Here’s Why PetSmart Wants Chewy

Focus on customer service wins loyalty

Author: Andria Cheng

April 19, 2017

Jeni Mellinger, a proud “parent” of four dogs and two cats, is a perfect example of why PetSmart wanted to buy online rival

The 53-year-old kids’ therapist, who lives in Lock Haven, Pa., with her husband, spends about $150 a month on food and other items for their pets. And other than occasional trips to PetSmart or Petco, or visits to when there’s a dramatic price difference, Chewy is her preferred retailer, and has been for several years.

It’s not just convenience, prices or discounts on regularly shipped items. “They have such good customer service,” Mellinger said in a phone interview. “They worry about keeping people happy [while everybody else] worries more about the dollar than taking care of people. I look for customer service rather than the cheapest price. I’m willing to give them my business even if something [costs a little] more.” 

“They worry about keeping people happy [while everybody else] worries more about the dollar than taking care of people. I look for customer service rather than the cheapest price. I’m willing to give them my business even if something [costs a little] more.”

Mellinger has no shortage of examples of what impressed her about the ecommerce site. When she received damaged goods or something was sent to her by mistake, Chewy told her to donate the goods to local shelters, and then sent her a new shipment right away. Mellinger said she receives birthday cards for her pets from Chewy, and that her friends who use the site had received condolence flowers when their pets passed away.

Those instances are part of what Chewy describes as customer service that “makes you go wow”—akin to the customer service pitch of online shoe retailer Zappos. It’s no surprise the two online retailers share similar practices, such as 365-day, hassle-free returns or round-the-clock customer service. Chewy CEO Ryan Cohen reportedly said he wants to make the company “Zappos on steroids.”

(Zappos, after a dramatic growth, is now part of Amazon through a 2009 acquisition.)

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That approach has made a big difference when it comes to market share. Founded in 2011, Chewy now has 3.8 million customers, generated $900 million in revenues last year and is running neck and neck with Amazon in online pet food and supplies sales.

Chewy for the first time last year beat Amazon as the biggest seller of pet food online, with a 48% share of the market compared against Amazon’s combined share of 40%, according to market research firm 1010data. By comparison, PetSmart held only a 2% share of that market, lagging its top physical store rival Petco’s 4% share.

According to Slice Intelligence, which studies online receipts from a panel of 4.7 million online shoppers, Amazon and Amazon Prime Now together accounted for 57% of the online pet food and pet supplies market in Q1 2017, followed by Chewy with 25%. The rest of the players each held less than a 5% share of the market: For example, PetSmart only held a 1.7% share while Walmart and its acquired grabbed just 1.9%.

Many studies have shown that retailers with integrated physical store and eccommerce strategy are best poised to meet the demands of today’s mobile-phone-toting shoppers, and the purchase of Chewy may give PetSmart that coveted ecommerce know-how.

“Chewy’s high-touch customer ecommerce service model and culture centered around a love of pets is the ideal complement to PetSmart’s store footprint and diverse offerings,” PetSmart president and chief executive Michael Massey said in a statement.

PetSmart, taken private in 2015 by BC Partners, reportedly has $7 billion in sales. Re/code reported that the Chewy acquisition is said to be valued at $3.35 billion—the largest ecommerce purchase ever, beating out Walmart’s $3.3 billion purchase of last year.

With over 1,500 stores in the US, Puerto Rico and Canada, PetSmart is the largest specialty pet brick-and-mortar retailer in the US, followed by Petco, Euromonitor data showed.

While Chewy reportedly is not profitable yet, PetSmart’s foray also signals the growing pet industry as a bright spot in the troubled retail sector.

A Nielsen study released this year showed that the pet care category triggers more trips to the grocery store than any other category, which Nielsen said is “critically important to manufacturers and retailers, because they generate more in-store traffic than other categories.” Meanwhile, more shoppers are buying online, which represented 16% of pet care sales in 2016 and drove the majority of category growth, a separate Nielsen study showed.

Indeed, in another sign of Americans’ love for their pets, US pet industry spending has increased each year since at least 1994, according to American Pet Products Association (APPA)—even during the financial crisis in 2008 and 2009 that badly hurt other retail sectors. According to an APPA survey, 68% of US households, equal to 84.6 million homes, own a pet.

APPA expects spending to rise another 3.9% this year to $69.36 billion. Euromonitor data found that pet retail sales, both online and in-store, have indeed outpaced the overall retail industry growth. 

PetSmart has said it will keep Chewy running independently after the purchase, but loyal Chewy customers expressed their reservations on the company’s Facebook page.

“I’m disappointed” in the acquisition, Mellinger said. “I’m afraid Chewy is going to be more like PetSmart than Chewy.”