Chewy is a relatively new company in the segment of national retailers focusing on pets, but it’s managed to grow into one of the leaders in the industry.
Chewy has done this through many ways, one of which is keeping costs low. I did some research into how Chewy manages to be so cheap, so keep reading to see what I learned!
Why Is Chewy So Cheap In 2023?
Chewy is cheap because it’s a newcomer in the pet retail segment, so the company needs to keep costs low to attract customers in 2023. Chewy has managed to have cheap prices through a combination of strategies to its shipping policy, warehouse, and fulfillment center locations, products and services, overhead in terms of personnel and real estate, and more.
We looked into the different strategies through which Chewy has managed to remain so cheap, so keep reading to learn the following 10 reasons behind Chewy’s success as a bargain retailer!
1. Being Fully Online
Chewy only operates via the company website, and doesn’t have any physical stores anywhere.
This helps the company keep costs low, because it’s not worried about the cost of keeping physical locations going.
For Chewy, expanding just means adding more items to the catalog, and the odd fulfillment center or warehouse every once in a while.
2. Tying Bulk Buys to More Savings
Chewy has a lot of measures in place that encourages customers to buy in bulk, as opposed to only making small orders.
One of the most popular ways Chewy does this is through its free shipping option, which gives you unlimited free shipping on orders that are above $49.
This makes buying many items at once to get free shipping a smart move.
Chewy also has the Autoship program, which lets you set up regular deliveries for items you use frequently.
Also, having automatic deliveries where you don’t have to consciously pay every time makes it easier to set up a large order and just have Chewy charge it to your card.
3. Using Third Party Shipping
Chewy uses FedEx Home Delivery and “other premium shippers” to deliver orders to its customers.
By using a company with an established network of drivers and its own fleet, Chewy can keep costs down by not having to develop its own from scratch.
To illustrate just how expensive this would be, Amazon Logistics is Amazon’s own delivery network, and it could easily cost upwards of $50 billion per year to operate.
4. Maintaining Relatively Small Scale Operations
Chewy manages to keep its cost of doing business lower than competitors by having fewer expenses, and this usually translates to customer savings.
Because the company only has an online store, Chewy has cut down on the amount of personnel it needs to run.
Without having to worry about the salaries of store employees like cashiers, cleaners, associates and more, Chewy can save more money.
Chewy also has a limited delivery network, only shipping within the contiguous United States, not including Alaska or Hawaii.
This way, Chewy only has to worry about ground shipping. Because the company doesn’t cross borders into other countries like Canada, it avoids having to pay customs fees.
What comes out of this is significantly cheaper and easier to manage shipping than competitors, with a flat fee of $4.95, and free shipping for orders over $49.
5. Receiving a Boost in Financing
When Chewy was bought by PetSmart in 2017 for $3.35 billion, the transaction was paid for in all cash.
This allowed Chewy to receive a significant bump in its funding, and the company managed to grow a lot faster in the time since.
Moreover, the deal allowed Chewy to maintain operations as usual, meaning the transaction was even easier to integrate into its plans with little hassle.
6. Having a Year Round Business Model
Chewy sells products that pet owners need throughout the year, meaning it doesn’t have to try and fit all its business into certain seasons.
By having a regular source of income, Chewy can afford to keep prices low because cash flow is more reliable.
7. Making Cheap Part of Its Growth Strategy
A lot of new companies, Chewy included, have to keep their prices low in their first few years of operations in order to attract customers, so they can eventually become profitable.
As of now, Chewy is taking a lot of the money it earns and is reinvesting it back into the company’s growth, including advertising, distribution, and improving stock.
This is a tried and proven strategy, because Amazon took 14 years to become profitable, instead focusing on growth first.
8. Buying Goods in Wholesale
Chewy buys the products it sells directly from the manufacturers and in wholesale numbers, so the company gets better deals that translate into lower prices for customers.
By partnering with some of the biggest brands in pet supplies in the country, Chewy can get even better deals than its competitors.
9. Having National Coverage
Chewy only ships to the 48 contiguous US states, but it has a delivery network that makes it easier and cheaper to make the shipments.
Chewy currently has warehouses and fulfillment centers in 11 states spread out all over the country.
Therefore, the company is able to ship anywhere within its stated region of operation fast and cheaply.
10. Having Fewer Services
Most of Chewy’s competitors with physical stores like Petco and PetSmart need to have additional services that draw customers into those locations.
These services include vet care, grooming, and more, and they all increase the cost of operations, e.g. through the salaries for the people that perform these services, for starters.
Chewy’s only services are remote vet care, where you can get tips over the phone or email, and this is cheaper to provide than the above alternatives.
Chewy has managed to be cheap by being a fully online retailer, which reduces the cost of doing business. The company has also expanded savings via this strategy by using third party shipping, and buying products directly from manufacturers in wholesale.
Chewy is likely keeping prices down to focus on growth and building its customer base like Amazon did, when it took 14 years to become profitable.