Stockouts cost Chewy around $ 40 million in sales
- Back-out issues caused Chewy to experience missed sales estimated at $ 40 million in the last quarter, CEO Sumit Singh said on an earnings call Last week.
- Chewy’s inventories are down nearly 5% since the start of 2021 to nearly $ 490.9 million, a 9% increase year-on-year, according to the company’s financial documents. The company’s net sales increased nearly 32% year-on-year.
- Singh said the company didn’t have perfect visibility into the situation, but heard from vendors that additional capacity is expected to come online in the second half of the year to help alleviate inventory issues.
Supply chain issues have been causing inventory issues for retailers for months at this point. Increased consumer demand increases the need for inventory as a frenetic freight market is extend deadlines and make it more difficult for businesses to resupply.
The inventory-to-sales ratio fell to 1.23 in March, the lowest on record, according to the latest Census Bureau figures.
But Singh said things have actually improved for Chewy compared to last year.
âIf you remember, in the first quarter of ’20 we had a big backlog, increased demand, inventory imbalance,â he said. “And as a result, we had higher transportation costs. So it was not repeated, because our inventory is now more balanced, more aligned with the demand of our customers.”
The problem for Chewy relates specifically to canned pet food, he said.
PetSmart has also recognized a shortage of certain pet foods and told AARP he was working with transportation and manufacturing partners increase supply to meet demand.
Animal feed company Freshpet said it has started to benefit from additional manufacturing capacity he uploaded last year and says he’s producing more than the demand numbers he gets from Nielsen. It plans to increase its manufacturing capacity later this year. But its production was hit by winter storms in February, executives said during an earnings call last month.
âSince the end of the second storm in mid-February, we have seen (…) a strong rebound and consumption of shipments, retail availability and our production levels,â said Freshpet CEO Billy Cyr.
As producers see signs of increased capacity, retailers may soon see improvement in their inventory levels. And while Chewy has targeted the fourth quarter for the expected surge in supply, last week he “hasn’t seen any signs of slowing down yet,” Singh said.
Chewy’s chief financial officer Mario Marte said the company plans to build its inventory throughout the year. And Singh said the company uses “recommendation engines to help customers find compelling alternatives.”