Chewy CEO Sumit Singh on his secret to profitability: chasing customer loyalty over customer churn
Chewy has become the rare e-commerce company that knows how to make money. This has set it up nicely for its foray into an area that CEO Sumit Singh is betting will see hot growth for years: health care for pets.
After years of vacillating between money-making and money-losing quarters, the online pet giant is now reliably profitable, with net income in 2022 double what it was a year earlier. Singh, a former Amazon executive, was brought in five years ago to instill greater discipline, closely scrutinizing marketing costs and relying on analytics in an industry that often chases growth at all costs, which are chronically accompanied by deep losses.
Under Singh, Chewy has prioritized cultivating customer loyalty over chasing new shoppers—and all the heavy marketing spending the latter entails. Now, some 73% of sales come from its automatic shipping service favored by repeat customers. Singh has spent a fortune on other efforts like automating distribution, which crimped profits for a while. But these investments appear to be paying off in the form of greater efficiency and control of its supply chain.
Having millions of customers locked into shopping on Chewy.com has given Singh confidence the company can successfully climb the next rung on his long-term plan: a pet healthcare market—despite the fact that it does not have a fleet of stores like PetSmart and Petco from which veterinarians can work.
“Customer loyalty leads to repeat purchasing. Repeat purchasing leads to recurring and amplifying revenues. So you bring in a pet parent to buy food, and then they’re buying treats, and then they’re buying hard goods, and then they’re buying health care,” Singh tells Fortune. Under his watch, Chewy’s sales rose 254% between 2018 and 2022 and could surpass $10 billion this year.
Chewy’s efforts on the health care front include its launch last month of CarePlus, an insurance and wellness suite of products that provides pet owners around-the-clock access to Chewy customer service and licensed veterinarians.
Other potential growth areas include merchandise and services for cat owners who have been overlooked in a pet market that has long focused more on larger dog products. Customers have made clear they want this. “Cat parents are vocal,” jokes Singh, who does not own one but does have a Shih Tzu named D.
This interview has been edited and condensed for clarity.
Fortune: At long last, Chewy is consistently profitable in contrast to many other e-commerce players. What does it take make money in e-commerce?
Of course, e-commerce companies can be profitable, and we are proof of that. I have the mantra that we’ve advocated internally at Chewy, which is ‘get big fast’ but also ‘get fit fast.’ I think what happens a lot of times is that growth-oriented companies don’t build operating fitness and discipline into the routine of the organization early on. Operating fitness essentially means that we will deliver the scale, but at the same time prepare the company to get structurally, and incrementally better, year after year after year.
A big challenge for many e-commerce companies is customer churn and the intense marketing spend needed to win new ones. The vast majority of sales at Chewy now come from automated replenishments for repeat customers. Is that the secret sauce?
Scale and market leadership cannot come, in my opinion, without having tremendous customer loyalty. Customer loyalty leads to repeat purchases. So our business amplifies over time.
A lot of e-commerce and digital-first brands are face planting now after early buzz and fast growth. What’s your advice to these companies as they grow?
Chewy has remained incredibly disciplined in utilizing cash flows and being the governor of our own growth. The advice that I would give companies is to understand cash burn and understand the core metrics that actually deliver the value proposition and sustainable long-term profits for the company. In our case, it was customer loyalty. We understood that from the get-go, and we built an engine that beyond delivering scale, preserves the integrity of the customer experience. You can’t just acquire a customer and lose them the next year or not know whether they’re going to buy from you again. You run out of people or worse, you run out of credibility with them.
Now you’re pushing hard into health care. Assuming pet adoption numbers return to normal after the COVID boom, is this relatively new business line key to maintaining growth?
Accessibility and affordability in pet health care have always been a battle. Fewer than one-third of pet parents take their pet to the vet on a recurring frequency. So that’s a total addressable market that’s actually being held back. That $40 billion market could likely be $60 billion.
If you notice the trends in veterinarian service, customer demand for pet health will outpace the growth in the number of veterinarians by a factor of two or three times over the next five years. You cannot create human beings, but you can make them more efficient. That can include things like teleheath. Today, after two years of building that capability, we are a scaled, commercially available telehealth provider in the marketplace.
What’s your thinking on having a physical retail space given that some of your rivals, Petco Wellness and PetSmart among them, have big fleets of stores from which they can provide services?
Our mission is simply to be the most trusted, convenient destination for pet parents and partners everywhere. The word ‘online’ is not in that statement.
Chewy won many customers over with surprisingly personal touches for an e-commerce company, such as drawings sent to a customer after the death of a pet. Is e-commerce generally soulless?
We are living proof that customer experience matters. Experience that creates positive memories will create not only awareness but also affinity toward the brand. When you fulfill that with repeat experiences, you multiply your credibility and you create incredibly sticky loyal customers. That’s the Holy Grail.
The only other category where customers refer to themselves as ‘parents’ is the baby and kids category. The pet category is emotive, to begin with, but that is a double-edged sword. When you please and deliver the experience, customers are loyal. At the same time, you’re harshly judged if you don’t.
But are people too indulgent with their pets, however much that might help your business? Have people gone too pet crazy?
This reflects why the term ‘humanization of pet’ was coined. Over the last 20 years, what has happened is that pets used to be out on the porch and now they’re on your bed. They’re on the couch. Pets have become a much more integrated part of the family, and that’s okay.
What’s your approach to your own dog, D the Shih Tau? What’s the most extravagant thing you’ve given your dog?
We have a 7-year-old human who introduces D as her brother. But we’re not super indulgent. He’s not high maintenance and so from that standpoint, I think we’re lucky to have him.
Have you have you bought anything that’s a little over the top for him. Like a bomber jacket or something like that?
We haven’t but probably we should. He gets his recurring supply of treats and toys and all that stuff. And he really goes through them.
Are cats an untapped market?
I believe they are. I believe there are two main reasons for that. One, if you look at countries with high population density like Japan, you find a bigger proportion of cats and small dogs. In the U.S., large dogs are far more prevalent. Also, in the past 20 years, it’s been a self-perpetuating trend that brands have invested in product development that feeds the dog ecosystem because dogs are bigger consumers than cats are. But now I believe cats are going to have their day.
E-commerce companies are facing more scrutiny for their environmental impact. Catch us up on what Chewy is doing on the sustainability front that’s new.
We’re working with suppliers to essentially push innovation to drive packaging changes that actually turn any material that is non-sustainable or non-recyclable into recyclable biodegradable, sustainable packaging.
There’s a bit of a backlash against ESG investing in some quarters. Do you think ESG is important? Is it here to stay?
Ultimately, we’re a business and we have a fiduciary responsibility toward our customers, our shareholders, and our investors. At the same time, a company’s purpose, in addition to delivering growth and profitability, is to deliver societal value. It’s just about doing your part to be socially responsible.
Which is also important for your recruitment, right?
Yes, and our customers care about it.
Get to know Singh:
- He is a self-taught musician, playing classical Indian music. His instruments include the guitar, the piano, the harmonica and percussion. Singh has also composed songs, seven of which are copyrighted.
- As he neared his college-age years, Singh had a chance to try out for the Indian national soccer team. But his father persuaded him to pursue college instead, given India’s chronic absence from FIFA championships.
- Though a child of the middle class in New Delhi, Singh arrived in the U.S. with little money to his name and took out large student loans to attend the University of Texas at Austin, something he says has made him cost-conscious.
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