Subscriptions drive customer lock-in, but that’s not necessarily bad for the customers.
On April 29, Chewy, the largest “pure-play pet e-tailer in the United States”, announced plans to go public. While Chewy’s success is due in part to the rapidly increasing amount of money Americans spend on their pet, the company has managed to distinguish itself in an incredibly crowded marketplace through an innovative commitment to Relationship Commerce-driven business models.
The proof is right there in the S-1 prospectus the company filed with the SEC. Auto-ship sales, i.e. Chewy’s subscription ordering program, now make up 66% of the company’s $3.5 billion annual sales. And that number is rising remarkably fast — per the prospectus, autoship sales “have grown from $115 million in fiscal year 2014 to $2.3 billion in fiscal year 2018.”
That kind of commitment to recurring revenue through Relationship Commerce methodologies also makes for remarkable retention rates. In short, not only do customers keep coming back to Chewy, but they also spend more money when they do. In 2018, Chewy achieved 120% of sales from their existing customer base from the prior fiscal year.
That kind of customer retention isn’t simply because of the subscription model (though it certainly helps). Chewy has also succeeded at that second pillar of effective Relationship Commerce: personalization. As they write, “We believe that pet parents… continue to shop with us because we offer personalized, high-touch customer service to every customer, every day, and in every interaction.”
PetSmart acquired Chewy in 2017 for approximately $3 billion in order to complement their in-store retail experience. But Chewy’s Relationship Commerce model has proven so successful and scaled so quickly, PetSmart spun off part of its stake in the company in preparation for an IPO. (PetSmart will remain a majority owner of the company.)
But if the success of Chewy is a clear harbinger of where brick-and-mortar retails must go in order to grow their businesses, the recent troubles at some other retailers offer up an object lesson from those retailers who are not engaging with Relationship Commerce.
Companies across the retail spectrum who’ve failed to successfully navigate the growing customer expectations for personalized, low-touch retail experiences have seen sales, as well as stock prices, crater in recent years. But as the success of Chewy demonstrates, there is a path forward for legacy retailers in this strange, new landscape — they must create relationships with their customers, not mere transactions.