Retail Channels

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.

black short coated dog in blue and brown wooden box
Photo by Chewy on Unsplash

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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