Chewy Expects $50 Million AI Savings by 2027

Chewy has put a specific price tag on its artificial intelligence investments. CEO Sumit Singh stated on the company's second-quarter earnings call that AI is expected to reduce costs by about $50 million in fiscal 2027, a significant increase from savings in the low tens of millions this fiscal year.

According to Singh, the savings are derived from several key operational areas. These include customer service, pharmacy operations, veterinary care, and internal tools for employees. He emphasized that these AI applications have moved past the experimentation phase and are now delivering lasting reductions in the company's cost to serve.

AI Assistants Handle Customer Queries

During the quarter, Chewy launched an AI assistant named Cai to a select group of mobile app users. Singh reported that Cai had been active for less than a month and handled under 15% of Chewy's traffic. The assistant manages common requests related to orders, returns, autoship programs, and account management. Approximately 30% of these chats are resolved without needing a human agent. Customers who request a person are connected to a care team member within seconds.

Internal Tools Boost Agent Performance

More significant savings are generated internally. Chewy's customer service agents use numerous software systems, and new AI tools consolidate information for them. Singh claims this technology brings new agents' performance close to that of experienced ones. In the pharmacy segment, AI extracts and validates data, making reviews more consistent and lowering the cost to pick, pack, and ship each order. At select Chewy Vet Care clinics, a voice agent named Callie confirms appointments, schedules visits, and handles routine follow-ups.

Automation also plays a major role. Chief Financial Officer Chris Deppe noted that more than half of Chewy's volume flows through automated facilities. He identified lower variable costs to serve as the largest contributor to the quarter's selling, general, and administrative expense leverage.

Infrastructure Built for Lasting Advantage

Singh explained that Chewy spent several quarters building infrastructure and organizing its data before deploying the AI assistants. The Cai system runs as several agents under an orchestrator, with automated returns and refunds built in. Chewy developed all this technology internally, which Singh believes creates a lasting competitive advantage. He argued other companies would need years to reach a similar point or would have to rely on third-party providers.

This need for foundational work is common. A PYMNTS Intelligence report from April, titled "The Enterprise AI Readiness Gap," found that 71% of executives at companies with at least $1 billion in annual revenue cite organizational readiness as the primary limit on AI performance.

Savings to Offset Costs and Fund Growth

Singh cautioned analysts not to simply add the projected $50 million in savings to Chewy's existing fiscal 2026 margin path. He stated that part of the savings will offset normal cost pressures, such as wage inflation, while another part may be reinvested into growth initiatives. Chewy views AI as a driver of margin gains rather than a standalone pool of savings destined for the bottom line.

The company has not yet set its specific reinvestment level for fiscal 2027. Singh said that decision will be part of the 2027 planning process. Potential areas for reinvestment include marketing, a redesigned Chewy+ membership program, and new products scheduled for launch later in the year.

This approach of funding new AI spending with prior savings is not unique to Chewy. A Bain & Company survey of 951 companies found that 44% plan to pay for their next round of AI investments with savings from the last round.

Enterprises are increasingly reporting positive returns from AI. The PYMNTS Intelligence report "The Enterprise AI Payback Curve," from August, found that nearly all surveyed enterprises in financial services, healthcare, and media reported positive AI returns over the past year. At least 80% expect to increase their AI spending next year.