went public.
This business model had never been used by a pet supplies company before, which helped Chewy stand out from its competitors, such as Petsmart and Petco. Now, not only could customers order pet supplies directly to their doorstep, which was always a possibility, but they could set up deliveries to be automatic, which was never possible before. These automatic shipments also come with a discount. This extra layer of convenience and savings helped Chewy gain popularity among pet parents, earning it over 40% market share, according to Cardify.
Customers can also use Autoship to automatically deliver their pets prescriptions to their homes. Dougherty does this for her dogs heartworm and flea and tick medicine.
At the end of the first quarter of 2020, prior to these new ventures in pet health, Chewys net sales showed a 46.2% year over year growth to $1.62 billion. This was the company’s busiest year and proved how reliant customers became on Chewy’s services due to the COVID-19 pandemics effects on consumer trends.
Today, Chewy’s numbers are telling a different story.
In its most recent quarterly report, Chewys net sales showed a 24.1% year over year growth to $2.21 billion. In the same report, Chewy’s active customers showed a 14.7% year over year growth, compared to 32.6% in the first quarter of 2020.
Not only has Chewy’s net growth slowed down by over 20% since pandemic related restrictions were lifted, but its profit numbers have continued to disappoint analyst expectations.
Chewy has never been a profitable company, and its net loss was $32.2 million in its most recent quarter, only changing 1.8% year over year.
“We expect supply chain disruptions, labor shortages, and product and inbound freight cost inflation will continue to weigh on near-term profitability,” said Mario Marte, Chewy’s Chief Financial Officer during the company’s most recent earnings call.
A report done by Ford Equity Research recommends investors sell their Chewy stock.
“The company has generated a negative trend in earnings per share over the past five quarters. However, while recent estimates for the company have been mixed, CHWY has posted results that fell short of analysts expectations. Based on operating earnings yield, the company is overvalued when compared to all of the companies we cover,” the report said.
On top of those larger issues facing Chewy, pet purchases and adoptions in the United States have slowed down since the height of the pandemic, causing less people to need to sign up for Chewy’s services.
According to a research report article by Frontiers, dog and cat adoption peaked at April 2020, but recently, dog adoption has been gradually decreasing to a level comparable with the 5-year average prior to the pandemic .
With its unique autoship services and popularity amongst pet parents, Chewy stock saw its peak during the pandemic. However, in recent months, with all of these changes and the larger issues facing the company, Chewy has consistently produced numbers that have caused investors to lose their faith, and the stock to drop.
From the start of the pandemic in March 2020 to its peak in Feb 2021, Chewy stock rose 228.23%. From its peak in Feb 2021 to Dec 2021, Chewy stock dropped 56.39%, to $51.76, the company’s lowest since July of 2020 when the stock was rising.
Investors are concerned that Chewy has peaked. The major shift for the company right now to avoid that is to focus on pet health and wellness. The company is currently taking steps to try and succeed in this endeavor.
In a recent press release, Chewy said it’s launching an online pharmaceutical platform for veterinarians to order prescription medications for their clients.
This new platform, called Practice Hub, is meant to provide vets with the ability to create, review and approve prescriptions for their patients. Chewy will handle the inventory, storage, fulfillment and shipping of these medications while giving the clinics money for each purchase. Prescriptions will then be shipped directly to customers.
This new platform will bring in another revenue stream for Chewy, with the intention of making selling and purchasing pet medication more convenient.
Chewy is also expanding its vet telehealth services to all active customers, as opposed to only Autoship customers. Now, customers who do not pay for Autoship services can pay per consultation to speak to a veterinarian.
In 2022, Chewy plans to partner with Trupanion Inc. (TRUP) to offer customers both preventative care wellness plans and comprehensive insurance plans for accidents, illnesses and chronic conditions.
Since these changes of the company’s focus are new or haven’t happened yet, it’s hard to tell whether they’ll be successful or not. However, according to research done by Wells Fargo, the the company is already seeing customer interest in these areas.
“15% of Chewy’s customers now use both its retail and pharma offerings and Chewy has tripled run-rate pharma revenue since IPO [initial public offering]. The recently announced partnership with Trupanion for pet insurance and wellness plans should materially expand Chewy’s healthcare opportunity,” the research report said.
Some analysts are also optimistic that these pet health ventures are a positive next step for the company.
In an equity research report, consumer products analysts Stephanie Wissink and Corey Grady of Jefferies wrote that “new offerings in vet, pharma, and services drive deeper penetration of existing pet owner spend.”
“With impressive growth and a business model that is levered to industry tailwinds, we believe CHWY could continue achieving strong sales growth,” Wissink and Grady’s report said.
Chewy has to find some way to prove it is more than just a pet supplies retailer, which is how it became popular in the first place. This focus on pet health seems to be the fastest route to get there.
But even though investors are wary of Chewy’s recent performance, customers have continued to shop the site and remain loyal. Net sales per active customer have increased by 15.4% year over year. Active customers have reached an all time high to 20.4 million.
Michelle Garret is a Public Relations consultant from Columbus, Ohio and founder of Garrett Public Relations. Her four cats and her have been Chewy customers since the company started, and Garrett plans on sticking with the company for good.
“I think that they do have a very customer oriented approach and attitude, which I really appreciate,” Garrett said. “The rare few times I’ve had any issue with Chewy, they were so nice and helpful and ready to fix whatever the issue might be.”
Garrett has ordered litter and food for her four cats from Chewy since the company started. She remembered the only issue she’s had with the company as an experience that made her like it even more.
“One time they sent me something I didn’t order and I wanted to send it back,” Garrett said. “They said, ‘No, just donate it to a local shelter and don’t worry about it.’ They were very good about it.”
Even though investors and analysts are disappointed in Chewy’s recent economic performance, CEO Singh remains hopeful that they can come out strong in the next few quarters, and that the move towards pet health is the way to get there.
“Consumer engagement is high, business momentum is strong, and we believe the long-term positive trends of more pet ownership, higher per pet spending, and increased e-commerce penetration are as strong as ever,” Singh said in the most recent earnings call.