In June, PetSmart spun pet e-tailer Chewy (NYSE:CHWY) off in an initial public offering (IPO). Almost all companies don’t, therefore the “moat test” is a powerful filter. How come this question so vital? That central concept is the foundation for my five-minute analysis of any company to determine whether it’s worth a closer look. Let’s apply that evaluation to Chewy’s offering prospectus, a legal record describing the stock offering and the paperwork that companies must document with the Securities and Exchange Commission before going general public. Image source: Getty Images. Does Chewy’s offering prospectus point out “competitive benefit”?
We also have had the opportunity to compete effectively by differentiating ourselves from our competition by providing a huge selection of high-quality family pet food, treats and supplies, competitive prices, convenience and exceptional customer support. In particular, an essential component of our business strategy is to rely on our reputation for exceptional customer support.
Chewy promises here to truly have a competitive advantage, but, initially, there is certainly little to support the claim for the reason that paragraph. We are able to surmise that there are other companies offering (or can handle providing) a huge selection of high-quality family pet products at competitive prices, topped off with convenience. Still, Chewy has very wisely chosen to zero in on customer service as a differentiator. Of all competitive factors it mentioned above, exceptional customer service is arguably the most challenging to replicate.
- Rs. 980/- per annum
- Creative Destruction – New jobs are manufactured, others are lost
- 0 5 < B None < BBB levels 0-20 (Very Unsafe)
- 2 Investing in Fixed-Income Securities (Bonds)
As an outcome, many, if not most, companies develop haphazard corporate cultures that lack purpose and persistence. All corporate executives pay lip service with their customers, but many companies fail to put the client at the center of their decision and actions making. Superlative customer service and a corporate culture that demands and enables it are unquestionably competitive advantages. If we can find proof that Chewy possesses these attributes, it has the potential to become good or great long-term investment. At Chewy, it’s clear that the client isn’t an afterthought but is instead in the centre of the company’s preoccupations. We are a passionate group of individuals who love dogs of most breeds, types, forms, and sizes.
This is no idle boast, and the data for the claim isn’t difficult to find in the prospectus. For example, the company sends every new customer a handwritten welcome card and transmits bouquets to customers who’ve lost a family pet. Every week, thousands of customers get hand-painted portraits of their household pets (the portraits can’t be purchased — recipients are selected at random). It’s difficult to imagine Amazon — aside from Walmart — heading to such measures to support a single category (albeit a good one like the pet industry)! The evidence of outstanding customer support isn’t purely qualitative, either, with customer satisfaction driving enviable financial characteristics. Can Chewy Prove It Can Run With the Big Dogs?
A preliminary analysis suggests that family pet e-tailer Chewy will indeed have a competitive advantage in the form of superlative customer service and a business culture that enables it. Does this mean you should hurry to buy Chewy shares? Not so fast. A good great company can turn out to be always a disappointing investment if it’s purchased at the incorrect price. Nevertheless, business quality trumps valuation within the long term, and Chewy appears to rating well on the former, which deserves a spot on the long-term investor’s watch list (along with further research).