The Exchanges, every show

Q Yeah. Well, maybe tell me why you started Chewy. How'd you get that idea? And how'd you get into building this business from where you were coming from at that time?

A We were, um, wanted to build something online and we were, uh, about to launch an online jewelry website. Did not know anything about jewelry. Went to a bunch of trade shows, bought hundreds of thousands of dollars worth of inventory. Built the website, had the distribution, and then I was shopping in a neighborhood pet store. Uh, I had a poodle, and I was going every few weeks, and It just hit me on one of my trips that I understood the product much better. It was a recurring revenue purchase. The market was still fragmented. The fact that there was still neighborhood pet stores at the time, and they had not been disrupted by Petco and PetSmart was fascinating to me. And then you had to eat, you had Amazon, which was established and had pet products since the nineties, but they hadn't really achieved real scale in the category. The vision was to replicate the same experience that I had at the neighborhood pet store, but do it online and do it at scale. And I looked at Amazon's best practices when it came to supply chain. So fast shipping, having a great selection, being competitively priced, and then the experience at the neighborhood pet store. Of knowing the products really well. And it was easy to be passionate about the pet category because I'm a pet owner and everyone we hired were pet owners. And the, it was all about market leadership as a low margin business. Hindsight…

AI assessment note: “It just hit me on one of my trips that I understood the product”

Q your plan for execution on that vision over the next several years? Or are you much more of a responsive manager where you're going to go in and diagnose and be much more of a tactician in iterating Almost in an agile way of the business to success. How do you kind of think about presenting how you're going to be more successful in operating this business than existing management?

A So there are three areas. Number one is on immediately improving earnings through cutting costs. And Pulling two billion dollars of costs out of the business and on the operating base of, you know, close to five and a half billion of expenses, um, and 2.4 billion spent on sales and marketing for essentially no user growth. Um, there's a lot of money to pull out there. So you have the immediate increase in earnings through cost cutting. That's basically one. And then There's two growth vectors that, um, I'm very much interested in. Number one is live commerce. And there's a large competitor that is completely crushing it. And eBay has the users. eBay has the brands. They have a platform, but the platform sucks for a lot of different reasons. Uh, And they don't have the content creators on the platform, and nobody even really knows eBay Live exists. There's like an application process. I talked to sellers and they're telling me like they've applied to be, uh, to be a seller and they are waiting to get approved. It's like they're basically stopping themselves from being successful and getting content creators onto the platform. Uh, and then the entire backend of eBay live also sucks. So live commerce, the TAM is like a four hundred billion. It's growing very quickly in the U S it's very popular in Asia and eBay live should be significantly larger. They shouldn't be the category le…

AI assessment note: “So there are three areas. Number one is on immediately improving earnings through cutting costs.”

Q And this is the whole story. So then in 20, 21, the company raises 1,000,000,007, wipes out all the debt. And what was the plan at that point in the business cycle? Was there an investment operating plan that you were trying to get the, the team to execute against?

A The original plan. I Learned a lot at GameStop. I basically took, I went in and I had this bias from Chewy, which is basically like everything that I learned at Chewy, I was going to apply to GameStop. And it took me about, I don't know, maybe Just over a year to realize that was really, really stupid. But I ended up hiring a bunch of e-commerce people from Chewy and Amazon, and I wasn't the CEO. I hired a CEO. So, you know, I, I didn't have day to day visibility on what was going on, but the strategy was to make GameStop more like Chewy. And that was the wrong strategy. And once I became the CEO, I quickly adjusted because, I mean, I, I just, frankly, I looked at the financials and saw it didn't make any sense. And then it was, you know, went into maniacal cost cutting mode, efficiency, basically focusing on what GameStop is really good at, which is the pre-owned side of things, um, and focused on running the retail business very, very well. And then ultimately that led us to the category, the category of collectibles, which, you know, today the business is a leader in the collectibles category and, uh, software makes up a very small percent of the business, but there were a lot of learnings on the way. And you know, you look at basically Chewy and GameStop, you say, well, they're both retailers. You take the same playbook, but that's not, that was not the case. A totally diff…

AI assessment note: “The original plan... the strategy was to make GameStop more like Chewy.”

Q know, as a customer, I've had lots of dogs. It was always such a great consumer experience. Did you personally put your finger on that or did you bring great people around you that understood consumer apart from the supply chain optimization, the labor optimization, getting the, the cash flows to work right? Was there a lot on the consumer product angle that you spend time on with that business?

A When we looked at The cohorts, you could see the customers were very sticky and the, you know, I looked at it. The reason why I moved from jewelry to pet food was because it was a recurring item. So I love the fact that it was consumable. And when we started Chewy for the first few years, we just focused on food, treats, litter, all of the things that people are buying all the time. So The, the vision and the idea was if we treat our customers well, they're going to continue shopping with us. And, and that's what we did. And so it was everything from the handwritten holiday cards to the pet portraits to 24, seven customer service. And, uh, if there was ever an issue, you know, we took care of the customer and That, um, that's what happened, and, and the customers continued shopping with us, and, and the best referrals are a word of mouth, and, um, pet owners love to, to tell their friends and fellow pet owners if they have a great experience, so the thesis ultimately played out.

AI assessment note: “it was everything from the handwritten holiday cards to the pet portraits”

Q And what about on people? I'm just trying to understand your, your skill as a manager of people, because clearly you did something right, continue to execute at GameStop, which we'll get to in a minute. And I'm trying to understand, how do you find great people? And how do you hold people accountable? And what are management techniques that you've developed for building a team and running a team?

A I look for will over skill and, um, I had a woman that was running customer service as an example, and she came from, uh, she was working in like an old people's home and she applied for the job many times and we just, we didn't think she was qualified and we looked over her resume and Uh, and she kept on applying. She was relentless. Uh, so on paper, she didn't necessarily have the right experience, but she had drive. She was motivated. She wanted to work and she ended up being incredible. So, I mean, it was in general, it was finding people that are diehards that are just willing to put everything and go all in, no pun intended. Um, and basically be as psychotic as, as me. And that was the team that we put together. It was just a bunch of fellow psychopaths.

AI assessment note: “I look for will over skill and, um, I had a woman that was running”

Q attention to it and becomes a meme stock. Was there fundamental unrealized value you saw? Because you seem to be a real kind of unrealized value investor is how I would kind of describe. Tell me if you disagree that there's real value in a organization that's not being realized its potential. What did you see in GameStop? How did you first identify it and get involved and start accumulating?

A I found it fascinating that everybody was like, for whatever reason, and still to this day, everybody hates like the, the mainstream media, the The general consensus has been that GameStop is going to be, is, was going out of business like a long time ago, or like 15 years ago. This thing was basically shorted to oblivion, uh, and everyone was betting against it, and everyone's basically just hated it. It's one of those things where, when you even say GameStop, everyone's like, ugh, like, really? You're an investor in GameStop? So that's always, for as long as I remember, that's basically been the reputation. Is like the underdog. Everyone loves to take the other side of the trade or bet against it. And so I like that. Like, I like the idea of going into a situation where you're basically running into you're running into a burning house. And I originally did it as an investor because typically that's where you see opportunities is when there's a lot of pessimism and fear. And then, you know, I ended up basically Not necessarily intentionally, uh, joining the board and then ultimately being the CEO, but that wasn't the original plan. The original plan was basically to be a passive investor, and then I basically ended up just, it's like there was no one else to do the job, so someone needs to do it, and here we are today.

AI assessment note: “typically that's where you see opportunities is when there's a lot of pessimism and fear”

Q business in 2017 for 3.35 billion dollars. Subsequently, there was an IPO and that business continued to trade up in value. So you clearly executed well, but it helped me understand how did you build and manage the leadership team, the management team and the people around you to execute so well? What did you learn as a manager, as a CEO, as an operator? When you were building Chewy?

A Staying on top of everything. Just, it's 24 seven. Watching all of the numbers. I mean, I would, uh, stay in Google AdWords till four or five in the morning, managing campaigns myself. Um, I was negotiating directly with all of our major suppliers. I had a supplier that told me during one of our negotiations actually said it was like a one or one year contract. And he's like, I'm so happy this is over. I never have to talk to you for, well, it was, it was basically another year. He's like, I don't have to speak to you for the next year. I was like, that was a compliment I would. And anytime someone else was doing the negotiation, I mean, it's counterintuitive. They want to build relationships with suppliers. The reality is, is It's mostly transactional. And so if our suppliers are sending us gifts in the mail, that's a really bad sign. It means we're overpaying. If our suppliers are telling us they never want to speak to us again, it means we're getting the right price. But getting people into that framework is not easy because the, the, um, the path of least resistance is basically to get along and, and, uh, to be nice. But unfortunately when you're Building a business and you're losing money, you got to focus on, on sustainability. So just, uh, being on top of everything.

AI assessment note: “Staying on top of everything. Just, it's 24 seven. Watching all of the numbers.”

Q Do you think they missed the boat? And if so, why on stores, you know, Amazon stores, Shopify obviously have become categories unto themselves. All of those power sellers probably transitioned over to having stores at some point. What did eBay miss? Was it purely execution? And is there still an opportunity to win back that market?

A eBay could, I mean, and, and I'm not advocating. I mean, this is not something I would not go head to head against. Amazon today, but I mean, eBay could have been Amazon. So when you look at what Amazon has built, I mean, everything from, uh, taking inventory and their principles of. They provide a great customer experience, and so, I mean, that's why we all love shopping on Amazon, and as a seller, Seller Central is a very powerful platform, and sellers generally like it, too. I don't know if they necessarily like the margins, but they can move a lot of inventory on Amazon. So, eBay By doing nothing has basically carved out a niche in certain categories where Amazon Isn't strong because they're strong in other categories and, you know, you're buying a phone charger or new products. It's not necessarily the place where you want to search for like a, uh, uh, a unique baseball card or, uh, a hard to find pen or a used auto part. I don't know if it was necessarily through strategy or just because they ended up They ended up basically like defaulting into those categories because their largest competitor was focused on other things.

AI assessment note: “eBay could have been Amazon... eBay By doing nothing has basically carved out a niche”

Q Is that what's happened? What you state seems obvious. So do you think it's that management's simply been complacent and collecting a paycheck and no one's acting like an owner? No one actually knows how to execute, or do you think they fundamentally would disagree with that strategy, those points that you're making?

A Well, I mean, they're never going to admit it, but I would, I would bet everything that they're working with multiple outside consultants and for a different For a lot of different reasons, and they're not making their sellers happy. So their sellers are on the platform because they do a lot of business on the platform and they want to move product, but They don't feel like eBay is wants to make them succeed and is working with them to do more business together. So that's what happens when you go from a business that founder operator run to business with a professional management team is, you know, you lose the, the one-on-one and, uh, Just the rolling up your sleeves, really getting into solving the root cause of problems.

AI assessment note: “that's what happens when you go from a business that founder operator run”

Q How did you learn to execute well? So at the time, you had little business experience prior to that. How did you learn those skills? What were the principles and the values that that made you excellent at operating that business?

A I understood from the beginning that The real competition was always Amazon, and they were world class when it comes to supply chain. So negotiating Very fiercely with suppliers to get the best product costs. And that meant getting to scale and going from buying pallets of dog food to truckloads of, of dog food and moving from distribution to direct and buying. Generally, the more you buy, the lower the prices are going to be. Operating efficiently in the warehouses. And so labor optimization, warehouse management optimization, Getting competitive prices with shipping carriers. It was a game of pennies. And we had, you know, we were, the, the goal was to grow quickly and establish market leadership. And the difference between failure and success was, you know, pennies in the red is failure and, and, and pennies in the black is success. So, uh, we had to operate hyper efficiently and, There was a lot of competition in the space. It wasn't a novel idea. It was going head to head against Amazon and pets.com was in the backdrop. Um, so it made it very difficult to raise capital, but I'd say at a, at a high level, the market underestimated. Not, not the size of the addressable market, but our execution.

AI assessment note: “So negotiating Very fiercely with suppliers to get the best product costs.”

Q off? And once they had the network, it was hard to break the moat. Was there anything about the formula or the consumer model or experience? Cause you you've said publicly, Hey, eBay looks a lot like it did in the early days. Was there something about early management, early design principles, early engineering, anything that happened in the early stages of eBay that made it what it is today?

A I, you know, I look at basically the market Place model where they had first mover advantage. So their ability to have first mover advantage and really be the like de facto marketplace online, including against Amazon was, was significant. Um, so that was really helpful. I wouldn't say that if you look in general at the growth in e-commerce, And you look at Amazon as an example that basically took the marketplace model, but also took taking possession of first party inventory along with growing their marketplace and like they ultimately scaled it and they essentially did what Walmart was doing, but they did it online and at scale. I mean, obviously you can't compare the two. But they, they, their focus on building a marketplace gave them a moat and staying power, but I wouldn't say that their execution was great. In the early days, it was great when it was founder operated. But since then, if you look at how much e-commerce has grown and how much market share they've given up to the likes of basically everyone, new competitors in the space, That are very category focused. Live shopping competitors picked off significant share from them. Shopify, social commerce, Amazon, eBay's been able to maintain a revenue base and, and, and generate earnings, but they haven't grown along with the rest of e-commerce. So, and, and if you look at how they've done most recently, I mean, they've …

AI assessment note: “I look at basically the market Place model where they had first mover advantage.”

Q Skype sale. So when you think about the audience that eBay has, the user base, there's a lot of ancillary businesses you could get into. When you look at PayPal, when you look at Skype, were those strategic errors or were they tactical errors? Meaning they were good strategic moves, but they were mismanaged and not well integrated, not well run after the acquisition. What do you think happened there?

A Well, if you look today at eBay, I mean, I, I like Focus. So them focusing on core eBay makes sense. I mean, my strategy at Chewy wasn't creating all these other sub brands for different geographies. It was always focusing on, on Chewy. So, um, The focus is helpful. I'd say in eBay's case hasn't resulted in significant GMV growth, if at all, or earnings growth, but I do like being focused now. I mean, they've recently made acquisitions, which, uh, don't make sense, but generally speaking, like. I like focusing on a singular brand, and especially with a business that's global, there's a lot of upside and, you know, eBay plays in a ton of categories already. So it's hard to do multiple things exceptionally well.

AI assessment note: “I like Focus. So them focusing on core eBay makes sense.”

Q And so if you go through and start talking to the actual owners of eBay today, because it's a pretty broadly owned institutionally owned stock, have you started having those institutional conversations to see where folks are at and how they're feeling about management and how they're feeling about your strategy and your ability to deliver value for them over the next couple of years?

A Yeah, I mean, I, I don't want to, um, I don't want to get into individual shareholder discussions, but the consensus has generally been aligned, which is they love the business. Um, and yeah, they, they see a lot of opportunities. So we'll see what ends up ultimately happening and maybe the composition, um, Could shift because, you know, if you love the business, you might not want 50% cash. You might want to stay invested. So, you know, that, that's a possibility too. Ultimately the vote is on who's going to be a better fiduciary of capital and, and who can grow this business. Um, me or, or someone that's basically selling stock hand over fist, and by the way, has not bought a single share of stock in the open market with his own money, and has been selling tens of millions of dollars. And, you know, the interesting thing in this, and maybe you can help me understand this, is that there's no question what we're doing, what I'm doing, Is, uh, it's big. You know, it's not every single day that something like this occurs, but why does everybody want us to fail? Why does everyone want GameStop to fail? And why is everyone, like, the media is an example. Why is it that you've got a management team with no skin in the game? They're not builders. They haven't built anything themselves before. They've basically just been employees at major companies that have been Overpaid. I don't th…

AI assessment note: “I don't want to get into individual shareholder discussions, but the consensus has generally been aligned”