49BloombergBusinessweek November 23, 2020
when the company went public. Yet
when Chewy’s registration statement
became public, it showed that Singh’s
award had its own vesting schedule: He
could pocket 25% of his shares on the
day of the IPO.
In an internal email reviewed by
Bloomberg Businessweek, Singh told
his team he’d fought “very hard” for
them in negotiations with Chewy’s
controlling shareholder, BC Partners.
He also said his own vesting was justi-
fied: The payout depended on factors
beyond his control, such as the stock
hitting certain price thresholds. But
other executives’ payouts were tied to
the same benchmarks. The company
says the new plan “has generated expo-
nential returns” for shareholders and
employees alike.
On the day of the offering, Chewy’s
shares jumped 59%, to $35, tempo-
rarily ballooning the paper value of
Singh’s equity award to $139 million.
(Chewy says Bloomberg’s calculation of
Singh’s 2019 compensationis inflated,
becauseit includessharesthathaveyet
tovest.)Thesharesslidbackandhov-
eredatabout$30untilthecoronavirus
invaded the U.S.Singh was attendinghisdaughter’s
school fair onFeb. 29 whenhetook
an urgent callfromhischief supply
chain officer. Customerdemandhad
spiked over thepasttwodays,even
though Chewywasn’trunningspecial
deals. “OK,” Singhsayshethought.
“Something is abouttobreakloose.”
Over the nextfewweeks,inventories
that were normally99%stockedsud-
denly declinedbyasmuchas23%.It
was like the holidayseasonhadarrived
unannounced. “Ourbackloglevelswere
higher,” Singh says.“Ourcustomerser-
vice levels starteddegrading.”
Grooming products,forexample,
were in especially heavy demand,
because groomershadclosedtheir
doors and owners wereopting to
washandcliptheir
pets themselves.
LuckyforChewy,it
had stocked up in
late 2019 toprepare
fortheChineseNew
Year in January,
when factories in
China that supply
those and other
goods would shut
down. Chewy also
regularly reserves
ample stocks for
itssubscription,or
autoship, clients,
which effectively
shieldedabouttwo-
thirds of the com-
pany’s business
from acute short-
ages. Algorithms
were tweaked so
customers could
more easily find dif-
ferent brands and
sizes if their pre-
ferred choices
weren’t available;
that had the addedbenefit of attracting fresh eyes to
Chewy’s private-label offerings. The
company also created a free online
chat service that connected autoship
customers with veterinarians.
Shipping was “the monster,” Singh
says. The company might have some-
thing a customer wanted, but in a ware-
house on the other side of the country.
During April and May, deliveries were
taking as long as nine days. Chewy
started splitting orders into multiple
boxes, using express shipping, and tak-
ing other measures; the added cost
was about $20 million. All of this was
done to protect the company’s rela-
tionships with customers, Singh says. It
worked. When new ones complained on
Facebook, long-time customers jumped
to Chewy’s defense.
Six thousand workers joined Chewy
this spring. The company says it tem-
porarily increased wages and benefits
to attract new people, most of whom
were deployed in the warehouses. Some
shifts doubled in size.
Chewyprojects its sales for the
current fiscal year will approach
$7billion—up more than 40% from 2019
and about what Cohen forecast before
he left. The obvious question is when
Chewy will turn a bottom-line profit.
In an email to Bloomberg Businessweek
addressing that, Singh attached a
photo of a diagram he’d drawn on a
whiteboard with blue and red mark-
ers. A big circle labeled “growth and
profit flywheel” illustrated the cycle of
existing customers generating cash to
lure new ones and expand offerings.
An arrow pointed to a word in red:
“PROFITABLE!!”
It doesn’t indicate when, but Singh
says the company is on its way. The
cost of marketing relative to revenue
has been falling, the private-label and
pharmacy businesses are thriving, and
Chewy has said it could post a profit
for fiscal 2020 of as much as $20.4 mil-
lion, albeit without counting charges
forinterest,taxes,depreciation,and
amortization.Thatwouldpresumably
begoodforshareholders, including
Singh. As of Nov. 16, his equity award
had swelled in value to $256 million. <BW>Tylee, an inspiration for
Chewy, with company
co-founder Cohen