Retail Channels
27 March
Chewy plans expansion in retail media, global markets in 2023
The pet product platform is planning to launch a sponsored ads product in the first half of the year.
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Chewy continues to show that ecommerce can take a growing bite out of the pet product market.
The platform posted a 13.6% increase in net sales for 2022, while expanding gross margin to 28%, according to a recent earnings report.
“Against the backdrop of a rapidly changing operating and economic environment, Chewy produced record-high revenue, profitability, and free cash flow,” said CEO Sumit Singh.
Like many in retail, the company is facing headwinds as a result of inflation and interest rates. That showed up in the metric of active customers, which declined to 20.4 million in 2022 from 20.66 million in 2021.
“We believe the modest sequential decline in active customers reflects the continued softness in discretionary spending experienced across the broader economy as well as the residual impact of attrition from our 2020 and 2021 cohorts,” Singh told analysts.
In 2023, Chewy is seeking expansion through international markets and advertising. Additionally, it is adding automation to fulfillment centers. Here’s a look at initiatives detailed on the earnings call:
International expansion
Chewy is preparing to move into its first market beyond the U.S. Singh said the “time is right,” and the company is building both the capabilities and team necessary to launch internationally in the “next few quarters.”
“We expect this important development to unlock meaningful incremental [total addressable market], and we are excited to introduce Chewy to a broader customer base with whom we believe our brand and mission will resonate strongly,” Singh said.
While no exact geography was identified yet, Singh talked through some of the criteria the company is using for expansion, including size of the market, geographic proximity and consumer behavior that may be similar to the U.S.
Before moving into a new country, Chewy is also taking steps to understand the consumer culture.
“We plan and expect to bring all components of our value proposition to the international market. And at the same time, we are going to be very actively listening to the voice of the customer and designing our launch working backwards from that so that there is no dissidence in the way that we show up in the cultural nuances as Chewy's brand enters the international market,” Singh said.
Sponsored ads
Retail media is exploding, as ecommerce marketplaces realize opportunity to unlock new growth and margin opportunities by introducing advertising onto their platforms. Chewy is joining the ranks of retailers ramping up its ad capabilities. Currently, it is testing sponsored ads with a beta that rolled out in the fourth quarter of 2022. The full product is expected to be live in the first half of 2023.
“Our team is hard at work right now on the supply side of the platform, where we expect to deliver a great customer and partner experience with improvements in ad serving, tracking and relevance,” Singh said. “The reception from brands has been and continues to be positive, including the reception on our ROAS framework.”
Fulfillment automation
Chewy made the decision to invest in fulfillment center automation in 2019. Now, it has three facilities that are automated, with a fourth in Nashville on the way this quarter. In turn, the company closed a pair of older fulfillment centers, including one in Pennsylvania, which did not have automated capabilities.
“Each of the facilities are located near one of our new automated FCs, which allows us to combine operations and offer team members the ability to transfer locations. We believe that this action will enable incremental order volume to flow through our automated facilities.”
The automated facilities are now processing about 30% of order volume, which is double from last year.
The move to streamline operations demonstrates that Chewy is not only employing innovation to drive growth, but also profitability at a time when retailers are watching margins carefully.
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Retail Media
3h
Gopuff moves fast on a new retail media approach: Non-endemic ads
The quick commerce marketplace is partnering with Rokt to expand beyond CPG advertising.
(Photo via Gopuff)
In some ways, retail media campaigns function like promotions in a brick-and-mortar store.
With retail media, brands can reach customers with advertising on the websites where shopping is taking place. This proximity to the point of sale provides an opportunity for brands who are already selling within a marketplace to take advantage of opportunities to elevate their position in search results, and stand out from a crowd of listings. This is the same goal that many brands have when they purchase highly-trafficked space in a store. But instead of checkout aisle and endcap placements, there are now sponsored products in search results.
But that’s not the end of the story.
The fact that retail media is internet-based and powered by first-party data collected at the purchase level is poised to open up new opportunities to reach consumers that go beyond today’s norms.
One such example is the introduction of non-endemic advertising. This allows brands that aren’t directly selling a product within a marketplace to purchase ad space.
Why would a brand want to advertise in a place where they can’t make a direct sale? The thinking goes like this: The marketplaces have the audience, and the data on them that allows for precise targeting. They can be places to learn about a new product, just as much as they can be a place to buy.
One early example of the recognition of the opportunity in non-endemic advertising arrived this month. The quick delivery marketplace Gopuff partnered with ecommerce technology company Rokt to enable brands outside the CPG category to advertise on Gopuff’s app.
Under the hood, the companies are combining machine learning technology from Rokt that is designed to present relevant offers to customers with a Gopuff audience that is made up of Gen Zers and millennials, engaged and curious about trying new brands.
The partnership will enable advertisers to target customer segments by demographic and location. Customers will also receive offers to try new brands, such as Hulu, AdoreMe and Noom.
What sets this advertising approach apart will be the consumer categories where it is focused. Typically, ads on Gopuff are focused around the convenience store items already available on the app. Now, shoppers will see other kinds of products in the mix, and they will click through to checkout pages that are outside Gopuff if they are interested in buying. This also has the potential to change how advertisers approach media spend. It means everyone from a sporting goods brand to a car company can now consider Gopuff as they plan. They must also consider how these channels work together as a whole.
"We are thrilled to partner with Gopuff and enhance its ad business, helping it move beyond the CPG category," said Elizabeth Buchanan, CCO of Rokt, in a statement. "By delivering relevant offers to Gopuff users, Rokt will help Gopuff Ads' brand partners across all categories create more meaningful customer connections and drive incremental sales."
The partnership underscores how retail media networks have three key building blocks for digital advertising: They’re a destination that people visit with an intent to shop, they have the audience that brands want to reach and they have data that can help to reach the right consumers.
It points to how ecommerce marketplaces can not only become the new store, but also emerge as ad networks like Facebook and Google before them. It’s a big reason why retail media networks have exploded over the last year, and why growth is forecast to continue to accelerate.
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