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Chewy Makes a Big Push Into Pet Pharmacy and Telehealth Services

Pet sector competition is heating up, with Walmart (NYSE: WMT) announcing a new set of pet services today and Petco Animal Supplies filing for an IPO last week. Now, online pet supply retailer Chewy (NYSE: CHWY) has joined the market share scramble with the announced expansion of its pharmacy and pet telehealth services, which will now include customized compounded medications.

Chewy's VP of healthcare Mita Malhotra said in a statement the company "is uniquely positioned to make pet healthcare more accessible and affordable for every American household." The medications will be prepared and shipped based on veterinary recommendations, but Chewy is also planning to expand the service to vet clinics so personnel there can order the medications directly for clients.

The move comes just a few weeks after the company launched its telehealth services for pets, connecting pet owners and veterinarians over the internet for remote consultation and diagnosis while the coronavirus pandemic continues.

Image source: Getty Images.

While Chewy is positioned in a rapidly growing market, it faces some troubles. As reported by Pet Business, while its efficiency has improved with gross margin rising from 2016's 16.6% to 2019's 23.6%, its cost to acquire new customers has risen from $68 to $148 each in marketing spend.

The company is also having trouble keeping customers long term, with analyst Steve Ripplinger reporting a 33% churn rate for Chewy. The figure is even higher, 40%, for first-year customers. According to Statista research, the typical churn rate for online retail is 22%, meaning Chewy's rate is around 50% above average.

Whether Chewy's foray into pet pharmacy and telehealth will help improve customer retention or cost to acquire a customer remains unknown. The move isn't impressing investors yet, with the stock down approximately 2.5% today.

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Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool recommends Chewy, Inc. The Motley Fool has a disclosure policy.


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