In its early days, Chewy.com took a risk with their logistics that could have jeopardized the company—but it paid off.
In late 2013, Ryan Cohen, cofounder and then-CEO of online pet products retailer Chewy.com, was facing a decision that could determine his company’s future. Should he stay with a third-party logistics provider for all of Chewy.com’s e-commerce fulfillment or take that function in house?
BRIAN KENNY: Mm-hmm. We’re going to talk a little bit more about each of those as we get further on to the conversation because it’s not… They’re all very complex and there’s good and bad to each of them. I’m curious as to why you decided to write this case. You’re not a current pet owner, but what intrigued you about the Chewy situation enough to write a case about it?
JEFFREY RAYPORT: Well, it’s a fascinating question because one version of it, this is not what Chewy would say, but just among us here in the HBS community.JEFFREY RAYPORT: I mean, have we ever seen a more commoditized category of essentially grocery like goods? How do we know that? Well, the single largest channel in the country for pet food and supplies is the grocery channel.
BRIAN KENNY: Mm-hmm. We haven’t really talked about the big box competitors that Chewy deals with. These are places where you can walk in and all the products are right in front of you. What does the competitive landscape look like when you bring those guys into the mix? JEFFREY RAYPORT: They were running the business essentially on what’s referred to as a purchasing card. It’s a credit card for which you don’t revolve credit. You’ve got to settle it every week. It’s granted only to businesses. They had an $800,000 credit line that they were maxing out every single week, so this business was in effect, running on fumes. Just before the time of the case, they’d managed to raise $15 million from, in fact a Boston-based VC firm called Volition.
BRIAN KENNY: Right. Can you talk a little bit more about Pets.com? You mentioned it a couple of times, it’s brought up in the case. I’m wondering, that was a cautionary tale for these founders. What did they learn from that and what did they do differently maybe than Pets.com did?
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