Fantastic growth keeps Chewy.com on its toes, paws
MIAMI — The leading online purveyor of pet food and supplies almost never was. That’s because the founders of Chewy.com originally planned to go into the online jewelry business.
“We had actually bought jewelry inventory, and we were literally days away from launching the website,” says Ryan Cohen, Chewy’s 31-year-old chief executive officer. “We bought about $150,000 worth of jewelry. So we were that close to starting to sell jewelry.”
Cohen and Michael “Blake” Day, who met in an online chat room about computer programming, had pooled their money for the jewelry venture. They decided to sell everything at 80 to 90 cents on the dollar after Cohen convinced his business partner that pets had better market potential. Cohen came to that
realization while shopping for his toy poodle, Tylee.
“I always wanted to do something with pets, but I couldn’t figure out how to monetize it,” he said. “So I was going to the pet store and realized the market online was really under-penetrated. I said, ‘This jewelry idea, we’re not passionate about what we’re doing. This is a much better opportunity.’ I understand the customer — because it’s myself. So we built the company.”
Cohen and Day redirected their finances and cofounded the company, which is headquartered outside Miami. Neither holds a college degree, and at the start they lacked a business plan. But they had faith in their abilities, both having extensive experience with computers since their teens, Cohen said. They launched the company in 2011, along with Alan Attal, one of Cohen’s childhood friends from Montreal.
The privately-held company registered $26 million in sales during its first full year in business. Chewy has since grown to 3,700 employees and is projected to increase revenues to nearly $2 billion this year — nearly a 7,600 percent growth spurt in just six years.
According to 1010Data, Chewy.com rules the online sales of pet food, with nearly 51 percent of the online market, including 40.5 percent in direct sales and 10.2 percent in subscription sales. The nearest competitor isn’t even close. Amazon.com holds nearly 35 percent of the market, with 23.5 percent in direct sales, 7.6 percent in subscriptions and 3.6 percent at retail. By comparison, Walmart.com has less than 1 percent of the online market share.
Cohen has aggressively pursued the No. 1 position for online sales, but what he really wants is more of the overall market for pet food and supplies. According to the American Pet Products Association, pet owners in the United States spent an estimated $62.75 billion on their animals last year, with $24.01 billion on food and $14.98 billion in supplies and over-the-counter medicine, making their target market roughly $40 billion. At $2 billion in sales, Chewy would command roughly 5 percent of the market.
“So if you look at where we are today in the business,” Cohen said, “we’re still scratching the surface in terms of the total addressable market. We want to be No. 1. We’re No. 1 online. We want to be the largest pet retailer in the world.”
That’s an admirable goal, but Chewy might need to diversify its sales approach to attain it, advised Steve Kirn, a lecturer in retail management at the University of Florida’s Warrington College of Business. Kirn pointed out that brickand-mortar companies such as Petco and PetSmart dominate the field with more than half the overall market, even though their online presence is minimal, with 3.1 percent for Petco.com and 2.2 percent for Petsmart.com, respectively.
“The people who are going to be winners are the omnichannel or multi-channel people who can satisfy you in a store, online, mobile, maybe even with a mail-order catalog,” Kirn said, explaining that brick-and-mortar stores offer services that online stores cannot match, such as grooming and training. There’s also the social aspect of shopping. Kirn even lets his border collie, Myka, partake of the experience.
“When we go to the pet store, our dog really likes to go along with us, and she sniffs around at all the toys and maybe she’ll land on one that she really likes,” he said. “We give her a little bit of a role in picking it out. This dog is a border collie, and she has a very clear point of view about things. We’ve ordered some things online, but generally we’ll go to PetSmart or Petco.”
Online shopping is a convenience, but the majority of sales still take place in the stores, he pointed out. While online sales are increasing as much as 20 percent per year, depending upon the category, as much as 90 percent of all purchases are still made in bricks-and-mortar stores, Kirn said. He also pointed out the inherent risks of growing too big too quickly.
When asked about the biggest potential pitfall Chewy faces, Kirn narrowed it down to money. “Making money,” he said. “Expanding so fast and acquiring debt, even with the sales that they have, they probably are not generating enough to support all the infrastructure for the business that they have to do. So, they’re going to be borrowing money. So, their borrowing costs will go up. And that’s why they’ll have to grow the business really fast, to be able to meet their obligations on their notes.”