Chewy went public on Friday, June 14th raising $1 billion in one of the most anticipated eCommerce IPO of late. With $1 billion in new cash in the bank the Florida based subscription eCommerce site seems to be on a collision course with Amazon that will likely continue to shape the US pet retail industry.
PetSmart, the majority owner Chewy will need to navigate a difficult eCommerce landscape they’ve shown little ability to predict. Same store sales are down for the quasi-parent company leading to questions about the sustainability of the brick and mortar stores and the PetSmart brand (read more here).
While Chewy has never turned a profit, investors seem to think their current focus on a singular industry combined with a growing subscription service have the potential to blunt long term logistic challenges. This, along with a significant level of cash on hand can give the eCommerce startup the time it needs to insulate itself against Amazon.
However, PetSmarts $8 billion debt load, their over reaching control of the brand, and an all out assault by Amazon and Walmart can quickly demonstrate how ineffective $1 billion is when you’re going against the big boys.
While everyone in management seems to be distancing the PetSmart brand from Chewy as much as possible — potentially to lessen the blow from a diminished parent company on it’s stock overtime — PetSmarts super voting rights are bound to bring it back into the spotlight in a not to distant, not too opportune time.
Chewy’s dual-class share structure means PetSmart and it’s private equity backers can own as little as 10% of Chewy while still retaining majority control of voting rights. Expect this to cause headaches when PetSmarts debt begins coming to term and they look for ways to pay it off while still controlling Chewy.