4 Things All E-Tailers Can Learn from Chewy’s $3.35 Billion Acquisition

Posted on April 21, 2017

Petsmart recently announced an acquisition of online pet retailer Chewy’s, raising a lot of eyebrows.  The under-the-radar retailer generated $900 million revenue last year and is on pace to make $1.5 billion this year.

Here are four things all e-tailers, large or small, can learn from this acquisition:

1. An Obsessive Focus on Customer Service by E-Tailers Drives Loyalty

When e-tailers are selling a commodity, you must find a way to stand out and engender repeat purchase behavior.  In a recent interview with Forbes,  Ryan Cohen calls their customer service strategy “Zappos on steroids.”  A relentless focus on customer service is perhaps the most reliable way to build lifetime value.  Three of the largest acquisitions in the history of ecommerce relied on this strategy — Zappos (sold for $1.2 billion to Amazon), Bonobos and their customer service ninjas ($300 million acquisition by Wal-Mart in progress), and now Chewy.

2. Subscription Commerce is Powerful

Another way to generate repeat purchases is by selling subscriptions. Business models with guaranteed recurring revenue are quite powerful.  Again, there are several examples — Chewy’s dog food subscription service, Dollar Shave Club’s monthly razor blade subscription ($1 billion acquisition by Unilever), and Ipsy’s monthly makeup box subscription (reported to be worth over $500 million)

3. E-commerce Acquisitions are Driving Continued Venture Capital Investment

Despite the rumors to the contrary, e-commerce venture capital is not dead.  With the recent exits of venture backed companies like Dollar Shave Club, Chewy, and Jet.com ($3.3 billion to Wal-Mart) a flood of new investment capital will likely roll into the space.  This anticipated new capital will join the incredibly smart money deployed by superstar investors Kirsten Green and Eurie Kim at Forerunner Ventures and Jeremy Liew at Lightspeed Venture Partners.  Wal-Mart, under the aggressive leadership of Jet.com’s Mark Lore, is a new entry to the space already spending close to $4 billion on acquisitions in the last 12 months.

4. A Powerful E-commerce Platform is a Must

Without exception, every ecommerce high-flyer uses a highly customized ecommerce platform that is optimized for customer acquisition and user experience.  I’ve written about the deficiencies of off-the-shelf ecommerce platforms in the past, and I firmly believe there will never be a company that scales to the level of the companies referenced here using simplistic platforms like Shopify, WooCommerce, or BigCommerce.

I speak from experience here — when I built my last ecommerce business, our custom platform was a critical part of our success.  Our system allowed us to grow from $1 million annual revenue to a $100 million run rate in under a year.  In the process we acquired 8 million Facebook fans, 11 million email subscribers, 56 fulfilment robots, and raised over $100 million in venture capital.

Through my conversations with hundreds of ecommerce entrepreneurs, I’ve noticed an interesting trend.  As stores approach $1 million in annual revenue, their dissatisfaction with their current ecommerce platform grows exponentially.  My team calls this the “million dollar ceiling.”  This phenomenon explains why half of all online stores are looking for a new ecommerce platform.

I believe so firmly in the fourth item, that I’m building a custom ecommerce platform for stores looking to grow – Engine is our newly-released marketing-centric ecommerce platform.  If you’re contemplating a re-platforming for your store, I’d love to chat about the “revenue secrets” we build into our stores,  email me john@engineinsights.com.