Chewy: The Pets.com of the 21st Century?

We recently went over the story of one of the biggest DotCom bubble IPO failures in history: The infamous tale of Pets.com

In that video, I briefly mentioned the fact that Pets.com ended up being a bit ahead of its time.. because a mere 11 years later: another business came out form the shadows, the crevices of the young internet minds. A business that, on paper, looked very similar to the DotCom bubble tragedy: Pets.com – But in fact, a business that went on to be: The Biggest ECommerce acquisition of all time. This is.. The Chewy story..

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What is Chewy? What Does Chewy Do?

Chewy Incorporated is an online retailer and eCommerce business focused on selling pet supplies, pet food premium pet goods and all other pet-related products.

As of right now, Chewy is notably, the largest, most favorable way to order pet products online. They have even passed Amazon in pet food & pet supply market share (that’s the little book company Jeff Bezos used to run.)

Chewy had a 45% revenue growth in 2020, they had a 56% growth in gross profit in 2020, and an over 200% growth in share price. The company is on fire and they pretty much have been since the day they came to life.

Chewy Vs. Pets.com – What’s The Difference?

Comparing to the Pets.com story, this level and type of growth is already a big difference. They came to market and people were interested! Their business grew, Their gross profit grew and since going public in 2019, their market cap grew.. Company growth! What a magical thing.

But this is the very broad picture. There’s a lot more to the story than meets the eye. Here are two important facts for you-

Chewy.com has had incredibly strong revenue growth since its creation, of course.

But fun fact: Pets.com, from 1999-2000 grew their revenue by over 4,000%, it just so happened that, with that, they also grew their expenses to cost them substantially more than that revenue they were bringing in. So basically, don’t trust revenue growth alone as an indicator.

The other potentially scary fact for ya: Pets.com was a money-losing company, obviously.

But in fact, Chewy is also a money-losing company. Chewy has not yet had a single truly profitable quarter in history, as of right now at this very moment.

But here’s the lesson of the day… I’m not qualified to be teaching lessons, let’s call it the.. “Second-hand wisdom of the day from Chris.”

The same two facts on paper can mean very different things in actuality.

For things to all make sense, it’s time you learned the story. I want to introduce you to a couple of inspiring founders and give you the deets. Let’s take a look at: The Origins of Chewy.

How Did Chewy Start? The History of Ryan Cohen and Chewy:

The year is 2011. Immerse yourself.. Obama was in his first term as president. Amazon was well on their path to rule the world. We were all still recovering from the great financial crisis. And while all this was goin’ down, over in South Florida, two young and spry entrepreneurs were in the midst of beginning the project that would become the next 10 years of their lives. These two, are Ryan Cohen and Michael Day.

Ryan Cohen met Michael Day in 2011 in a java chat room, trying to find programmers to help with an affiliate site of his at the time. Very romantic. Ryan Cohen must’ve been a persuasive son of a gun, because at that point Michael Day dropped out of the University of Georgia to join forces with Ryan. That year, they combined all their money to officially start their online business together. And that business was…

You guessed it! An online Jewelry sales company. They collectively put together $150,000 and the journey began!
Except it didn’t last long: Because after going to their official first trade show together, they unanimously decided they didn’t like jewelry and that this was a stupid idea!

And so began a brief process of back-peddling. They sold all their jewelry inventory for 80 cents on the dollar and eventually came up with the real idea. The passion project. The business that was then called: Mr. Chewy.

The Days of “Mr. Chewy”

The timeline’s a bit screwy on Mr. Chewy, but basically, it seems to have been a mix of the realization at that jewelry trade show as well as an epiphany within Ryan’s own mind.

The epiphany came to Cohen when he was in a local pet store, realizing that this experience didn’t exist online, that in fact: this was his calling, not the jewels of the web.

This digital embodiment of a local pet-store scaled to the eCommerce world was an idea he was actually passionate about. As one of those loving dog-folks himself, being the owner of a little toy poodle named Tylee, the man knew the struggle of being a loving dog-owner in a growingly online-centric shopping world.

The market was scattered, no one had dared try to poke the business model that smelled so similar to….. Pets.com….

Plus, there’s was that little book company that pretty much held all of the market share in the online pet product space at the time.

But these two wild stallions weren’t scared. Ryan Cohen had a model that distinguished them from Amazon. It was simple: They would be absolutely, completely focused on the customer experience.

And with that: In Ryan’s own words: “The pet industry was big and growing, moving from mass market to premium. It was clear that the opportunity was huge.” And so, the Chewy (Mr. Chewy) journey began.

The Details of Ryan Cohen and Chewy At The Start

This is all very important to note! Starting out, these suckers had nothing. This is not a classic case of a “small loan of a million dollars” or anything like that. This was a case of Ryan and Michael throwing their own money in, hiring Ryan’s childhood friend Alan Attal, and the three of them doing goddamn everything at the company in the early days.

Let’s pause there to compare real quick! If you compare to Pets.com on that fact alone, it’s a whole different beast. Pets.com was flooded with cash at inception. They didn’t need to prove a thing before raising capital, and proceeding to rapidly burn through millions of dollars. That was the nature of the DotCom bubble.

But 2011 investors knew better than to throw money at some unproven dotcom company with a striking resemblance to Pets.com

Another important detail to focus on up in here: I’ve said it before and I’ll emphasize it again:

The biggest priority of Chewy was to be customer-obsessed! Not just convenient like Amazon, but focused on this being the absolute BEST customer experience mankind has ever known.

Ryan Cohen’s Customer First Approach

In the early days, the tiny-team’s first priority was top-quality, top-speed phone operations, live chats online, and emails. This was all done by Ryan, Michael and Alan, so once they could, that was the first portion of the team they needed to hire out.

This customer-first model was really the biggest-thing that led to Chewy’s explosive success. If you recall, in my Pets.com breakdown, one of the biggest flaws was that the company had no distinguishable differences from any of the many other online pet-supply “e-tailers” of the time. Eventually they had good marketing, but that didn’t change the customer buying experience.

Chewy began to do an exceptional job of creating what they eventually referred to as “sticky customers” – Because these dudes created some real deal LOYALTY.

Ryan Cohen was a man with a plan, and that customer-priortization paid off handsomely.

But you’re probably wondering.. So what? They had good customer support? That’s it?

Chewy’s Incredible Customer Focus

Chewy does not fool around, folks. Customer. First. Let’s take a look at some of the major things Chewy did (and still does) to stand out in their customer-first model.

At scale, Chewy spent nearly a million dollars a year on postage alone, to account for the multi-million handwritten holiday postcards that they send their loyal customers.

And of course, the handwritten thank you note when you make your first official purchase with Chewy.

If your dog possibly doesn’t care much for the luxury, wilderness salmon grain-free dog food you bough for him, no problem. Chewy will give you a full refund and personally suggest a local shelter you can donate the food to so it doesn’t go to waste.

If you’re cancelling an auto-ship or subscription service because a pet has passed on, Chewy sends flowers directly to your home.

If you’re lucky, then you may just get chosen at random to receive a professional oil painting portrait of your pet. And this isn’t even something they offer for sale, mind you.

Look at these things. Show me the last bundle of flowers you got from Bezos after a loved one passed.

The company puts the money in to prioritize the customers above all else. These suckers are here for the long-term, they’re not playing the short game. According to Cohen, with his very own words:
“The focus isn’t on making one-off transactions but on turning customers into lifelong clients. – The idea is to “wow” the customer and to provide a “delightful experience where they would never dream of shopping elsewhere.”

Ryan Cohen knew what was important. It shows. But there was a problem…

The Problem With Chewy and Ryan Cohen

This is all great. We’re in! We believe in you, Ryan. We believe in Chewy! But I don’t know if you heard, we’re in the future! We already know how incredible this man is.

On their own, Chewy proved what made them special. Cohen proved that he had a long-term plan for success, but that’s not enough. Come on, haven’t you seen shark tank?

The company needed capitol to grow. For the first two years, Chewy was reinvesting every dime they made right back into the business. Growing as much as possible. Ryan, Michael and Alan were all salary-free, because they believed in the long game. But in order to really scale, they needed them some investors.

The Investor Struggle at Chewy

Along the journey of Chewy’s first 2 years, Ryan Cohen was was denied by over 100 venture capital firms. Back to back to back to back to back to back to back denials.

That’s more denials than views on my last video….. heh….. click here to watch it….

But eventually, at long last: like a light at the end of the tunnel.. Ryan met with Larry Cheng of Volition Capital.

At the first meeting, Ryan confidently told Larry his business outlook as well as his expected growth.
And finally, after a long and trying 2 years…. Larry said no and moved on with his life.

Hahahahaha,…. Yeah…. It is true unfortunately..

BUT WAIT!

6 months later, Larry Cheng reached back out to Chewy to follow up and hear the results. In that chat, he found out Chewy had beaten ALL the sales estimates they previously gave him. And alas, he was impressed!

And so now, the real moment you’ve been waiting for! Larry Cheng and Volitition Capital signed on to invest 15 million dollars into Chewy!

After all that work, all those months. All that VC denial. Nobody thought Chewy could touch Amazon, everyone wanted to compare them to Pets.com– FINALLY.. someone believed in the idea.

The Rest Was History.

When you put gasoline on a well-formed fire, it burns bigger… I don’t think I did that saying right…

Chewy and the all-star team went even harder at this point.

They took that funding and perfected everything possible. They took fulfillment in-house. Knowing not a lick about warehouse operations, Ryan & co sent out THOUSANDS of LinkedIn messages explaining the situation. Rapid growth, stressful time-frames, passions, customers, all that.

Apparently they got a response from roughly 2% of the people they reached out to at this time. But folks, that 2% was committed to the cause. You know you’re forming the right team when its made up of the ones that get you back on the frantic LinkedIn DM’s. Those were keepers!

And they certainly were, folks! In 2014 Chewy opened up their first 600,000 square-foot fulfillment center in Pennsylvania, rapidly solving crisis after crisis while still making sure to prioritize the customer above all else.

Across those next few years, Chewy continued its rapid growth, with grade-A management effectively scaling in accordance.. They began running strategic marketing overtime, optimized their 24/7 flawless customer support services, grew their revenue year after year, increased their average lifetime value per customer through the strategic loyalty and continued to grow their premium supply of pet food and pet supplies, as more and more of the… “selective” brands grew trust in what Chewy was all about.

But let us not forget about: The Acquisition!

Chewy’s Petsmart Acquisition – The Biggest Acquisition in History

Again, please IMMERSE YOURSELF. The year is 2017, Trumps the president. The stock market is in bull-run mode, the crypto market is an mass hype, rocket mode. Chewy, is continuing to thrive. For the last 2 years, well more really, but notably for the last two years, more and more retailers are DYING with the finger pointed at Bezos and Amazon.

It’s becoming a dark cycle of which-one-will-be next. But in a similar regard, with a slightly different flavor to it, long-running retail chain Petsmart had been progressively losing sales to none-other-than, our very own: Chewy.

Petsmart’s parent company BC Partners put 2 and 2 together and came to a very important realization: they will never be able to beat the online star. Chewy was an unstoppable force at this point. So rather than fight the battle, it put in a bid to buy the company outright.

So, with that.. In April of 2017, the deal came to life. Petsmart officially bought Chewy for a grand total of 3.35 billion dollars.

The Petsmart-Chewy Backlash and Drama

This Petsmart / Chewy deal ruffled many feathers, friends. Adding BILLIONS of dollars worth of debt onto Petsmart’s already heaping debt pile of 6 billion dollars for an unprofitable rival was NOT sexy in the eyes of investors. Chewy was being publicly, regularly compared to that of the long-past, Pets.com at this point in time.

Over the short term, Petsmart bonds fell by 50% – With things looking like the end was near for Ol’ Petsmart. The next in line on the cycle of retail deaths.

But.. WAIT! REVERSAL ALERT!

Petsmart’s Return To Glory

Petsmart did not die. Chewy did not die. In fact, quite the opposite.
As Ryan Cohen always said, Chewy was in it for the long-term. They’re a company FOCUSED on puting money right back into the business, properly and strategically, which is WHY: Chewy continued to grow hyper-speed over those two years.

In June of 2019, the company IPO’d on the New York Stock Exchange, confirming the hype, the growth, the revenue, etc. This IPO immediately brought about $10 billion dollars in paper gain profit to Petsmart on DAY ONE, fool!

Almost immediately, Petsmart’s bonds were back near-peak. Petsmart’s day one paper gains were some of the LARGEST private-equity backed IPO profits ever in history.

Chewy, Petsmart and Ryan Cohen Today

Petsmart is considered one of the greatest private-equity and traditional retailer turnarounds in history. They tickled death on the nose and then laughed as they ran back to the land of the living.

Since IPO, Chewy share prices are up over 250% – The company has still continued to grow year by year, quarter by quarter since going public with a notably incredible 2020, thanks to big-time pet demand onset by the pandemic. But the beautiful thing about pets: They last beyond the pandemic. As Ryan Cohen came to find out in life, being a pet parent ain’t a hobby, it’s a lifestyle.

You can quote me on that one, Ryan.

The company has continued to grow immensely, although they are still technically a money-losing business. BUT they are expected to break even in 2022, then hit official profitability in 2023.

The reason for this stretch is because Chewy reinvests so so SO much of its gross profit into growth. With a company growing as much as Chewy, reinvesting continuously into its own growth over taking profits: It’s a sign of a business with the intention of a long and meaningful future.

Ryan Cohen’s Future

As for Ryan Cohen, the man recently tweeted out a picture of McDonalds iced cream and had multiple financial news networks speculating over what it all means.

With that, his recent position as Gamestop strategy committee chairman has pretty much single-handedly set forth the start of the 2021 GME explosion!

So, it’s safe to say people are looking forward to the future of Ryan Cohen

TLDR;

Chewy is a banger of a company. The premium pet supple ecommerce giant is and always has been a growth-focused, strategic, customer-first business that never feared context. Whether it be the beast of Amazon, the horror of Pets.com – Co-founding madman Ryan Cohen knew better than to let these two things stop his vision for Chewy. He saw the future, he had a plan, and his savvy business mind beat out the likes of Amazon and never fell victim to the faults that ruined Pets.com so brutally.

Farewell To All

Well friends, that there is my take on the story of Chewy.

CLICK TO WATCH THE IMMERSIVE VIDEO VERSION

I personally am very excited to see the future of Chewy as well as the future of Ryan Cohen and all his passion projects to come.

If you enjoyed this lil article and/or video here, I bet you’ll enjoy my take on the downfall of Pets.com too! It’s an emotional rollercoaster, but it’s one heck of a tale.

Follow along on my YouTube channel, where I’m always working on new and exciting “Money Lore” stories!

This is: The Ryan Cohen Che