Wall Street Journal: How PetSmart Swallowed Chewy—and Proved the Doubters Wrong
“After more than 100 pitches, in which he argued Amazon could never provide the intimate customer service and expertise of Chewy, someone did. Boston-based Volition Capital LLC put $15 million into the company in 2013. The volume of Chewy’s repeat business was what convinced the firm to invest, according to Larry Cheng, a managing partner at Volition who served on Chewy’s board.”
By Miriam Gottfried
The market poo-pooed PetSmart’s $3.35 billion purchase of Chewy—a fast-growing online retailer that was sucking away customers from the bricks-and-mortar chain
- In April 2017, PetSmart paid $3.35 billion for Chewy in what was then the largest e-commerce deal ever. The purchase was criticized by PetSmart’s lenders and the wider market as a bet-the-company move that would force PetSmart to add $2 billion in debt to the $6 billion it already had, all to buy an unprofitable rival. Some likened Chewy to Pets.com, a notorious failure of the dot-com era, and predicted it would ultimately fall victim to competition from Amazon.
- As of early September 2019, Chewy is worth about $11 billion, and PetSmart is shaping up to be one of the most successful private-equity turnarounds in history.
- Chewy went public in June, and its shares have climbed nearly 20% since then in what has been a busy year for initial public offerings and despite the recent tumult in the IPO market. PetSmart’s roughly $10 billion paper gain on Chewy’s first day of trading is one of the largest ever from a private-equity-backed IPO. Its bonds are back near par thanks in part to $826 million of debt reduction fueled by proceeds from the share sale.
Volition & Chewy.com
“When Mr. Cohen initially sought backers, he was met with skepticism, he recalls. Most venture-capital firms he approached for his first round of funding thought he was crazy to go head-to-head with Amazon. “I went door-to-door on Sand Hill Road, cold-calling investors,” Mr. Cohen says, referring to the address of many venture-capital firms in Silicon Valley.
“Nobody wanted to give me money.” After more than 100 pitches, in which he argued Amazon could never provide the intimate customer service and expertise of Chewy, someone did. Boston-based Volition Capital LLC put $15 million into the company in 2013. The volume of Chewy’s repeat business was what convinced the firm to invest, according to Larry Cheng, a managing partner at Volition who served on Chewy’s board.
The customer-retention rates were “some of the highest we had ever seen,” he says.
Customers who had signed up for automatic recurring shipments made up 66% of Chewy’s sales in 2018, according to a securities filing. That’s the result of Mr. Cohen’s fanatical devotion to customer service, Mr. Cheng says.
Customer-service representatives were pet lovers who sat near executives at the company’s Dania Beach, Fla., headquarters and were empowered to do almost anything to assist callers, often helping them select the right food for their pet’s sensitive skin, weight loss program or allergies.
Chewy sent handwritten cards to new customers, surprising some, selected at random, with portraits painted in oils of their pets.
Mr. Cheng recalls witnessing some representatives who stayed on the phone with a customer for as long as two hours. “We knew if we won the customer, we would have them for life,” he says.