Who bought out PetSmart

What PetSmarts Split from Chewy Means to the Industry

In the three years following PetSmarts acquisition of Chewy, a move that required the big-box retailer to take on massive debt, pet industry insiders have speculated over how the purchase would shake up the pet retail channel. Now, it seems, the acquisition was a poor fit for the mega retailer.

As Pet Product News reported earlier this week, PetSmart officials unveiled the companys plans to sell all shares of Chewy. In addition, a group led by private equity firm BC Partners, which acquired PetSmart in 2015, will recapitalize and split the companies in two, according to a Bloomberg report.

Update (Nov. 2, 2020): PetSmart Abandons Plan Tied to Split from Chewy

As time passed post PetSmarts acquisition of Chewy, the glaring lack of integration and dueling banners of Chewy.com and PetSmart.com, not to mention the siphoning off of PetSmart brick-and-mortar sales by Chewy, always seemed a bit at odds, David Lummis, lead pet market analyst for market research firm Packaged Facts and author of PPNs monthly Market Outlook column, recently told PPN.

Following the acquisition, Chewy did next to nothing to help PetSmart bolster its online strategy, insiders suggest.

In hindsight, the acquisition looks more like a financial [strategy] as opposed to [an] omnichannel strategy that has helped PetSmart begin to dig out from under its considerable debt, including via the Chewy IPO, Lummis said.

The move to sell its shares of Chewy could indicate that PetSmart officials and the companys private equity owners will instead focus on services.

Looking ahead, PetSmart is well positioned to shift more of its focus to higher-margin services and Rx pet medications, especially given its long-standing relationship with Banfield, Lummis said.

In the meantime, the move enables Chewy to go its own way, which will likely be beneficial to the online retailer.

[This move] will eliminate any confusion surrounding [Chewys] relationship with PetSmart and allow it to function as a pureplay e-tailer, free of any constraints related to PetSmart, financial or otherwise, Lummis said.

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What Does It Mean for Independents?

The independent pet specialty channel has been feeling the impact of changing market dynamics for years, as the growth of e-commerce and big-box pet specialty stores, among other developments, leeched business from the indie channel. However, the separation of PetSmart and Chewy may not have an immediate or obvious impact on pet stores.

Paul Allen, CEO of Woof Gang Bakery, a specialty pet retail and grooming franchise with more than 100 stores in the U.S., said he doesnt think it changes anything for brick-and-mortars, but said that Chewy remains a threat to the retail channel.

I have been very vocal, Allen said. I dont think Chewy is good for the industry; its not good for brick-and-mortar pet of any sizethe Petcos, the PetSmarts, the big box or the mom-and-pops. I think as long as Chewy is allowed to sell items cheaper than most can buy for, its not a good thing. So [the two companies] going in a different direction, I dont think it does anything to the industry.

Still, the move will likely help Chewy strengthen its position and continue to grow sales, which means independent pet specialty retailers will also need to follow suit by bolstering their strengths in light of the ongoing pressure from both e-commerce and big-box specialty.

If independents can be aggressive with services within their store [like] grooming, self-service grooming and maybe veterinary services, I think they can compete, because Chewy is never going to be able to groom a dog online, Allen said. Services are such an important part of our business. But [for] brick-and-mortars of all sizes, thats whats going to set us apart.

As for the retail side of the business, Allen added that an industrywide commitment to enforcing minimum advertised price (MAP) policies is likely the only thing that can help level the playing field between physical stores and mega e-tailerseven if it doesnt fully insulate brick-and-mortars from mounting pressure from online competition.

The only time we will protect the brick-and-mortar pet industry is when we look at MAP pricing as being real and not just a fabrication and we respect that you cant ship a 30-pound bag of dog food and make a profit, he said. So as long as finance houses and private equity companies are supporting companies for their losses, the industry is going to be what it is today.

On a positive note, Allen is confident that Woof Gang Bakerys approach of providing both retail and services under one roof is a winning strategy despite heavy competition from the likes of Chewy and Amazon.

Allen said that the COVID-19 pandemic, which prompted many shoppers to go online, now has customers rethinking their buying habits. As a result, shoppers believe supporting local businesses is very important, and Allen reported that customers that Woof Gang lost to online channels are returning to the companys brick-and-mortar stores.

Customers are loyal when you do services and when youre grooming their dog, Allen said. Were seeing them come back, and we know this year, our average store is going to be up more than 23 percent, and so were really happy with what has happened in 2020 growth wise.

For more of PPNs coverage on the pet industrys top news, read:

PetSmart Buys Online Pet Retail Rival Chewy.com

PetSmart has agreed to acquire online pet retailer Chewy.com in the latest deal by a brick-and-mortar titan for an e-commerce upstart.

On Tuesday, PetSmartwhich was acquired a few years ago for $8.7 billion in a private equity backed leveraged buyoutsaid it agreed to buy Chewy.com to accelerate the companys efforts to sell pet products and services both in physical stores and online in North America. The deal is expected to close by the end of PetSmarts second fiscal quarter of 2017.

While terms of the transaction werent disclosed by the parties, Recodeciting multiple sourcesput the acquisition price at $3.35 billion in cash and near the $3 billion Wal-Mart Stores (WMT) paid for e-commerce startup Jet.com last year. A source with knowledge of the deal told Fortune that price was inaccurate.

Regardless of the price, the acquisition is yet further proof that brick-and-mortar retailers want to get serious about how to compete in a world where more consumer spending is gravitating to online sources. That pivot in spending has resulted in retail bankruptcies at a pace that hasnt been seen since the financial crisis and hundreds of store closures. The surviving chains are quickly realizing that a compelling e-commerce strategy is needed to better compete. And while many brick-and-mortar chains have bulked up on their own internally developed operations, e-commerce startups like Chewy.com have in many ways been more savvy and have successfully stolen market share.

Chewy.com was only founded in 2011 but it already grew to generate over $880 million in sales in 2016 and the company was projecting to achieve over $1.5 billion this year.

Retailer and e-commerce is all about execution. The barriers to entry are pretty low, Chewy CEO Ryan Cohen told Bloomberg in an interview last year. We obsess over of customers and we know the products better than any other pet store.

Cohen had said that his goal was to build Chewy.com into a $10 billion business, though now, he will have to aim for that target under PetSmarts watchful eye. Following the closing of the deal, PetSmart said Chewy.com will still be led by Cohen and will operate largely as an independent subsidiary.

Chewy.com was often rumored to be a potential candidate for an initial public offering in 2017. The takeover eliminates that exit path, though other pet-focused companies have gone public in recent years, including Blue Buffalo Pet Products and Freshpet. PetSmarts main brick-and-mortar rival Petco also considered going public, but instead sold itself for around $4.6 billion in late 2015.

Chewy (company)

Internet retailer of pet items

Chewy, Inc. is an American online retailer of pet food and other pet-related products based in Plantation, Florida. Chewy went public in 2019 with the ticker symbol CHWY on the New York Stock Exchange.

History[edit]

20112019: Founding, Acquisition and pre-IPO[edit]

Chewy was founded under the name "Mr. Chewy" in June 2011 by Ryan Cohen^[3] and Michael Day.^[4] In March 2012, the company estimated a total yearly revenue of $26 million, despite losing money in its first half year.^[4][5] By 2017, the company had revenue of approximately $2 billion and 51% of online pet food sales in the US.^[6][7] At that time, CEO Ryan Cohen prepared to take Chewy public as both Petco and PetSmart approached with merger offers.^[8] Petco's offer would be paid for in part using stock, whereas PetSmart offered an all-cash bid that would also allow Chewy to remain a completely separate business.^[9] In 2017, Chewy was purchased by PetSmart, a retail entity backed by private equity firm BC Partners,^[10] for $3.35 billion, which at the time was the largest ever acquisition of an e-commerce business.^[9]

Following the acquisition, Cohen remained CEO and operated the business largely as an independent unit of PetSmart.^[11] Between 2017 and 2018, Chewys sales increased from $2.1 billion to $3.5 billion,^[12] with 66% of sales coming from customers signed up for automatic recurring shipments.^[9] Sumit Singh succeeded Ryan Cohen as CEO of Chewy in March 2018.^[13]

2019present: Post-IPO[edit]

In 2019, Chewy filed an S-1 for an initial public offering, intending to trade under the ticker symbol CHWY. In its filing, Chewy reported a net loss of $268 million on total sales of $3.5 billion for its 2018 fiscal year.^[14] In the 2019 fiscal year, Chewy earned net sales of $4.85 billion, a 40 percent year-over-year increase on a 52-week basis. The company saw increased demand from millions of existing and new customers as the business sustained growth throughout the economic disruption of the COVID-19 era.^[15][16]

Chewy launched a free tele-triage service called Connect With a Vet in October 2020.^[17] In November 2020, Chewy announced that it would produce and fulfill orders of customized prescription medications, commonly referred to as compounding, for instances where commercial alternatives are absent.^[18] In 2020, it was announced that Chewy and PetSmart would split to operate as separate companies.^[19]

In March 2021, Chewy reported revenue of $2.04 billion for Q4 of 2020, making it Chewy's first quarter of net profitability, and net sales of $7.15 billion for the fiscal year.^[20][21] In March 2022, Chewy reported net sales of $8.89 billion for the 2021 fiscal year.^[22]

In August 2022, Chewy announced the introduction of the CarePlus program, which provides pet insurance and wellness plans. This initiative marked Chewy's entry into the health insurance sector for pets.^[23]

In the 2022 fiscal year, Chewy's net sales grew 13.6% since 2021, to $10.1 billion.^[24] Following this, in December 2023, Chewy expanded its healthcare services by launching Chewy Vet Care. This service includes the establishment of veterinary practices that offer routine check-ups, urgent care, and surgical procedures.^[25]

Corporate affairs[edit]

The company's founder and first CEO, Ryan Cohen, stated that he used Jeff Bezos's 1997 letter to shareholders as a roadmap for how to grow Chewy by using Amazon's guidelines on the convenience of shopping online and customer service.^[26] Cohen stepped down in March 2018,^[27] and Sumit Singh was named the company's CEO in March 2018 after working as its COO since 2017 and previously as an executive at Dell and Amazon.^{[28][29][30][31]} Singh led the company through its IPO; Chewy grew to a market capitalization of $40 billion. The company reported to have employed around 7,000 people in the United States in 2018 and more than 12,000 by 2019.^[32][33] The company has more than 18,000 employees in the United States as of 2021.^[34] Chewy is chaired by Raymond Svider of BC Partners. The private equity firm continues to own around 80percent of Chewy following the latter's IPO, representing 98percent of the voting power.^[35]

References[edit]

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2. ^ "Chewy Inc. 2022 Annual Report (Form 10-K)". U.S. Securities and Exchange Commission. March 22, 2023.
3. ^ "Pet retailer Chewy.com is part of a growing breed". Sun Sentinel. June 11, 2015. Retrieved August 11, 2023.
4. ^ ^{a b} "Pet product online retailer sees growth in a bullish market". South Florida Business Journal. March 30, 2012. Retrieved August 11, 2023.
5. ^ Woo, Stu (March 6, 2012). "Pets.com 2.0". The Wall Street Journal. Retrieved October 13, 2023.
6. ^ Heroux, Mary (January 29, 2018). "Why has Chewy.com succeeded? Co-founder points to its customer service and changing times". Sun Sentinel. Retrieved October 13, 2023.
7. ^ Dahlberg, Nancy (April 19, 2017). "PetSmart is buying Chewy.com in possibly the biggest e-commerce acquisition ever". The Los Angeles Times. Retrieved October 13, 2023.
8. ^ Adams, Susan (January 10, 2017). "The Man Who Found Gold In Dog Food". Forbes. Retrieved October 13, 2023.
9. ^ ^{a b c} Gottfried, Miriam (October 1, 2019). "How PetSmart Swallowed Chewyand Proved the Doubters Wrong". The Wall Street Journal. Retrieved October 13, 2023.
10. ^ "Meet the Young Founders of Chewy.com, Which PetSmart Just Bought for $3.35 Billion". Inc. April 19, 2017. Retrieved July 20, 2023.
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15. ^ "Chewy Announces Fourth Quarter and Full Year 2019 Financial Results". markets.businessinsider.com. Retrieved June 4, 2021.
16. ^ MacLean, Jayson (April 4, 2020). "Chewy is eating up the competition during the COVID-19 crisis". Cantech Letter. Retrieved June 4, 2021.
17. ^ Repko, Melissa (October 28, 2020). "Chewy launches virtual vet visits as pandemic fuels pet boom". CNBC. Retrieved April 16, 2021.
18. ^ Tseng, Andrew (December 7, 2020). "Why Chewy Jumped 26% in November". NASDAQ. Archived from the original on April 16, 2021. Retrieved April 16, 2021.
19. ^ "Reports: Chewy, PetSmart Split to Operate as Separate Entities". Pet Age. October 28, 2020. Retrieved July 20, 2023.
20. ^ "Chewy shares soar as COVID-19 buying drove subscriptions, sales above $2B in Q4". news.yahoo.com. March 30, 2021. Retrieved April 16, 2021.
21. ^ Verdon, Joan. "Chewy Fetches A Profit, Sees Strong Growth Ahead". Forbes. Retrieved August 30, 2022.
22. ^ "Chewy Inc. 2021 Annual Report (Form 10-K)". U.S. Securities and Exchange Commission. March 29, 2022.
23. ^ Kaiser, Zigi (August 8, 2022). "Chewy Has a New Offer Pet Owners May Love". TheStreet. Retrieved March 6, 2024.
24. ^ "Chewy Plans International Expansion Following 13.6% Net Sales Growth in FY2022". retailtouchpoints.com. Retrieved March 1, 2024.
25. ^ "Chewy to open veterinary practices in Florida, Colorado". avma.org. Retrieved March 1, 2024.
26. ^ Verdon, Joan (January 26, 2020). "Ryan Cohen Started A Company That Took On Amazon, And Sold It For $3 Billion. Now He's Thinking About What's Next". Forbes. Retrieved July 14, 2020.
27. ^ "Co-founder Ryan Cohen stepping down as CEO of Chewy, a homegrown success story". miamiherald.typepad.com. Retrieved June 4, 2021.
28. ^ Stephanie Crets, "Roundup: Chewy CEO steps down and other personnel news," Internet Retailer, March 16, 2018.
29. ^ Chesto, Jon (December 25, 2019). "Chewy CEO sees big job growth in Boston". Boston Globe. Retrieved June 8, 2020.
30. ^ Hirsch, Lauren (April 29, 2019). "PetSmart's online business, Chewy.com, files to go public". CNBC.
31. ^ "Chewy founder leaves as former Amazon exec takes over". Retail Dive.
32. ^ Chesto, Jon (December 25, 2019). "Chewy CEO sees big job growth in Boston". Boston Globe.
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34. ^ "About Chewy.com". www.chewy.com. Retrieved June 7, 2021.
35. ^ Nylen, Leah (March 9, 2023). "PetSmart, Chewy Overlapping Directors Focus of DOJ Complaint". Bloomberg News.