Despite a labor shortage at its fulfillment centers and an increase in out-of-stock items, the online pet supply retailer Chewy said on Thursday (June 10) that efficiently adding new customers and growing its share of consumer spending were the key components of its growth strategy.
This as the $33 billion Florida-based eCommerce giant said its first-quarter sales rose 32 percent to a better-than-expected $2.1 billion for the three months ending May 2. At the same time, Chewy said it added 4.7 million new customers last quarter, which lifted its total active user base to 19.8 million.
“New customer acquisition remains above pre-pandemic levels, and — as we anticipated — moderated from the levels we saw last year during the peak of the pandemic,” CEO Sumit Singh told analysts and investors on the company’s earnings call.
Singh said Chewy’s retention rates held steady, noting that many of the new clients it added during the COVID online shopping surge were still at an early stage of their customer journey.
“Over the past two years, we have increased our active customer base by 8.4 million, or 75 percent,” Singh said, pointing out that the average customer tenure was under two years. “For context, our customers historically spend over $400 with us in their second year, $700 in their fifth year and almost $900 in their ninth year. As such, we believe we still have a significant future share of wallet gains left to realize from a substantial component of our customer base.”
Handling Headwinds
Like much of the retail patch, Chewy said it also faced the effects of a labor shortage this quarter, particularly in its fulfillment centers. However, the company said it was able to lessen the impact of the staffing constraints via higher wages and short-term incentives.
On the plus side, Chewy saw margin improvement due in part to normalized freight costs and a more muted pricing and promotional environment. In addition, Chewy said its expansion into pet health care and services is gaining traction, while winning business from new and existing customers. The company’s newly accredited compounding pharmacy, which offers 1,800 SKUs for cats, dogs and horses, was held up as an example.
“As planned, our entrance into compounding is improving customer access to pet health and wellness services and growing our customer base,” Singh said. “Approximately two-thirds of our compounding customers are new to Chewy Health, including over 20 percent that are new to Chewy overall,” he added, noting that the new specialty pharma unit is emerging as a strong recurring revenue driver.
Opportunities Abroad
Since its IPO in 2019, Chewy has said it would expand overseas in one to five years — a timeline it still maintains, but also one that it is not quite ready to embark upon.
“We also believe that our brand and our capabilities are extensible outside the United States,” Singh said, noting that Chewy remains focused on the U.S., at least for now. “But rest assured, [when the time comes] we’re going to be thoughtful, we’re going to be diligent and we’re going to be disciplined about the investments in our approach internationally.”
But even without a global footprint yet, Singh said the Chewy of today is a vastly different company than the Chewy of three years ago. “In 2018, we were mostly a provider of food and treats,” Singh explained. “But today, just three years later, we are delivering a multi-dimensional customer experience that spans food, treats, personalized accessories, healthcare and, most recently, services.”