Chewy Inc. made big news at the end of March with the announcement that it had ended its 2020 fiscal year (FY) with its first profitable quarter. This was a huge step forward for the online retailer, which seemed to be facing an unlikely—if not nearly impossible—path to profitability just two years earlier, when it experienced quarterly net losses averaging nearly $67 million, according to its 2019 IPO filing with the Securities and Exchange Commission (SEC).
In fact, Chewy was still reporting net losses averaging more than $52 million in each of the seven quarters leading up to the fourth quarter of FY2020, according to SEC filings. So, it was understandable that many industry observers may have been surprised to see the company jump from a $32.8 million loss in Q3 of FY2020 to a positive net income of $21 million in Q4.
Still, this surge into profitability isn’t necessarily what should have independent pet stores concerned about their ability to compete with Chewy moving forward—after all, while it’s certainly good news for investors, it’s not likely to have a big direct impact on how dangerous the online retailer is as a competitor in the pet care market. What is far more worrisome is how much market share Chewy is now gobbling up.
According to its latest annual financial statement, the company’s FY2020 net sales were $7.15 billion. That represents an impressive 47 percent growth YOY, but more importantly, it’s nearly seven percent of the $103.6 billion that was spent on pets overall in the U.S. last year, according to the American Pet Products Association (APPA). What’s more, if current forecasts from Chewy and APPA prove accurate, the online retailer’s market share will grow to more than eight percent in 2021.
Compare those numbers to the 10-11 percent market share that the Independent & Neighborhood Pet Retail Association (IndiePet) estimates is going to independent pet stores, and it is clear that Chewy’s sales are getting uncomfortably close to eclipsing those of the entire independent pet specialty channel.
That begs the question: What happens if Chewy’s sales eventually do outpace those of independent pet stores? Will the vendors that indie retailers have relied on as loyal partners be able to resist having their heads turned by the online retailer’s ability to move more volume than an entire channel? Will pet food manufacturers that do not sell through Chewy be able to afford to continue that approach?
Ultimately, only time will tell, but it is important that retailers start having tough conversations—with themselves, their peers and, most importantly, their vendors—about this sooner rather than later. Because you just never know when later will become too late.