Petco Removed the Friction From Its Rewards Program. The Friction Was Holding Up the Forecast.
· CX Pulse
Petco made its points easier to redeem, customers redeemed them, and Q2 sales came in flat instead of ahead of outlook.
Petco reported its second quarter last Wednesday, and the line worth reading sits in the middle of the release. Net sales came in at $1.5 billion, up 0.05%. Before the company relaunched its membership program partway through the quarter, sales were tracking ahead of an outlook of roughly 0.3% growth. The gap between those two lines, CFO Sabrina Simmons told analysts, is a mid-single-digit millions of dollars. The cause is customers redeeming their points.
CEO Joel Anderson's phrase for it: "customer point redemption volumes far exceeded our initial projections." The release itself calls it "a sales disruption from the initial stronger-than-expected points redemption from our membership program relaunch."
The coverage is running this as a loyalty program that was too generous. Read what Petco actually changed and a different story shows up.
The relaunch made the points usable
Petco Perks now earns 10 points per dollar on most products and 30 per dollar on the company's own brands, with 1,000 points worth a dollar off. Those are the earn rates, and they're ordinary. The relaunch was mostly about the other side. Anderson said the previous version made redemption harder, which held down customer engagement, and that the new one was built to remove that friction for customers and store associates alike.
So the projection the company missed was calibrated on how customers behaved inside a program they found hard to use. Petco fixed the hard part. Customers did the thing the program had always promised they could do. And the forecast, which had quietly assumed a lot of them never would, moved by a few million dollars in a single quarter, landing hardest, per the call, in the services business.
The fix Petco described is "post-launch guardrails on redemption velocity." Peak redemptions are now behind it, the company says, and the rest of the year goes to personalized offers, with the payoff expected in 2027. What the guardrails are, it didn't say. Whatever they are, they act at the one moment the relaunch was designed to improve: a customer at a register trying to spend what they earned.
At scale, the liability was already on the books
Every point you issue sits on the balance sheet as a liability until it's redeemed or expires. The size of that liability rests on an estimate of how many points will never be used. That estimate lives in finance. The redemption experience lives in digital, in store operations, in CX. A relaunch that removes friction is the first time in years those two assumptions get tested against each other, and Petco's quarter is what the test looks like when nobody ran it in advance.
Three things follow.
The unredeemed-points assumption needs an owner who sits in the redesign meetings. If the person who models it has never seen the new checkout flow, the model is describing the old program.
Every fix has a customer-facing shape. A cap per transaction, a cooling-off period, a minimum balance. Each one is a limit a member meets after being told the program got easier. Decide what the message is before the limit ships, because the alternative is the member discovering it at the register.
Services need their own redemption model. A point spent on a product and a point spent on a booked appointment carry different costs to serve and different capacity limits. Petco called out services specifically. One redemption rate across both is one of the assumptions that broke.
The smaller version
The same shift, and the opposite problem. A paper punch card that half your customers lose costs almost nothing. Move it into an app that reminds them, and the free tenth coffee gets claimed by most of the people who earned it. Nothing about the offer changed. The margin the card was giving you was people forgetting, and you never wrote that assumption down because there was no model to write it in.
Petco had the model and found out its assumption was stale. A smaller operation usually never had one. Both find out the same way, on the sales line, a quarter after the change.
What to do before your next relaunch
Before you make a rewards program easier to use, pull points issued against points redeemed for the last twelve months. The gap between those two numbers is what the hard version has been paying for. It's a real number, it's probably larger than you think, and it's the one that moves the day you fix the experience.
Every piece of friction in a loyalty program is holding a number up. Petco found out which one by removing it.
Sources: Petco Q2 2026 results, Retail Dive.