What the Chewy Acquisition Means for Independent Pet Retailers


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The pet industry is still buzzing with the big news that PetSmart has entered into an agreement to acquire online retailer Chewy.com—a marriage that makes a ton of sense for both sides of the deal and could have a significant impact on the entire pet retail landscape.

Similar to what Walmart did with the purchase of Jet.com last year, the acquisition presents PetSmart with an opportunity to expand its e-commerce reach and removes a huge source of online competition that was constantly undercutting the big-box pet chain on price.

On the other side of the equation, it seems that this is exactly the type of deal Chewy was built for in the first place. Many pet industry experts remain skeptical that the online retail juggernaut has ever turned a profit—or ever would—even with all of the sales growth it has experienced over the past couple of years. That’s because the company’s pricing structure—which includes little to no margins, particularly on food—appears to be designed more to capture market share than to build a foundation for profitability. That could indicate that an IPO or sale of the business may have always been the endgame that the Chewy founder and CEO had in mind.

Regardless of the motivations of PetSmart and Chewy, the most important question for independent retailers is: How will this deal impact the rest of the pet specialty channel?

While I’ve heard some people say the acquisition of Chewy could make PetSmart a more formidable competitor by expanding its e-commerce arm, I’m not completely sold. In fact, many independent pet retailers I have spoken with in the wake of the acquisition announcement believe the deal could actually end up taking some of the bite out of Chewy as a direct competitor for two important reasons.

First, there is an expectation among some industry experts that many pet food brands that have sold their products through Chewy but not PetSmart—out of loyalty to independent pet stores—may pull their products off the e-commerce site as a result of the deal. And there are some early indications that this will be the case. Tuffy’s Pet Food is the first brand to make such a move, and I’ve heard rumors that similar announcements are imminent. This could set off something of a domino effect that would ultimately result in far less direct competition between mom-and-pop pet stores and Chewy.

Second, given the investment it just made in acquiring the company, PetSmart is probably going to expect Chewy to become profitable sooner rather than later. That means raising prices to build in some kind of margins. That would obviously be a big help to brick-and-mortar pet stores that regularly find products on Chewy at prices that are at or even below what they can get at wholesale.

Of course, it’s all speculation at this point. In fact, the deal hasn’t even formally closed. Still, it seems that most independent retailers are cautiously optimistic that this could be an important turning point in the battle to defend their market share.

 

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