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- Chewy cofounder Ryan Cohen has taken a large stake in GameStop, hoping to revive the ailing retailer.
- His nearly $80 million investment in GameStop may have helped spur the Reddit-fueled rally of its stock.
- GameStop’s trajectory is closer to Blockbuster’s antiquated retail model than of Chewy’s e-commerce success.
- Visit the Business section of Insider for more stories.
Ryan Cohen is invested in three things that we know of: Apple, Wells Fargo, and GameStop.
The entrepreneur and investor can attribute much of his wealth to the success of Chewy, which he cofounded and sold for $3.35 billion.
He sat in tears outside the NYSE the night before the company went public in June 2019.
“It was emotional,” he told the Wall Street Journal.
It was an awkward place for an entrepreneur. He had founded the company in 2011, grew it, and sold it to PetSmart in 2017. He left the company a year later, not long before the company made its IPO, with the private-equity-backed PetSmart holding onto the controlling stake.
Priced at $22 per share, the IPO raised $1 billion at a valuation of $8.8 billion. The stock then surged as much as 88%, to $41.34, in its first day of trading before ending the day 59% higher. It was one most successful IPOs ever for a private equity-backed company.
Read more: Activist investor Ryan Cohen lays out the crucial skills he learned from Warren Buffett and his father, and explains why he’s all-in on Apple
And yet, the tears. Cohen, the visionary founder, wasn’t a part of the IPO.
“It feels like my baby is graduating from the college that I never went to,” he told TechCrunch in 2019.
In that same interview, Cohen’s restlessness was already palpable.
“I’m lucky. I’m talking to a lot of different entrepreneurs and business[es] and looking at corporate board opportunities,” he said. “I’m going through that exploratory process. I have no plans to sit in retirement, that’s for sure. I’m 33 and I’m competitive and I like consumer businesses and I like to win.”
He put most of the proceeds from the sales of Chewy into Wells Fargo and Apple stock, which have respectively sagged (down 36%) and exploded (up 252%) in value since Cohen sold Chewy. Cohen told MarketWatch this past summer that his Apple stock was worth about $550 million. Apple’s stock price has increased a further 54% since then.
Then, Cohen made a surprise move, spending just shy of $80 million on GameStop stock.
The Reddit Stock Rebellion that led to GameStop’s recent meteoric rally — and subsequent drop off a cliff — might not have happened at all had Cohen not stepped in to help the ailing retailer.
“This man is going to take us to the moon,” a member of the subreddit said of Cohen weeks before the company’s stock ballooned.
In his mid-30s, his demographics read not unlike the retail investors who drove the company’s stock price wild, but it’s not entirely clear what about GameStop piqued Cohen’s interest. GameStop is not a scrappy startup that he could see through to a wildly successful IPO, and it’s not part of an industry that’s heading towards a revival — most gamers have begun the transition from physical games to digital storefronts already.
Critically, digital storefronts take time, infrastructure, and money to build — none of which GameStop has. Microsoft’s Xbox store and Sony’s PlayStation store are over 10 years old. Steam, the dominant digital storefront on PC, is nearly 20 years old. In all three cases, it took years of iteration and customer acquisition to compete with the physical retail market.
Though Cohen’s goal is to get GameStop involved in digital sales, he’s already years late to the party.
Coming of age: Montreal, glassware, and sneakers
Cohen has credited his father Ted, a glassware importer who died suddenly in December 2019, for everything he knows about business.
“My father led by example, but not in a deliberate way. It’s who he was,” Cohen wrote in a tribute to his father. “He admired the blue-collar worker. I watched him roll up his sleeves and help his employees move shipments of glassware from trucks into the warehouse, then put his suit jacket back on, shirt drenched in sweat, and do administrative work. I’ve never seen anyone work harder.”
Cohen, who grew up in Montreal and is now reportedly based in South Florida, became an entrepreneur at an early age. He started building websites at age 13; his first client was his father.
Teenage Cohen went door-to-door to local companies, offering to build them websites, he told CNBC Make It last year.
He had other side hustles in high school. Writer Hillary Brenhouse tweeted earlier this week that she worked for Cohen when they were classmates. “Dude was reselling imported sneakers when we were 14 and used to pay me to package stuff in his basement,” she posted.
When Cohen was 15, he found real money in affiliate marketing — earning commissions for referring site visitors to e-commerce websites — and began making thousands of dollars a month.
After he dropped out of college, Cohen met Michael Day, his future Chewy cofounder, in an online chat room while looking for a programmer to help with his affiliate sites. Day dropped out of college to start a business with Cohen. By 2011, they were weeks away from launching an online jewelry business and had already bought $150,000 worth of inventory.
But while Cohen was shopping in a local pet store with his toy poodle, Tylee, another startup idea struck him.
“I thought if I could deliver the same kind of personalized experience as the neighborhood pet store, but do it online and deliver a really convenient value proposition, that we could build a really big business,” Cohen told Insider in 2019.
Cohen started Chewy — originally named Mr. Chewy — with Day, with the two respectively serving as CEO and CTO.
When he set out to raise capital for their pet e-commerce business, more than 100 investors balked. Pet food sales were mostly offline, but Amazon was already taking over the online retail sector.
Cohen tried to sell investors on Mr. Chewy’s around-the-clock customer service, which understood how much customers cared about their pets.
“Call us 24/7 and someone picks up the phone within a few seconds, and we know every product that we sell really well,” he said. “That was really important to me because my pet was a family member, and I had a lot of questions. Pets can’t speak, so you need to speak to someone who is an expert.”
It was still a tough sell. Chewy didn’t complete a Series A until 2013 which was led by Larry Cheng of Volition, an investor who had originally turned them down.
Cohen told TechCrunch in 2019 that he “knew nothing about raising capital.” He had “no network”, no “rich uncle”, and rounds of cold-calling VCs led to rejections “basically every single time” until Volition decided to invest.
Chewy’s personal treatment of customers extended to sending handwritten notes to customers after their first purchase or after a pet passes away. The Wall Street Journal reported that same year that Cohen would even surprise customers selected at random with oil paintings of their pets.
Amazon “is the poster child for automation, it’s a faceless machine,” Cohen said. “And I think that there is still a place in retail for providing a personalized experience.”
Acquiring customers was expensive but paid off. Sales doubled from $205 million in 2014 to $423 million in 2015, per The Harvard Business Review.
PetSmart bought Chewy for $3.35 billion in 2017, then the largest e-commerce transaction of all time, and Cohen stepped down as CEO a year later. The deal was a calculated risk for both sides: PetSmart was a debt-laden company that had just been acquired in a leveraged buyout by BC Partners in 2015, and Chewy had been biting into its sales with its customer-centric service. Being in growth mode kept the company from profitability.
Even after he departed Chewy, Cohen was still defending his creation.
“We’ve seen this playbook pay off for companies like Amazon and Netflix, but their success doesn’t make it any less nerve racking,” he wrote in a CNBC op-ed. “Without conviction in the underlying economics of the business, I would have found it very hard to sleep at night if I thought our strategy wasn’t in the best interest of those employees, our millions of customers, or Chewy’s shareholders.”
Applying Chewy to GameStop
In 2020, Cohen penned an open letter to GameStop’s board laying out his intentions.
“GameStop needs to evolve into a technology company that delights gamers and delivers exceptional digital experiences,” Cohen wrote, “not remain a video game retailer that overprioritizes its brick-and-mortar footprint and stumbles around the online ecosystem.”
With over 5,000 stores worldwide, GameStop’s retail footprint is enormous. That footprint has been a liability in recent years, as the majority of game buyers switched from physical to digital storefronts.
Between January 2019 and January 2020, GameStop’s stock value dropped by two-thirds — from about $15 in January 2019 to under $5 by January 2020 — and it reshuffled its C-suite.
Once the coronavirus pandemic forced millions of people indoors, the sudden abundance of free time caused many to turn to video games. Sales of video-game hardware, software, accessories, and game cards topped $1.6 billion in March 2020, according to the market researcher The NPD Group’s monthly report — “the highest reported spend for a March month since the $1.8 billion achieved in March 2008.”
By the end of 2020, video game industry revenues topped both sports and film combined, NPD found.
Still, the company’s stock value remained in the gutter for much of 2020 before regaining its footing — surpassing its previous January 2019 high and hovering around $20 — later in the year following the release of new game consoles from Microsoft and Sony ahead of the holidays.
By early January 2021, GameStop stock doubled after the company announced that Cohen would join its board alongside two of his former lieutenants at Chewy: former CFO Jim Grube and former CMO Alan Attal, who grew up with Cohen in Montreal.
Together, pending a vote in June, the three former Chewy execs will make up a third of the newly formed GameStop board of directors.
As they seek to turn GameStop around, there are already questions about how Cohen is using his platform.
GameStop has yet to meaningfully address the Reddit rally, while Cohen, normally not shy with press, has declined to comment on the stock volatility. (His only on-the-record comment regarding the Reddit rally was a short “As you can imagine, I can’t comment at this time” to the Miami Herald.) The silence might be a missed opportunity, says Dorothy Crenshaw, CEO of Crenshaw Communications.
“I think key investors like Ryan Cohen have national attention right now, and they do have an opportunity to focus attention on the business model they advocate going forward, a much more digital model, a plan to bring the company into the digital age,” Crenshaw told Insider. “He could even call attention to the fact that he is holding onto his stock.”
Despite being the world’s largest video game retailer GameStop’s story in recent years is similar to PetSmart’s before it made the bold move to buy Chewy.
Like music and movie retailers in the ’90s, from Suncoast to Tower Records, video game retail stores face major challenges to their business model from the internet. As more people buy video games through digital storefronts like Steam or the Xbox Store, fewer buy games on physical discs from GameStop.
Cohen sees a way out — and it’s just like the one he pulled off years ago, before he missed out on Chewy’s big IPO.
In his letter to GameStop’s board in November 2020, Cohen laid out a vision for what he believes GameStop can become: “a powerful e-commerce platform that provides competitive pricing, broad gaming selection, fast shipping and a truly high-touch experience that excites and delights customers,” he wrote. Naturally, Cohen likened the idea for the e-commerce future of GameStop to “the type of world-class infrastructure that was constructed at Chewy.”
Two former c-suite execs from Chewy joined GameStop’s board alongside Cohen. Other notable recent hires include Amazon logistics leaders and the former VP of customer service at Chewy.
“He clearly has experience as someone who can build a successful online speciality retailer, which is precisely the type of mindset that GameStop needs if it’s going to continue to play a role in the growing games market,” game industry analyst and New York University professor Joost van Dreunen told Insider. “Ironically, it may prove to be easier for GameStop to ward off Amazon in an online environment than in a physical arena.”
That’s because, even for Amazon, margins on video games are “razor thin,” Van Dreunen said. “Consequently, GameStop still pushes 7x more hardware units for console manufacturers than Amazon.”
Cohen regularly ties Chewy’s success to its obsession with customer satisfaction — so-called “high-touch service” — in a category of customers that treat their pets like their first-born children. With GameStop, Cohen is once again facing a passionate consumer base with nostalgia for the games of their youth, while trying to take on Amazon.
While he’s keeping quiet, he must be happy being back in business, regardless of what GameStop shares are doing.
As he famously said: “retirement sucks.”