Why Pet Stores Should Be Concerned About Chewy's Latest Earnings Report



Anyone searching for evidence that the COVID-19 pandemic has greatly benefited Chewy.com need look no further than the second-quarter financial statementAs reported earlier, stay-at-home orders and social distancing guidelines, combined with a surge in pet adoptions, have created a perfect storm for the online retailing behemoth, which reached $3.3 billion in sales during the first half of its fiscal year. That represents a 47% increase over the first half of FY2019 and puts the company on pace to reach more than $7 billion in annual sales this year.


To put this forecast in context, consider that Chewy's sales alone would account for more than 7% of the $99 billion that the American Pet Products Association estimates will be spent overall on pets in the U.S. this year. It would also likely eclipse the annual sales of principal owner PetSmart, which did an estimated $6 billion in sales last year.


Sales growth only tells part of the story, though. What may be more troubling to traditional pet stores is how quickly Chewy's customer base is growing. The company had a net gain of 3.1 million active customers in the first half of FY2020, which was more than it added across all four quarters of FY2019 (2.9 million). While maintaining that growth rate is unlikely, Chewy—which had 16.6 million active customers as of Aug. 2—is poised to surpass the 17-million-customer mark by the end of the year, even by the most conservative estimates. That would represent more than 25% growth in the company's customer base.


With numbers like these in mind, I guess it shouldn't be surprising that most of the traditional pet specialty retailers I've spoken with report that they have seen little to no bump in their customer base from the surge in pet adoptions that has taken place over the past several months. Apparently, Chewy—with its low-price and high-convenience proposition—has found itself in a much better position than high-service neighborhood pet stores to take advantage of this growth in pet ownership during the pandemic.


Hopefully, the tide will turn once COVID-19 is finally under control and the nation's economic picture stabilizes, enabling consumers to return to their normal shopping habits and refocus on the kind of value that can only be found at their local pet store. However, that will largely depend on independent pet retailers' ability to combine their strengths in providing unmatched customer service with their newly acquired or recently expanded e-commerce and digital engagement capabilities, which will remain important long after a game-changing vaccine or treatment is found.


Of course, they will also need the continued support of their vendor partners, who hopefully understand that they depend on a strong, diverse base of independent retailers for their own success. After all, this industry could not have been built by the likes of Chewy, no matter what its financial statements say.


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