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Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show. Because every Friday, we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely, from Ford's CEO to NASA's administrator to the lessons from the Devil Wears Prada.
It takes about 10 seconds to find. Just search Rapid Response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. I could not look back and say that we predicted it, nor could I say that we've actually seen it all the way through.
Pets is the only category in retail where customers refer to themselves as pet parents. The only other category you do that is kids. We're fairly confident that, look, we're about to be put into a position which is going to be unprecedented and something that we're going to have to prepare for and be accurate when you do. Leadership, or lack thereof, at least in my opinion, is most visible during a crisis like this.
Chewy is a nine-year-old company. And in nine years, we've had nearly $5 billion in revenue. It's switched from, hey, pets are happy. This is a happy and healthy world, too.
We're here for you. And find moments of comfort with your pet during this time. Really relevant innovation during the time. It's an incredible thing to come out with in the innovation spirit across the company.
That was Sumit Singh, the CEO of Chewy, the online pet food and pet supply retailer. If you're one of the millions of Americans with pets, or you've adopted one amid the pandemic, you know how therapeutic having a little friend at home can be in a crisis. But even if you're not a pet person, Sumit's experience is instructive. On today's episode of Master to Scale Rapid Response, Sumit explains how his team is helping customers care for their pets while caring for each other, too.
Business at Chewy is booming. At the same time, Sumit has installed infrared sensors at Chewy fulfillment centers and had to cope with team members contracting the virus. He's had to calibrate how much of today's growth will persist and how customer habits might be permanently shifting. This is Bob Safian, your host for Rapid Response.
Sumit says we need the agility of a sprint and the endurance of a marathon. Let's hear how he's working to bring that to life. I'm Bob Safian, and I'm here with Sumit Singh, CEO of Chewy, the online pet food and pet supply platform. Like many businesses, Chewy's been dramatically impacted by the coronavirus lockdown, in their case, by rising demand.
Pet adoptions have soared as people seek more sources of companionship and solace. And Chewy now has 13,000 employees with plans to add another 6,000 to 10,000 people by the end of the year. The stock price is also up. So Sumit finds himself in the favorable but complicated position of trying to scale amid the crisis.
He's coming to us today remotely from Chewy headquarters in Florida, as I ask my questions from my home in New York. Sumit, thanks for joining us. Hi Bob, good to be here. So I have to ask you this.
Most of our guests have been interviewed from their homes where they're sheltering. You're at the office. So I'm curious, is it crowded there? Is everyone keeping six feet apart?
What is going on at the office there? I think I'm the fourth person in this office. So it's incredibly quiet. Well, seven if you consider that we've got three dogs out there.
So it's seven of us, four dogs, and three humans. And it is incredibly quiet. We've got two headquarters here in Florida and Boston, and our team's been working from home for the last six weeks. So it's all good so far.
How did the coronavirus first come to your attention? Was there a moment when you realized it was going to change everything in our world, in your business? Was there some spark, or is it sort of gradual? I was in Singapore in the December-January time frame.
And as I was exiting Singapore, I started hearing about, hey, there's something like the coronavirus that's emerged in Asia. And like most leaders, I didn't really pay attention to it. It was something to just watch out for. Life seemed as normal.
Then one Saturday in mid-February, I was attending my daughter's school function. And my chief supply chain officer called me and he said, hey, demand's starting to spike in backlogs building. We've seen this pattern now for the last four days. And we're trying to look into it, and we can't really sort of explain.
There's no new marketing out there, et cetera, et cetera. So as we started looking into it, even then, it didn't really hit us up until a week and a half later when the news started breaking out. So that was sort of our introduction to it. But I do remember saying two things.
I said, one, if there's something going on here, it's like the first wave of three to come. Because you've got to know about living in Florida, one thing that we're used to is hurricanes. And it's kind of the pattern that we see in a hurricane, right? It's the first wave of customers who go to the grocery stores and clean out those aisles.
And so we're sort of trying to correlate here what exactly is going on. And we noticed that our active customers were just, our basket sizes continue to grow over the last four or five days. And we're like, well, this customer is definitely stocking up in the early days. So that's really how it started.
The second thing I said was, there's two more waves coming. And if there's something going on here, we've got to protect the supply chain for what might be a prolonged outbreak or crisis. But honestly, I could not look back and say that we predicted it, nor could I say that we've actually seen it all the way through. So we've been playing a playbook that really hasn't existed so far.
So what are the next two waves? The first one is sort of the core customer increasing their size of purchase. What are the next waves? Who's coming next?
So the first wave was when this thing broke out in Washington and the folks who heard it across the home to 93% of Americans staying at home. So sort of the two weeks in that mid-March time frame was the second wave. And I think the third one we've yet to see. We've yet to see because depending upon how long the pandemic lasts, this is going to alter not only hots and mines, but behaviors of folks in a way that pattern changes, in a way that seasons change here.
And nobody knows how this thing is going to play out. So I think there's a third wave post what we're living in right now. And so we kind of wait to see what that becomes through the experience of it. People without pets might not necessarily think of Chewy's products as essential.
Did you immediately say like, hey, we're essential workers here. This is part of that same strain? Pets is the only category in retail where customers refer to themselves as pet parents. The only other category you do that is kids.
And so the fact that pets are like family members to us, and there's 100 million households out of 160 in the U.S. who have pets. Yes, we're fairly confident that, look, we're about to be put into a position which is going to be unprecedented and something that we're going to have to prepare for and react very quickly to. So I'd love you to take us through the implication of the rising demand on your business.
And you're talking about this through February and March. And I assume it's persisting, getting more product in, adding more people, more distribution centers, there's safety questions. How did you decide what to do and what to do first as you were going through it? Leadership, or lack thereof, at least in my opinion, is most visible during a crisis like this.
Why? Because pattern recognition fails in a crisis like this. And that's when the true test of leadership or team and leader actually begins. So let me explain that.
So good leaders are able to look around corners and plan accordingly. They also, like a chess grandmaster, are adept at recognizing patterns and reacting to those quickly. Here in the COVID crisis, both were somewhat absent, or incredibly foggy at least. So the playbook has had to be invented along the way.
So how did we start? Coming out of that first phone call in late February, we internally immediately set up a COVID called a SWOT team. Ranks didn't matter on the SWOT team, only expertise did. And we assembled a team of seven people across the company who represented core communications for the company, customer service, fulfillment center, HR.
And we started saying, look, what are going to be the elements of playbook that we are going to have to play out here? And we didn't know. So the only thing that we knew was we've got to start communicating with our teams early on. And that's what we did.
So that came first. Initially, we assembled our 160 leaders who are directors at Chewy, of the 13,000 people that we have. And we met with that team and we said, look, we're starting to hunker down. We're starting to plan for this.
Here's everything that can be expected. That quickly shifted to us updating policies in our fulfillment centers and customer service sites and across corporate. That has then evolved since into appropriately providing appreciation, wage increases, or short-term bonuses for people to allow them to not only work, but work a little bit more stress-free, materially increase levels of sanitation and cleansing across our facilities. By materially, I mean visibly materially.
And the reason these kinds of steps are important is because trust is incrementally built. And so when people don't see or can't see what's coming, they've got to see you out there communicating clearly and taking the necessary actions so they can trust the system, that the system will work when something happens. And that's essentially what we're doing. And then finally, we've been able to figure out what from home for our customer service teams.
We're proud in the way that we managed it. Our fulfillment centers continue to run without material disruption. And our customer service teams and corporate teams also continue to march forward. I saw one of the news reports about infrared temperature checks in your warehouses.
How does that work? What does that mean? Yeah, we've been mulling over this for a while and we've been watching the news. We've been following what everybody else is doing.
Because again, absence of pattern recognition, what you can do is lean and benchmark from each other. And there really hadn't been so far a great solution out there. So we started thinking about, hey, how can we create a non-invasive, non-contact, distant, but also rapid temperature monitoring that will allow us to not slow us down. Because when a shift starts in a fulfillment center, if you're having somebody stand there and take temperatures, even if they're protected and secure, you're going to slow down that shift start by about an hour because you've got thousands of employees wanting to get in.
And so not only is it inconvenient, it's just not scalable. So we partnered with the right manufacturers. We've got technology that acts as a scanner and a camera that's actually positioned in two places. So there's a primary screen and a secondary screen.
And we've got these social distancing markers set up in the fulfillment sites. And we started testing it about a week and a half ago. So far, we've got it across half our network. And over the next week or so, we expect to be fully rolled out through the rest of the network.
So you feel like it's working. It's identifying the risk cases. We absolutely believe so. Yes.
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How do we build a future that is human-centered? I'm Rana Elkayubi, and on my podcast, Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future, and we take you behind the scenes of the AI that's transforming our lives.
Find Pioneers of AI wherever you tune in. Before you were at Chuey, you spent some time at Amazon. I know Amazon has had some challenges from some folks in their fulfillment centers feeling like maybe they're being pushed beyond their limits or they're being put in uncomfortable situations. Do you get anything back from your workers about things that they wish were a little simpler for them in this time?
Absolutely. We've gotten two kinds of feedback, and it's absolutely right to acknowledge that folks are due to rest. I mean, it's a time of due rest. And on the flip side, we acknowledge the fact that we'd rather be in this kind of stress, where obviously we have to care for the well-being and safety of our team members, but team members also realize that we're the platform that's been deemed essential.
So it's sort of, hey, we're lucky to be here, we're proud to be here, how do we manage that? And that's kind of been the sentiment, which is why the communication portion is so important, because people are afraid what they can comprehend creates transparency and creates trust. And we've been listening and adapting. So what are the two types of listening that we've been doing?
We got ahead of the curve initially when the CDC was still figuring out are masks important or not, are gloves important or not, or should it be mandatory or not. We said, you know what, we're going to roll them out. Not on mandatory basis, but we're going to make them available for our team members so that if you feel more safe and secure, here they are for you. And clearly, we've seen in the last two weeks that masks have now become mandatory across a lot of different places.
Number two, I think we heard their request for, hey, I don't have great daycare options, or I want to be able to work over time, but we don't have those kind of policies laid out. I don't want to be held for attendance during this particular time. And so we adapted to that during the COVID committee, which meets on a daily basis. So we've been making decisions daily, and our decisions have been employee-centric from that point of view.
Hasn't been enough? I think it's been enough to put enough in the bank from a trust point of view. And now we're in conversations with our teams constantly saying, how do we continue to evolve here? How do we take care of the network when it's shut down?
What are long-term policies? I think that's where people's focus is now shifting to. I mean, the reality with this virus is there's only so much you can do with certain things. I know you did have at least one confirmed case of COVID from someone in one of your Florida facilities, right?
And employees. I'm curious how you found out about that. Do you know how that employee is doing? Yeah.
First of all, they're recovering well. And we found out about it is this is the preemptive part of the process that we've set out and why I'm proud of the team. What we did here was we disincentivized people from coming to work if they're sick. And the way we did that is when we updated our policies, we updated them such that if you're sick, regardless of why you're sick, stay home and don't worry about your job, don't worry about the attendance, don't worry about the wages.
So what we had here was there was an individual who actually fell sick, who registered a temperature. And it was nine days before we actually found out that they had a confirmed COVID case. So that's kind of the time that we're dealing with here. So nine days prior, when we found out that this individual was sick, we sent them home.
Not only did we send them home, we actually proactively figured out who they were in contact with and quarantined everybody else. Not quarantine. And along the way, we were monitoring if anybody else felt sick and they didn't. We were able to very transparent to go back to the team and say, hey, here's what happened.
And it allowed us to have a great communication and keep the network open. Yeah. You mentioned earlier your call centers. I know you guys have 24-7 support.
That means you have call center people working all the time. Those folks didn't used to work from home. Now most of them are working from home. What changed?
We have never worked from home across corporate or customer service. And it's just not something that we've prioritized. Look, Chewy is a nine-year-old company. And in nine years, we've had nearly $5 billion in revenue.
Looking back, there are some things we would have done differently from a business continuity point of view, but this wasn't one of them. So we had to innovate really quickly. So now I'm on the second part of what leaders do or should do in a crisis. The first is communicate.
The second is innovate. And in this case, we innovated our product and tech teams internally, figured out a solution. And we created homegrown technology that we first applied to our writing portion of the team. So agents who handle chat and email.
And so whatever 20%, 30% of the capacity, we actually took them off-site. And that was the first wave. With that wave, what allowed that to do is, one, the teams were immediately enthusiastic about the fact that you're caring for us, but now I can create space for social distancing for the rest of the agents that were on-site. And that's what we did.
And it brought us a little bit of time. So you could have more space between your agents that were still there. Exactly, exactly. So we removed the chair between the customer service agents and created as much social distancing as we could.
And now, since then, we've been actually able to also figure out how to send phone agents home. So at this point, over 90% of our customer service is working from home. Do you think, as you plan for the future, or you look to the future, will you have more people working from home in the future? Your call centers won't be as populated?
Is the model going to shift from this? Yeah, I think there's a lot of learning that is going to come out of this experience that all of us are collectively going through. And those dimensions of learning... are going to be across engagement, morale, productivity, experience, the challenges of figuring out coordination in an environment where you have to or are forced to or choose to work from home.
So I fully expect a great set of learnings and at least starting with customer service, which is really recent, I wouldn't think, why we wouldn't think harder to say, hey, this is a really plausible solution, both from an agent experience point of view and a company acumen point of view. That's interesting, the things that you discover like, oh, we could have done this before, but there were other priorities. I can imagine a lot of your priorities now are about supply chain. I know you guys distribute product from other folks.
You also manufacture product yourself. How have you looked at and managed that side of the business? Yeah, so we've done a couple of things. One, 70% of our sales are consumable products, which you would consider food, treats, and general consumables.
And most of that supply chain is here in the United States. And so we've seen little disruption in the core supply chain for our suppliers. The demand shock has actually impacted everybody. And with the elevated demand shock, we haven't had chronic out-of-stocks, but we have had a certain portion of our portfolio that's been out-of-stock for a temporary period.
What we did there was we actually quickly updated our recommendation engines and essentially allowed people to self-select into different brands, different sizes, different patterns. So the impact overall was muted there. Because you spread people over the product that you did have available. Exactly.
And we offered choices, and we found that people during this time were a little more experimental in picking up something because it's the need of the hour versus totally discretionary about, oh, I'm going to pass that on because I just don't like it right now. And so I think the impact there has been muted. On the hard goods side, which you would consider toys and crates and gear and stuff like that, there, I think the timing of the event was such that most of our supply chain is international, about 20-30% of the volume. And that was planned conjointly with the Chinese New Year.
So we got lucky and we were able to get ahead of that. So it's a combination of planning and a bit of luck that we've been able to manage it so far. Your site, I was on there yesterday, and there's a note that says delivery times are longer than usual. I'm curious, who do you deliver through?
How much control do you have over that? Or is that just the way the delivery system is working right now nationally? Yeah, it's actually not our transportation partners who are the cause of that. It's our own fulfillment center backlog.
Again, elevated demand pattern. Here's what happens. Think about the fact that in the United States, the e-commerce demand really peaks during the Q4 holiday season. Everybody knows that retail is really hot during the Q4 November, December timeframe.
But that is a predictable search. You plan for that. I mean, right now, we're talking about demands of those levels that have actually shown up to your doorstep unannounced, and you don't know how long they're going to last. So what do you do there?
Well, you react to it. You let backlog build up, and you care for the team members, but at the same time, you communicate with your customers as honestly as you can and expect and hope that they would understand during this time. So we're doing both. Directly, investing in the fulfillment center network, and that's where the comment of hiring up to 6,000 people in the fulfillment center network comes from, because those are the hourly associates that we will bring in to help knock the backlog down.
And in parallel, we've been communicating with our customers, and this is an important one for us. Customers are disappointed if you surprise them. We're already disappointing them in longer deliveries. If we were to surprise them and not communicate with them, that would be worse.
So at the very least, we're managing customer expectation, and what we found is customers have this made empathy towards the brand during this unprecedented time. As you're talking about this, you also have to be, in some ways, like, thinking about what the return to normal is, right? You bring on all these folks. There's this surge in demand.
How much of that demand do you know is going to stay? Are you doing the risk of overexpanding? How do you calibrate that in this environment? Yeah, I think a couple things are known to us.
We've always known, at least for those of us who operate in the sector, that there is a secular shift that's happening from retail to online. What this crisis will do is, A, it confirms the acceleration of that shift into online. So I do believe that there will be a genuine hearts and minds shift, a behavior shift, from the consumers who are shopping retail to those who are now trying out new services. People are trying home delivery, people are trying e-commerce services.
We're even trying virtual services through content, and all of those industries are kind of seeing the demand lift. So that part I expect to continue, which then says, hey, we should definitely expect the continuation of demand patterns. The hard work here is going to be, depending upon how long the pandemic lasts, the permanence of behavior shift is what I think needs to be seen. It takes seven repeat occurrences to essentially institute a behavior change in the consumer's mind.
Does it last that long? Does the consumer get trained this well? Does our service hold up to their expectations and standards? And we hope so.
And if not, then I think the team's staying ready to deploy a set of market actions to be able to turn these customers over acquiring now to become long-term customers. Well, the investment markets certainly seem to be with you on this. Your stock is up about close to 50% this year, and there's an irony in expanding when other folks are contracting. I know your company has donated $4 million in products to relief efforts, including $1 million last week, to the Humane Society.
But I'm curious how you manage this emotional trade-off that these are good times, even boom times in some ways. Yeah, let's ride it. Let's enjoy it. Let's take advantage of it.
And at the same time, whoa, people are getting sick, even on your own team. How do you temper all of those things together? Yeah. Now, more so ever, it's important to remember your purpose for existence.
Our purpose is to be the most convenient, trusted destination for pet parents and partners everywhere. During this time, the difference in emotion inside the company is we're not excited to be here. We're proud to be here. The difference there is that there's a tone of optimism, which is essentially going to carry the company through this time of duress.
And we empathize, sympathize, and we are there for our customers as much as we are there for our partners. Our participation with the shelter community is a proof point of that. We're happy and proud that we are able to service that community. One of my colleagues asked me, do you think they have any survivor's guilt at these places that are doing so well?
Are there moments where you get waves of that, or is that something that you just have to deal with the reality of where you're at? I think you just have to deal with the reality. Internally in the company, it's not easy to keep your rational mind away from your emotional mind. I mean, it's unprecedented times.
We've got people who are working from home while homeschooling their kids. We've got folks who are coming to work because they're afraid, because they need the money. We've got younger team members who are hearing all these news about furloughs and layoffs and the word for their own future. I think there's appropriate stress in the environment, which is why the optimism is important, but you really got to live it on a day-to-day basis.
Yeah. You sound very calm, even though you're using the word stress. Are you stressed? What do you do to manage your own stress?
I'm not stressed. I'm optimistic. What I do to manage my stress is I take a walk in the morning, I'm an early riser, and I essentially get my exercise in, get my walk in, spend a lot of time with my family, and really lean on the team at this time. It's been great to see the camaraderie and the team spirit that has come through during this time of crisis.
I think we draw our strength from each other, from our families, from our team members, from our colleagues, and from all of those customers who are out there cheering and rooting for our brand to pull through during this time. I think that provides a lot of strength and helps you manage the stress. You mentioned your family. I know you have a four-year-old child at home.
I have to ask, do you have any pets? Yeah, I have a four-year-old child and a five-year-old shih tzu, so I have two kids, and I think out of this environment, kids under five or six years old and dogs likely are going to come out happiest, because they're getting so much attention, and mom and dad are working from home, so it's great. Well, before we wrap up, I wanted to ask, is there anything that I didn't ask you about that you wanted to touch on? I think the reflection on we're now in week number seven or eight, even though there was no playbook, I think when I look back, our playbook has been a combination of three things in my mind.
One is communication, number two is innovation, because nothing in a way is like a crisis, and third is perseverance. We've needed the agility of a sprint and the endurance of a marathon, and I think that's going to be important as we continue to navigate through this pandemic. It is hard in environments where things are moving quickly to be creative. People sometimes get tighter and pull back.
Have you seen a particular burst of creativity from places in your organization? Oh my goodness, it's all over the place. I mean, our customer service and product teams came together, and over a weekend launched 13 customer-facing innovations that are allowing customers to self-service themselves better at this point, so they don't have to wait in line to speak to an agent during this time. Our marketing teams have taken a completely new approach to communication with customers.
It's switched from, hey, pets are happy, this is a happy and healthy world, to we're here for you, and find moments of comfort with your pet during this time. Really relevant innovations during the time. It's an incredible thing to camaraderie in the innovations we're in across the company. Well, Smith, thank you for sharing your thoughts with us today and your time.
We really appreciate it. I'm Bob Safian, and thanks everybody for listening. Thank you. Masters of Scale Rapid Response is a Wait What original.
The show is recorded remotely using sanitized audio gear. It's hosted by me, Bob Safian, Masters of Scale's editor-of-large, and Masters of Scale host, Reid Hoffman. Our executive producers are June Cohen and Darren Tripp. Our supervising producer is Jay Pungjabin.
Our producer is Jordan McLeod. Scripts by Christina Gonzalez. Original music and sound design by Ryan Holiday and Daniel Nissenbaum. Audio editing by Keith J.
Nelson and Lena Sillison. Mixing and mastering by Brian Pugh. Special thanks to Emily McManus, Sarah Sandman, Adam Heiner, Kelsey Capitano, Tim Cronin, Charlie Manessis, and Saida Sapieva. Visit master2scal.com slash rapid response to find the transcript for this episode, and be sure to subscribe to our email newsletter.