Summary List Placement
Retailers are good at profiting off of what they can predict. In 2020, that wasn’t much, but because of an aggressive investment in its Autoship program, Chewy can see further and more clearly ahead than most.
Demand exploded for the online pet retailer when stay-at-home orders led Americans to empty the country’s pet shelters. Unforeseen events — take Chewy’s 46% sales spike in the first quarter of 2020 — usually lead to supply chain hiccups and extra costs, and the company was no exception.
That kind of “peakiness,” CEO Sumit Singh said on the company’s Wednesday earnings call, can have a “punitive” effect on supply chain and transportation planning.
The initial spike in demand caused the company to ship orders from farther flung warehouses, leading to $20 million in extra shipping costs in the first quarter of 2020 alone.
So the company got to work reshaping its supply chain to keep the food, treats, collars, and prescriptions flowing. It opened a warehouse just for its most popular items to make sure those shipped fast, along with its first automated fulfillment center. But to really handle the punitive peakiness, it already had a secret weapon: autoship.
Autoship is the industry term for turning any retail item into a subscription service: Instead of going online to order a new bag of puppy chow every time the bag gets low, customers sign up to have a fresh order sent their way on a regular, recurring basis. It’s been a popular retail strategy for years, but Chewy has leaned in especially hard.
The company posted 56% growth in net sales from autoship from 2018 to 2019. Since then, nearly 70% of Chewy’s net sales have come from this strategy. In 2020, it accounted for $4.9 million in sales — more than Chewy’s net sales the previous year.
“That impacts, not only our ability to better plan inside [the] four walls of our warehouses, but across both our incoming vendors or our OEMs, and then our logistics partners,” Singh said, according to a transcript from Sentieo.
Recurring orders boosts Chewy’s forecasting ability and contributes to its margins, the CEO said. Warehouses that know roughly 70% of the volume they ship ahead of time can build shifts of workers more efficiently. Buyers can order quantities closer to what they’ll actually need, with more notice for vendors. And logistics providers can better allocate resources to Chewy’s needs with more notice and consistency.
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Source:: Business Insider