Autopilot
At some point in the last few years, you might have asked yourself: “why is everything a subscription these days?”
The success of software, cable, phone contracts, streaming, and other products in the 2000s inspired entrepreneurs to try just about anything as a subscription, chasing the holy grail of predictable ‘recurring revenue’. From razors to glasses, toilet paper to your entire wardrobe, if you’ve bought it in a store, it’s probably been tried as a subscription business (or at least a direct-to-consumer business). Most efforts, it must be said, have struggled to make the economics work, despite millions of dollars in VC funding. Pet supplier Chewy, however, has bucked the trend.
Indeed, shares in the company are up more than 30% this week after reporting a set of Q1 results that came in way ahead of expectations. Chewy’s “autoship” sales — an offering where customers can set up repeat deliveries for a discount — were up 6.4% year-on-year, and its revenue per active customer rose to a whopping $562. The market lapped up that progress, with autoship sales now more than 75% of Chewy’s business, driving almost all of its growth since 2021... and investors seemed to like the announcement of a $500M share buyback.
Pet project
The uptick for Chewy comes after a difficult few years. A pandemic darling, Chewy’s sales soared during the pet boom of COVID, and — like so many other “pandemic winners” — the reality never quite matched up to the expectation. From its peak, CHWY is down 82%... with the shares loosely tracking the volume of Google searches for the phrase “puppies for sale”, which boomed throughout 2020’s lockdown days.
But, while Chewy’s stock may have lost some of its bite, the pet product peddler remains a huge business, with revenues north of $10B. This makes it one of the most successful of a vintage of subscription / direct-to-consumer brands — such as Casper (mattresses), StitchFix (personal styling), Peloton (fitness), SmileDirectClub (oral care), Allbirds (shoes), Blue Apron (meal kits), and others — that have struggled, or even gone bankrupt since their Covid boom. Random consumer subscriptions may be for Christmas, but pet supply subscriptions are for life.
Go fetch: Chewy’s founder, Ryan Cohen, is none other than the CEO of GameStop.
