Can Wayfair fend off the bigger guys?

Discussion
Source: wayfair.com
May 20, 2021

Niraj Shah, Wayfair’s CEO and co-founder, is confident that elevated demand for home goods and furniture will continue even as pandemic restrictions ease. He’s even more confident his platform will be able to defend its turf against larger competitors chasing the burgeoning home opportunity.

Mr. Shah told analysts on Wayfair’s first-quarter call that, early in the pandemic, consumers first focused on sprucing up home offices and home schooling environments but “this demand surge very quickly extended across the many, many classes that we sell, a phenomenon that has persisted through today.”

Even as demand for travel and entertainment are returning, the pandemic has “fundamentally increased the share of wallet customers will spend on their homes in the future and the amount they will spend online,” he said.

The shift toward remote work and thirst to entertain in upgraded or new homes is also expected to stoke demand.

On the call, an analyst asked about competitive threats for Wayfair as Amazon.com reportedly is launching a furniture assembly service and big discounters and home improvement chains invest in home amid a booming housing market.

Mr. Shah said Wayfair’s custom-built platform specifically addresses the needs of shopping for the home. “Shoppers need inspiration through relevant content, discovery through a wide assortment and confidence that is built through strong merchandising, fair prices, reliable delivery and effortless customer service,” he said.

Advertising on the platform addresses the browse-oriented customer shopping journey of the home category. The site makes use of accentuated product imagery, video and other visual assets, important elements to selling home products online. “If you look at the merchandising that we’re doing and what we’re doing with imaging and rendering imagery, there is still significant differences of us versus the large competitors we have,” said Mr. Shah.

Finally, Wayfair stands out for its logistics that includes 17 warehouses across North America and Europe, as well as its WDN middle- and last-mile delivery service that handles bulky delivery turned down by common carrier networks.

Mr. Shah said the larger retailers’ logistical networks are often being optimized for grocery or one-hour delivery but not for the home category, adding, “we’re specialized on this category.”

DISCUSSION QUESTIONS: Will strength in the home goods category continue post-pandemic and is Wayfair ideally positioned to take advantage of the momentum? How would you rate Wayfair’s strengths and weaknesses versus its larger competitors?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"What would strengthen Wayfair’s position even more would be to partner with home improvement retailers like Home Depot and Lowe’s."
"Any time Amazon is reacting to something instead of the other way around (offering furniture build services), you have to pay attention."
"I believe they will maintain their place and position despite competition. Big is not necessarily better."

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17 Comments on "Can Wayfair fend off the bigger guys?"


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Ray Riley
BrainTrust

Consumer demand is one (important) element of a viable business. While gross margin improved from 2020 to Q1 2021, there are a number of vanity metrics in the Q1 report that makes one wonder what’s not being shared. Revenue had to jump $1.1 billion to escape the $285 million loss on the last quarter. If I’m at Wayfair I’m praying consumer demand doesn’t wane as the pandemic fades.

Gene Detroyer
BrainTrust

I love the term “vanity metrics”! How much have we seen CEOs using exactly these on their earning calls?

Ray Riley
BrainTrust

Right? I understand we’re coming off a very challenging year – albeit not in the homewares category – so some spin is natural, but a highlight such as this is plainly yawn-inducing: “In the first quarter of 2021, 60.0% of total orders delivered were placed via a mobile device, compared to 54.8% in the first quarter of 2020.”

Dave Bruno
BrainTrust

Predicting how long the home improvement boom will last is tough. However I do think the current real estate bubble has to burst at some point, inflation is looming, and I am not sure the “spruce up the home for entertaining” trend has a long shelf life. None of those opinions bode well for the home goods category, so color me cautious. However I do think Wayfair has a differentiated brand position, and if they continue to be the highly effective marketers they have been for the past few years, I do think they can fend off big boxes to maintain their share of the market, whether that market shrinks or grows.

Richard Hernandez
BrainTrust

Exactly. Wayfair really started advertising during the pandemic when people were creating their home offices, or investing in their homes because they knew they were going to be in it for a long while. It also wasn’t too shabby when they started using Kelly Clarkson as a spokesperson for them. While I like what they offer on their site, I am a touch and feel person when it comes to furniture or home accessories. But I think if it’s working for them, they should keep doing it until the market forces them to re-assess and modify.

David Naumann
BrainTrust

Wayfair has carved out a nice niche in the furniture segment at a price point that appeals to the value-conscious consumer and the quality is good enough to attract some affluent consumers. Wayfair has done very well during the pandemic and increased its base of loyal customers. With strategic marketing and customer engagement, Wayfair is well positioned to continue its momentum. Their biggest weakness is a lack of showrooms for consumers that want to touch and feel before they buy furniture.

Liza Amlani
BrainTrust

Strength in the home goods category will continue to grow post-pandemic because many people have made the move to invest in bigger homes, with dedicated work-from-home spaces and an increased investment in spending time on their properties.

Buying and investing in a bigger home is an individual’s largest lifetime purchase. If you upgraded your home during the pandemic, you will have a need to fill your home with home products post-pandemic. Wayfair can fill that need and at a great price point.

What would strengthen Wayfair’s position even more would be to partner with home improvement retailers like Home Depot and Lowe’s where their offerings are not as strong in home decor and furnishings. Wayfair could fill that void.

When I was a merchant at Caban, a division of Club Monaco back in the early 2000s, there were rumors that Home Depot would purchase us from Ralph Lauren and create a store-within-a-store concept. I would love to see this for Wayfair.

Gene Detroyer
BrainTrust

Simply brilliant. “What would strengthen Wayfair’s position even more would be to partner with home improvement retailers like Home Depot and Lowe’s where their offerings are not as strong in home decor and furnishings. Wayfair could fill that void. ”

You would get an A+ in my strategy class.

Suresh Chaganti
BrainTrust

Wayfair has critical ingredients that work together extremely well: 1.) A great app with search, discovery, and filters. (It’s not easy. It requires a lot of work in documenting product attributes.) 2.) Logistics 3.) Customer service and returns policy.

I think there is a lot of runway to grow and continue to differentiate with assembly services and interior design services. The home improvement industry is extremely unorganized. Wayfair will be one of the top three, even if Amazon is super aggressive. The category is very hard to crack. IKEA assembly is still problematic and their kitchen design services are plain horrible.

The problem for Wayfair is these cost a lot of money, and it is an extremely capital-intensive business. The profitability is going to be under pressure. So long as investors are patient, they will be OK.

Zel Bianco
BrainTrust

Wayfair has a wide variety of price points, good quality and customer service and free shipping. I believe they will maintain their place and position despite competition. Big is not necessarily better.

Venky Ramesh
BrainTrust

We are still a few months away from people going back into their pre-pandemic normal routine of working from the office. Many companies I work with are in fact categorizing their workforce into three categories – 100 percent work-from-office (in-store/front-line/factory/lab workers), hybrid (product design, team managers etc.) and 100 percent remote (IT, some procurement functions). We are talking about potentially 50 percent of the workforce that was used to working in the office now working from home. That is sure to drive continued demand in the home category and Wayfair is well positioned to gain.

Jeff Sward
BrainTrust

The article doesn’t discuss profitability. Sales growth in an environment of completely unexpected robust demand is one thing. But the driver of that demand surge, the pandemic, is evolving before our eyes. It’s great that Wayfair was nimble enough to enjoy the upside. But what happens to sales, and profitability, when the demand curve changes and they all of a sudden have new competition they didn’t face on the way up?

Gene Detroyer
BrainTrust

When a baseball play is having an exceptionally good streak or exceptionally poor streak, you always say “look at the back of the baseball card.” We should always be looking at the back of the baseball card to assess 2021 comparisons.

And that should not only be related to metrics, but more so to consumer behavior.

David Mascitto
BrainTrust

Wayfair’s strength is the ability to carry an almost infinite number of products, in every color, style, shape, etc. to suit any taste on any budget. While brick-and-mortar retailers have the advantage of enabling customers to see/experience the product and bring it home that day (if they can), showroom space is finite, which means retailers need to pick and choose what to carry (and it might not suit every taste). These retailers can offer endless aisle, but in doing so their physical advantage is lost and they are now in the realm of DTC, which is where Wayfair plays. If Wayfair continues to carry a large assortment of products, finds cost-savings in their supply chain (ex. drop-shipping) and continues to build online interactive design tools to help customers shop, they should be able to offer a strong value proposition vs. traditional retailers.

Ken Morris
BrainTrust

Any time Amazon is reacting to something instead of the other way around (offering furniture build services), you have to pay attention. While this is probably more related to IKEA’s business model (TaskRabbit), it still shows that Amazon is paying attention to furniture and everything in the home segment. Wayfair is correctly seeing things through the lens of customer experience and expectations by building its Wayfair Delivery Network (WDN) while focusing on engagement and lock-in on its website.

Brent Biddulph
BrainTrust
As a consumer, and having just gone through the exercise of furnishing an entire home/rental property 95% online myself just a month ago — my personal experience is that Wayfair has a distinct edge. We did this across several retail platforms, doing research with a distinct ‘look’ in mind. Yes, we ended up purchasing a few items from AMZN, Costco and Home Depot to complete the entire home, but 95% of the revenue and items were sourced via Wayfair. Wayfair has a distinct advantage to them all. First, a focused, one stop shop with massive variety none of the others can match. Second, easy website navigation, better detail specifications, and of course recommendations (complete the look, or alternatives) close to or better than Amazon. Third, personal outreach as they instantly recognized my intent and immediately reached out to promote me (via email and a phone call no less) to “Professional” which provides much more benefits (longer return periods, discounts, exclusivity, customer service, etc.). My recent experience (with more than 30 distinct items in a period… Read more »
Craig Sundstrom
Guest

I half agree: No, I Don’t think the short term bump from the pandemic will last, but the long-term shift to online will.

Can Wayfair do much with this? Happily, for them, my theory is that as the size and complexity of an item increases, the less likely one is to simply turn to Amazon (Would you buy a car from them? Or a house?)

Unhappily, I don’t know that Wayfair has a lot of name recognition. I had to open their site to see exactly what they sell, and while I’m hardly a “turn-to” in the category, there are probably a lot of furniture-illiterate people like me out there.

wpDiscuz
Braintrust
"What would strengthen Wayfair’s position even more would be to partner with home improvement retailers like Home Depot and Lowe’s."
"Any time Amazon is reacting to something instead of the other way around (offering furniture build services), you have to pay attention."
"I believe they will maintain their place and position despite competition. Big is not necessarily better."

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