People are increasingly treating their pets like family members, and Chewy (CHWY -6.53%) has taken advantage of this trend to become the leading seller of pet food and accessories.
The company has more than doubled its revenue in the past five years to reach $11.9 billion of sales in its latest fiscal year. Serving the needs of pet owners is a huge business, and one of the most important things behind Chewy’s success is the recurring revenue and customer loyalty it has built up thanks to its Autoship program.
Turning frequent purchases into a competitive advantage
There are a lot of basics that people must buy for their pets that don’t really change much from purchase to purchase. The biggest one is food, but there are also things like medications and kitty litter that fall into the frequent-purchase category.
Image source: Getty Images.
As an online retailer, Chewy makes it easy for customers to put these frequent purchases on a schedule through its Autoship program. Items are then delivered directly to customers at regular intervals, meaning no need to visit a physical store or lug heavy bags of pet food home.
Autoship has arguably become the most important feature within Chewy’s business model. Of the $11.9 billion of revenue it generated in fiscal 2024 (ended Feb. 2), sales to customers who have participated in the Autoship program in the past year amounted to $9.4 billion, or 79.2% of the company’s top line.
Autoship customer sales have also grown more quickly than overall revenue in each of the last four years, increasing from around 70% of sales in fiscal 2021 to just under 80% today.
The online retailer’s relationships with Autoship customers are likely the most important ones it has. And for Chewy, the program offers key benefits, including more predictable sales, increased customer loyalty, and higher spending per customer.
In the latest earnings call, CEO Sumit Singh noted, “Our Autoship program represented 80.6% of Q4 net sales, delivering best-in-class service to our customers while also providing predictable subscription-like recurring revenue streams to Chewy.”
There will eventually be some upward limit to Autoship penetration. At these levels, however, Chewy can more easily pass on rising costs to customers and continue to boosts its bottom line.
Chewy’s sales aren’t just reliable, they’re on autopilot
When you evaluate this business as an investment, you shouldn’t focus just on headline numbers from the company’s earnings releases. Other details like the Autoship program offer insight into just how strong Chewy’s leadership position in the pet industry might be.
This large source of loyal, repeat customers is something few other retailers can boast.