Is Wayfair Amazon-proof?

Source: Wayfair
Aug 09, 2017
George Anderson

Wayfair, the online furniture retailer, reported strong sales during the second quarter with U.S. revenues up 39 percent and international jumping 136 percent year-over-year. The site’s active user base grew 43 percent to 9.5 million.

Speaking on Wayfair’s quarterly earnings call, co-founder, co-chairman and CEO Niraj Shah said there was room for additional growth as only about 10 percent of home goods are currently bought online.

“The wind is at our backs if consumers increasingly embrace the selection and convenience of shopping online instead of in physical brick and mortar stores,” said Mr. Shah (via Seeking Alpha). “The customer experience that we offer and the consumer brand that we’ve created are resonating, allowing us to continue to acquire new customers within our payback targets and stimulate more repeat purchases from our existing base of customers.”

In the past, Wayfair executives have pointed to visual merchandising as being key to driving sales.

“Our search with photo feature is still in its early days but the machine learning algorithm will continue to improve from the scale of both our active customer base and the large library of product images we can offer to satisfy shopper searches,” said Steven Conine, Wayfair co-founder and co-chairman, on the earnings call.

“Customers are already benefitting from our investment,” he said. “For example, the machine learning platform that visual search uses is improving the relevance of product recommendations and the customers also viewed sections of our product pages.”

In an interview on CNBC’s “Closing Bell” yesterday, Mr. Shah said he thinks Wayfair will be able to hold its own against since consumers are looking for products that are unique and not commodities to be reordered.

He also said he also thinks Wayfair has a hedge in case of a downturn in the housing market. Instead of targeting the high-end of the category where consumers look to furnish their entire home, Wayfair has focused on consumers buying individual items “to freshen up their home.” The average order for Wayfair was $258 in the second quarter.

DISCUSSION QUESTIONS: Do you see online becoming a significantly bigger competitive factor in the retail furniture and home goods markets? Will Wayfair’s approach help to insulate it against Amazon’s push in the category? How much of a factor will visual search and machine learning be in Wayfair’s sales success (or not) going forward?

Please practice The RetailWire Golden Rule when submitting your comments.
"Companies like Wayfair will have to be leaders in marketing innovation to stay ahead of their competitors."
"Amazon is not going to kill every category. Where specialization is involved, brands like Wayfair have an edge."
"As an investor, I would be a bit scared looking at acquisition costs and also delivery costs as they will eat into the margin..."

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12 Comments on "Is Wayfair Amazon-proof?"

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Phil Masiello

All categories and channels will move to the online world. Even if customers use physical stores for showrooming to touch and feel the product and get the correct dimensions, the sales will move to an online order and delivery.

But Amazon is not going to kill every category. Where specialization is involved, brands like Wayfair have an edge. Amazon is great at selling commodities but has yet to prove success in niche categories.

Visual search in this category will be very important because this category is all about design. What will be even more important is the ability to show how the product looks in the users own space.

As long as Wayfair keeps its eye on the consumer, it can always be successful against any competitor. Even Amazon.

Ben Ball

Wayfair has developed a following based on selection, price and availability. When furniture shopping takes on a sense of urgency — ala a recent move — the furniture stores are only truly helpful if they have exactly what you want in stock, a rare occurrence. Wayfair has the advantage of centrally-warehoused stock that all online retailers enjoy. But they also have inventory depth and fast shipping.

After a frustrating day of “almost but not quite” in the local furniture stores, my wife recently came home and jumped on Wayfair because my kids had told her about it. The items she wanted were shipped the next morning. All that won’t make Wayfair impervious to Amazon but it has an established position in shoppers’ minds that I think will last.

Brandon Rael

Visual search, curated experiences and personalization are critical differentiators for Wayfair. Wayfair has carved out a very unique position in a home decor industry dominated by Williams & Sonoma and Restoration Hardware. Wayfair has enabled a virtual marketplace-like digital experience through transporting content and created a seamless shipping journey. There are parallels that can be drawn between what Wayfair has accomplished in the home decor industry and what Farfetch is achieving in the luxury online marketplace.

As they continue to scale and build strong sustainable partnerships with home decor vendors, as well as solid customer relationships, it will become increasingly challenging for Amazon to penetrate this marketplace. No industry sectors are 100 percent Amazon-proof, however things may change in a heartbeat via strategic acquisitions.

Shep Hyken

Wayfair’s strategy is good for today, but the popularity of online shopping is growing and the experiences that are creating success for Wayfair will not stand up to competition in the near future. Mr. Shah’s comment about consumers looking for products that are unique and not commodities may be true, but that doesn’t mean they are going to go to Amazon first. Visual search and other technologies will help compete, at least short-term. Companies like Wayfair will have to be leaders in marketing innovation to stay ahead of their competitors.

Art Suriano
Yes, I can see online furniture continuing to grow but this is something brick-and-mortar stores can use to their advantage. No doubt customers look in the store often before going to Wayfair and being able to provide a photograph only encourages the shopper to browse and take pictures of what they like. So for brick-and-mortar retailers, don’t leave your store so thin with staff that customers can use you as a browsing-only place. Staff your store with enough associates to engage every customer and find out what they want, their budget, etc. and work with them. Not every customer will buy but many will. As for Wayfair and all the other e-commerce sites, they appeal to a shopper who is interested only in price and having the item shipped to them. So brick-and-mortar stores, make sure your websites are competitive. If the customer is in your store and isn’t ready to buy, you can offer them a special “buy today price.” If they still don’t buy, take them to your website and provide them with… Read more »
Dick Seesel

Nobody is “Amazon-proof,” because the company has a quick learning curve (and willingness to spend/invest) whenever it decides to move into a category. But Wayfair is in a better position than Amazon’s competitors in other industries: It has a niche, a following and a strategy that are serving it well right now. Something to watch: Will Wayfair decide down the road that it needs an omnichannel game plan through a footprint of brick-and-mortar showrooms or a strategic alliance with another furniture retailer?

Ricardo Belmar
Wayfair appears to be doing well to drive both repeat customer sales as well as new customers. That said, they are certainly making a heavy marketing push to make shoppers aware of their brand, and that high acquisition cost can’t go on forever. What I think is interesting to learn more about is how they are handling returns. This is a segment where shipping processes can damage merchandise and return policies become very important to shoppers. How they handle this and the impact to their bottom line is important. Looking at their quarterly results they certainly are trending towards profitability, but they’re not there yet. Remind you of anyone else in the e-commerce space? Visual search and use of machine learning/AI in general will help Wayfair continue to distinguish themselves from Amazon but it is true this segment is young online. There is room to grow and they are not alone (Williams Sonoma, Restoration Hardware, Lamps Plus all come to mind), plus you have strong brick and mortar players as well (think Home Goods). Ultimately,… Read more »
Ken Morris

Wayfair has experienced phenomenal sales growth and has been a catalyst for driving more consumers to be comfortable buying furniture online. However, they have not achieved profitability yet. Online sales have high costs associated with it, especially for bulky items like furniture that are expensive to return. Eventually, they will need to figure out how to achieve profitability.

Another challenge will be to expand its sales by appealing to consumers that prefer to touch and feel the furniture before buying. As more online retailers are expanding with brick-and-mortar stores, Wayfair should consider following the RH Galleries model of opening showrooms just for shopping and then fulfill orders from warehouses.

Visual search and machine learning are great tools to help shoppers find the right products for their environment. Wayfair should consider extending this with augmented reality that enables shoppers to visualize the furniture in their home.

Jeff Miller

Wayfair has done a good job going after a large and still growing niche and things like visual search and machine learning along with continued investment in customer service should serve them well to compete against Amazon in this market. As an investor, I would be a bit scared looking at acquisition costs and also delivery costs as they will eat into the margin and Wayfair does not have the same goodwill and concern for growth at all costs over profits that Amazon has. Luckily, furniture has pretty high margins built in historically. Nothing like mattresses or anything, but much better than many other categories.

Yvette London
I think there is an “all of the above” approach needed (meaning some of the ideas in the thread, not the options in the article). Unique merchandise absolutely — maybe can’t do it in every category but in more than you think. Clothing and home goods and décor for sure, hardware, personal items like lotions, etc. The combination of not finding the exact item on Amazon and instant gratification is powerful. Creating special deals of bundled items (a free or half price belt to go with that outfit). Offering a free service like installation at a certain purchase level. Directly addressing people who you know are showrooming by either meeting the Amazon price or offering a bundle price on the spot (not advertising this, but offering it only on an individual basis), making customer service so good that people really would feel guilty showrooming. From every bit of research I’ve read, showrooming isn’t as big a problem as it seems/feels. Yes people do it, but more people are researching online then going in-store to see… Read more »
Janet Dorenkott
1 year 11 months ago

As a common Wayfair & Amazon shopper, I can say that the Wayfair experience for buying furniture is much better. The visualization tool is great and the selection is better. Wayfair caters to the furniture shopper with things like multiple filters that allow you to do things like select color, style, price range, etc.

When I bought a summer home a couple of years ago, I started using Wayfair. I’ve continued to shop Wayfair for my remodeling and my kids homes.

I liked the site and products so much that I decided to buy stock in it back in January. Seven months later, I’m up 77%. I’m obviously not the only one who likes Wayfair. That said, I also shop Amazon all the time. So back in 2013 I bought Amazon stock. That’s up over 200% … but I bought that in 2013.

Phil Chang
Phil Chang
Retail Influencer, Speaker and Consultant
1 year 11 months ago

I don’t think anybody is “anything-proof.” This is probably the wrong way to look at this. Right now, Wayfair has an experiential online shopping experience, good shipping terms and a really good feel for its consumers. As long as they continue down this road, they’ll lead their market on their own terms.

Amazon has been really good at analytics and using their technology to exploit leaders that are asleep at the wheel and happy to collect profits without innovating. Can Amazon give Wayfair a run for their money? For sure.

But there are a lot of category leaders asleep at the wheel — if I were Amazon, I’d be sweeping up all the sleepers before I’d take on Wayfair.

"Companies like Wayfair will have to be leaders in marketing innovation to stay ahead of their competitors."
"Amazon is not going to kill every category. Where specialization is involved, brands like Wayfair have an edge."
"As an investor, I would be a bit scared looking at acquisition costs and also delivery costs as they will eat into the margin..."

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