Source: Wayfair
Wayfair to open its first brick & mortar store
Wayfair, the largest online furniture retailer in the U.S. with $6 billion in annual revenues, is following in the steps of numerous other e-tailers in opening its first brick and mortar store.
The site of the store is in Florence, KY outside of Cincinnati, according to Furniture Today. The 20,000-square-foot outlet store will be given its own space within a 260,000-square-foot distribution center being constructed to handle Wayfair’s growing online business.
The outlet location is being set up to sell excess inventory, including products returned to the e-tailer. An article on Forbes contends that returns to Wayfair are “excessive” compared to the high rates seen by other online sellers.
The decision to open a store is a departure for Wayfair, which has touted the superiority of the online model on its site and in public pronouncements by company executives.
A Wayfair locations page tells visitors that the company doesn’t operate any stores, but is accessible anywhere in the U.S. to anyone with an internet connection. “No more searching ‘Wayfair near me’ or planning an all-day family trip to a furniture store to shop,” reads the copy on the site.
Nearly a year ago on an earnings call, Wayfair CEO Niraj Shah highlighted the growth rate of active users on the site and double- and triple-digit increases in revenues in the U.S. and abroad.
“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,” Mr. Shah told analysts last August. “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.”
Discussion Questions
DISCUSSION QUESTIONS: Does the decision by Wayfair to open an outlet store amount to an admission that an online-only operation is not sufficient to reach profitability in the furniture category? Do you expect Wayfair to stick to outlets to sell off excess inventory and returns, or also open regular stores to complement its online operations?
Poll
BrainTrust
Lyle Bunn (Ph.D. Hon)
Strategy Architect – Digital Place-based Media
Celeste C. Giampetro
VP Marketing, PebblePost
Wayfair is discovering what many other retailers have discovered. Omnichannel retail is the way to go. It captures the click and collect SuperConsumer. It is particularly important for furniture, as people want to see it, touch it, feel it — before making that big purchase. Brick-and-mortar stores add that dimension to Wayfair’s service offering.
Once Wayfair feels the impact of the physical store, they will no doubt start opening more brick-and-mortar stores. Ultimately, if online ONLY were the only way for modern retailers to go, would Amazon (a very savvy retail organization) have bought Whole Foods?
Wayfair — welcome to the physical world of retail!
As Seeking Alpha noted earlier this year, “For the full-year 2017, Wayfair grew revenue by 39.7% to $4.7 billion but still managed to lose $244.6 million (up from $194.4 million in 2016). To put it simply, Wayfair has a profitability problem that it has not solved by growth.”
This is a play to follow in Macy’s and others’ footsteps to not have to turn over any remaining profits in returns to a third-party. An outlet store isn’t the same as Casper or Birchbox opening stores, this is just trying to squeeze the last dime out of merch.
Wayfair is finally starting to understand that “butts on chairs” is still an important part of furniture shopping. The in-home trial model, while appealing to shoppers, is just not a sustainable path to profitability.
Their brick-and-mortar store sounds like it should be called a clearance center. I’m doubtful the experience will model a typical furnishings retailer.
I’ll bet it does. Returns are a unique furniture industry problem — different from apparel because the price points are higher and the margins better. It doesn’t even matter if it’s bought without seeing it. 5 percent is coming back. Period.
It doesn’t surprise me that Wayfair’s return rate is so high. Furniture and home decor is so subjective and quite often what you see on your computer screen doesn’t translate to what you see in person. Outlets make sense in this category. Considering that this outlet is attached to a DC, I don’t think this is an admission that an online-only model doesn’t work in the furniture category. At this point, I think they are trying to simply offload excess inventory in a space they already have. If they find this to be profitable and expand the concept to non company-owned real estate, that would be more telling.
The opening of physical stores by Wayfair is significant not in pursuit of profitability but in realization that continued torrid growth will require physical presence as a further element of shopping convenience.
The future of mainstream retail is a fully integrated online and offline retailing model and entails not only the right assets and resources, but a vision that begins from needs and behaviors of consumers rather than taking cues from a company’s core competencies — the latter must be pursued and developed in view of the former.
It’s an admission that online-only has limitations. It’s an admission that brick-and-mortar stores provides powerful advantages to selling goods, and especially in the furniture category. It’s an admission that to fully realize the potential of any retail business, you need to be online and offline.
Wayfair’s store sounds more like an outlet type model rather than a full frontal assault on physical retail. As such, its impacts on the rest of the sector should be limited. It should, however, be fairly financially productive given it is essentially existing space in a warehouse.
As for mainstream stores, I guess this is something Wayfair could execute, however it would be a big step change and one that comes with costs attached. Given that Wayfair isn’t profitable this might be something the company shelves until it has made more progress with its bottom line.
Definitely there are multiple reasons for this. The dispensation of damages and returns in the furniture business is a real “thing.” You have to assume that at least 5 percent of what is delivered will be returned. And the further furniture travels, the less likely it is to return to the DC in any kind of saleable condition.
And running a warehouse store sale is a fabulous way to raise cash when it gets tight.
So yes, there’s an omnichannel component — I’m not convinced any pure-play of any size can be profitable, I’m really not — but there are also some peculiar nuances to the furniture business that sort of demands a warehouse store. Of course, one has to beware of the outlets becoming a distraction — I’ve seen that happen before too. When you start buying specifically for your outlet division, you can water down your core focus.
Physical stores justified by adequate traffic should be part of any business-to-consumer operation. Why is Wayfair different?
Wayfair’s move to open a physical store is yet another example of the importance of the brick-and-mortar retail experience.
We have seen this narrative play out with Bonobos, Warby Parker, Indochino, Casper and other digital native brands. Similar to any of the emerging digital native e-commerce brands, Wayfair has hit the size and scale where a physical showroom will act as an extension of the brand, a media outlet, a conduit to building relationships with customers, connecting with their local communities and most importantly providing an outlet for customers to have a multi-sensory experience that they would not have been able to do otherwise.
Retail has no boundaries, and we should continue to see digital native brands extending into the physical space via permanent stores, pop-ups and store-within-a-store concepts.
What components of the Wayfair business model would have to change to flip to profitability? How low does the return rate have to be? Why and how would that ever happen? As shocked as I am that Casper seems to be making it work, they have a huge advantage — a highly-focused product assortment. Wayfair is explosively diverse. The illusion of “unlimited space” in e-commerce often means the right boundaries aren’t created. Amazon has it figured out. Wayfair does not. The space may be clearance now, but finite space might help them figure out what’s profitable and what isn’t.
I don’t think this is an admission yet — it’s only their first store. What I think we can conclude is that Wayfair is interested in whether there’s more power to be gained with bricks to complement their clicks.
That said, the signs seem clear that eventually Wayfair should open full stores to complement (and exceed) their online operation.
I once purchased a couch online. It was great, except not at all the size I imagined (even though it had measurements listed). Wayfair has gone to great lengths with their augmented reality app to prevent the kind of mistake I made. For a lot of people, being able to visualize a piece of furniture in their house and compare customer reviews is enough. Personally, I will be visiting a physical store to buy furniture from now on. Like others have pointed out, there is a lot to be said about sitting on a sofa before buying it. I expect Wayfair will remain primarily a digital platform, but with a few outlets and maybe some physical showrooms.
The magic is in the mix. The online business may be robust and convenient. Yet sometimes the combination of online and traditional brick-and-mortar is synergistic. The combination may reap more sales/profit than operating separately. I still believe Mr. Shah’s comment holds true. Customers do embrace the convenience of shopping online. But times change. Buying habits change. The way we’ve always done things will only work for just so long. I like that Wayfair is going to try the outlet store.
Nearly 90 percent of retail purchases happen in the physical world. As much ground as e-commerce gains, the fact remains that physical retail is in fact very much alive. As Charles pointed out, omnichannel is a smart strategy for these high AOV, considered purchases. I see it as a benefit that consumers want to touch and feel and see IRL the furniture that they’ll touch and see and feel in their homes for a long time.
The experience of any single retailer doesn’t tell us anything about the experience of all retailers in their trade class or channel. What it does tell us is that Wayfair has a problem, or several problems, the most notable of which is the high level of returns. I’m not sure what to expect, but I think the outlet model makes more sense for them than the regular store option. But if I were them, I’d try to figure out why my return rate was so high and address that issue before I got too committed to any form of physical retailing.
I completely get a clearance/return liquidation center as a mechanism for getting some cash out of an item that must have cost a fortune to ship in both directions. I think that opening additional brick-and-mortar stores with space-constrained assortments for the Wayfair endless aisle will be a challenge. The furniture industry is pretty unique in that a custom order can take three to six months to deliver. If someone can crack the “design it, see it feel it” showroom where a customer can try a sofa, choose the arms, body, length, fabrics and finishes, AND have it delivered a few weeks later I think they’ll be on to something.
GlobalShop’s Path to Purchase study found that 90% of retail journeys still end in a physical store, even those that begin online. I think many online retailers are feeling the pull of brick and mortar now.
Rich and I were emcees at the Independent Retailer Conference at the ASD Show this week. Several speakers talked about Warby Parker and its venture into physical retail. Others spoke about how even with the convenience of online, many consumers still prefer to shop in stores.
Wayfair is seeing an additional opportunity in having a physical presence to augment its current online-only operation. Many shoppers still want to see product before purchasing — I know I do.
The problem has never been the physical stores — it’s how those stores service the customer (enabled by tech) that makes a difference. Wayfair is joining a long list of eCommerce players that have decided to open stores because omnichannel (or, unified channel) makes all the sense in the world. Stores create the opportunity for experiences that connect far beyond what’s available online. We’ll continue to see more of this from Wayfair and others as the synergy between online and off continues to grow.
Awesome post! Wayfair is a perfect example of the power of online-to-offline. THe online only operations aren’t necessarily ineffective, but if you know how to integrate from an omni channel perspective, you can win both.
The key is for advertisers to understand the online to offline behavior of their customers by uncovering which online channels (paid and unpaid) drive the most visits to physical stores. Using a robust analytics platform is huge for this. Because once brands know that information, they now have the data to make more informed decisions when allocating their budgets, designing ad creative and setting campaign bid strategies.
Wayfair now has the opportunity to increase their average transaction value, decrease their logistics costs, and leverage in-store teams’ productivity with installations, in-store events, and workshops. Physical stores, when done properly from site-selection to day-to-day operations, are a boon to any retailer.
Wayfair faces a daunting reverse logistics challenge on returned items. Re-introducing returned products to its regular inventory must be daunting indeed, beginning with the cost of shipping bulky items, then inspecting, repairing, re-packaging and offering them online as open-box or reconditioned.
Directing those goods instead to a few designated outlet stores makes abundant sense. As-is. Cash and carry.
If return rates in this category are really around 5%, as Paula reports, I wonder if one 20,000 sq. ft. location can keep up with the volume. Of course, Florence, KY is a test location.
Besides outlets, Wayfair has another physical store option to consider: It can open “experiential” or showroom locations in major markets, where shoppers may interact with the product, do a little VR room planning and place orders from the online catalog. Bonus: Those orders are less likely to be returned.
I don’t think the furniture category applies to omnichannel retail as in the same way it applies to other industries and categories. The reverse supply chain logistics and financial burden is very high in home goods.
I don’t think Wayfair is looking to augment sales and or margins with this move. What they are doing (as this 20k square foot showroom is located in a distribution center) is looking to minimize the costs associated with the reverse logistics supply chain. When an element gets returned to the center, it will hit the showroom floor first, in an attempt to move it “as-is” at a discounted rate to an eventual buyer. This will reduce the costs associated with moving an item through the reverse supply chain and restocking after product verification and repair (if damaged). The chances of damage increase every time an item moves.
This is not a profit move by Wayfair. It is a cost cutting move. After all, that $500 (at cost) sofa that retails for $1399 becomes a $800 first cost sofa once it gets returned. By dumping it on a retail floor space and selling it as-is, they are reducing the loss incurred.
I’ve seen a lot of companies learning the value of the omnichannel experience. It’s no surprise that Wayfair is going this way too, although it is noteworthy that they’re such an integral eCommerce player. More shoppers today want an omnichannel path to purchase, especially for big-ticket items like furniture. They want to see it and try it in-person before buying, or research online and then travel to a store to complete the purchase. This move allows Wayfair to capitalize on that.