If you haven’t heard of Chewy, you aren’t alone. But PetSmart, the retail giant with more than 1,500 stores across the U.S., has clearly been tracking the low-flying, five-year-old pet supplies company. According to Recode, it just agreed to purchase its young rival for a stunning $3.35 billion, just slightly more than Walmart paid for Jet.com last year.
This editor only heard of Chewy for the first time last fall, when talking with one of its earlier investors, Larry Cheng of the Boston-based growth equity fund Volition Capital; Cheng had written the company one of its first checks, $15 million for its Series A round in 2013, and the company had been quietly growing like a weed, he’d told me.
That began to change, by design, late last year, when Bloomberg wrote a long profile about the Dania, Fla., company and the $236 million it had subsequently raised from investors, including BlackRock and New Horizon, the venture arm of mutual fund T. Rowe Price.
Its chairman, billionaire e-commerce veteran Mark Vadon, said that it was on his advice that the team had kept a low profile. He said he’d told CEO Ryan Cohen and CTO Michael to “lay low . . . to better to avoid competition.”
It was something of a feat. By the time Bloomberg published its story, the company had more than 3,000 employees and more than $880 million in annual revenue, though as of late last year, at least, it remained unprofitable.
Its apparent key to success: personalization, from writing customers hand-written thank you and holiday cards to dedicating roughly one-sixth of its employees to customer service so pet owners’ questions could be answered quickly.
Free shipping on orders over $49 also seemingly helped.
In fact, according to Bloomberg, at the time its article was published, it was talking with Goldman Sachs about preparing an IPO this year.
No doubt Walmart and Amazon were following its moves, too. A January profile in Forbes reported that Chewy controls 43 percent of the online sales of pet food and litter in the U.S., just behind Amazon’s 48 percent.
Apparently, that kind of traction was too enticing for PetSmart to resist, and it’s no wonder. The company was taken private for $8.7 billion in 2014 by the private equity firm BC Partners, and it’s been shifting more of its business online every since in an overhaul designed to fuel its future growth. Indeed, in a statement today, company CEO Michael Massey said of the deal, “Chewy’s high-touch customer e-commerce service model and culture centered around a love of pets is the ideal complement to PetSmart’s store footprint and diverse offerings.”
The acquisition is expected to close by the end of PetSmart’s second fiscal quarter of 2017.
Cohen, who dropped out of college to become an entrepreneur, will continue to lead Chewy as an independent subsidiary of PetSmart.
