Amazon has completely disrupted the world of commerce. They have destroyed thousands of brick and mortar companies, wiping out billions of dollars of value. They have become so dominant that on the surface it looks impossible for anyone to win in the retail space (virtual or brick and mortar).
PetSmart, Chewy and More
This comes from a story in the Wall Street Journal where you can read the long version (likely behind a paywall).
In 2015 PetSmart was purchased by BC Partners in a leveraged buyout. In the first year of ownership, they were incredibly successful at making operational improvements, making the buyout look brilliant.
Then over a period of just 3 weeks, sales went from flat to down nearly 5%. Investigation showed that Chewy, an online pet store founded in 2011, was the culprit. They were creating such a great customer service experience that they were clobbering online retailer Amazon’s pet business and PetSmart’s retail locations.
A Massive Problem
This was a huge threat to PetSmart, one that seemed impossible to overcome. The choices were to hold on and pray for things to get better (a kind of senior living approach) or start their own online business, except that Chewy was already so far ahead that it would mean competing with both Chewy and Amazon, a likely impossible task.
The High-Risk Solution (or maybe not so high risk)
They took a huge risk, approaching the founder and investors of Chewy about selling the whole thing to PetSmart. Pretty much everyone thought they were nuts. It meant taking on an additional $2 billion in debt on top of the $6 billion they already had.
Then for months “sales at PetSmart, which is profitable, continued to sag, and losses at Chewy mounted, even though its revenue skyrocketed.”
It turned out to be a brilliant move. Chewy went public and is now worth $11 billion dollars (against a purchase price of $3.35 billion). Both companies are profitable.
Senior Living is perhaps like retail and PetSmart. It seems clear that things are broken. There is largely a sense that just holding on until the demographic headwinds hit is the way to go, the low-risk strategy. The problem is that we are selling a product that is getting more and more expensive and that, mostly, people don’t want.
Mostly even the people in the senior living industry don’t want it. Just today I got this from a reader; “I know I never want to live in a senior home and fortunately I can’t afford even the great ones”. This is a real problem.
PetSmart or Toys R Us?
PetSmart or Toys R Us is the very real challenge that senior living faces. Don’t get me wrong, there will always be a place for some form of the traditional senior living community that is the bulk of today’s industry, but there is disruption coming. The question is whether or not operators in the space today will be like PetSmart and do something big bold and radical.
Purchasing Chewy was not actually the big risk play but doing nothing would have been. I am fearful this is equally true for senior living.
He made the point that PetSmart took a look at Chewy to figure out what they were doing to be successful. As was the case when Amazon acquired online shoe retailer Zappos, Petsmart recognized that Chewy had huge growth potential, a distinctive culture, and a fanatical devotion to customer service. Rather than compete with Chewy online, they saw greater long-term value in acquiring the company.
Dan suggested that senior living companies start looking at companies that could potentially help them reach other segments of the older adult market, particularly those addressing needs and desires beyond comfort and care. “Focusing mostly on care-based products and services ignores a potentially huge market for us: helping older adults continue to live purposeful, engaged, growth-oriented lives.”
If the senior living industry continues to focus almost exclusively on real estate models that haven’t achieved much traction in the current marketplace, says Dan, we run the risk of being relegated to the backwaters of the Longevity Economy as baby boomers become our primary customer. Instead of acquiring larger portfolios of current product models, companies might look for businesses focused on addressing other emotional needs.
“There are so many older adults out there who are perfectly healthy, cognitively sharp, and engaged in living a purposeful life who will never choose what we currently offer. This is a huge market. If we truly wish to serve more people, then we need to ask ourselves what our job should be and consider offering products and services that address needs beyond housing and health care.”