After a quarter when brick-and-mortar stores won back some share from the online world, the home furnishings e-com giant outlines its next step into physical retail, testing multiple brand concepts
BOSTON — Wayfair is gearing up for a full-fledged move into brick-and-mortar retail.
The home furnishings e-commerce giant has been testing the waters in various small formats for a few years, but come early next year, it’s promising the next phase of what CEO Niraj Shah called “a new kind of omnichannel shopping experience,” one that “blurs the lines between online and offline.” He’s still calling this “physical retail experimentation,” but it’s about to get much bigger for the company than anything it has done to date, with permanent stores in multiple formats across its family of brands.
He didn’t identify first markets, total number of stores or say how large they will be, but the new concepts will start rolling out early next year through 2023. The stores would feature a mix of take-with smaller items and larger furniture, but, “We think the vast majority of the volume would be set up for delivery,” flowing through the company’s existing fulfillment infrastructure,” Shah said.
The news came during Wayfair’s third-quarter conference call with the investment community. It proved to be a less-than-stellar period for the company, which swung to a net loss of $78 million as revenues dipped nearly 19% from the third quarter last year ($3.1 billion from the previous $3.8 billion). That’s still billions in sales, but the drop didn’t meet analyst’s expectations, and Wayfair’s stock closed down nearly 5% Thursday, or down by $13.33, to $255.57.
The revenue decline “was not overly surprising,” Shah said on the call, in part because “the quarter played out against the backdrop of customers eagerly embracing reopening trends.” In other words, consumers got off their phones and moved to stores to shop for home goods. And while this is not the only fuel behind Wayfair’s newest store move, it does inform the plan.
“When it comes to merchandising, the pandemic has only underscored the fluidity between the online and offline worlds while shopping for the home,” Shah said. There’s still a lot of room to run online as “even the most established classes of home are only about 20% penetrated today,” but, “That said, some customers clearly value the physical shopping experience.”
Wayfair saw this when it opened pop-up stores and, later, a mall-based store in Natick, Mass. “And the temporary swing back towards brick-and-mortar this summer was another interesting proof point,” Shah said. These data points, he added, provide further validation for its store plans.
Pressed for more details by an analyst, Shah said Wayfair views itself as in the fourth year of a physical retail journey. The first couple of years were spent testing the pop-up locations, then came the small, 3,700-square-foot Natick Mall store. With each step, Wayfair had what he called a “learning agenda” that was completed and has led the Boston-based company to this moment.
“We have some ideas for different concepts that we think could be the right concepts that we would then want to scale,” he said. The plan is to launch a series of these different concepts over the next two years, get a couple of each up and running to “see how they perform in the real world. And then, there’s a series of different things we want to try in them,” going back to that experimentation or “learning agenda” idea.
Wayfair has hinted something like this was coming before, but as more details emerged on this call, Shah explained the reasons why now is the time stores make sense for Wayfair. He told analysts to think about the biggest costs associated with a store. For starters, there’s the cost of the physical space. But then, there are other big expenses. There are supply chain costs related to the flow of goods and delivery. There’s inventory costs. And then there are costs associated with marketing and building a brand — basically “the cost for someone to know who you are and to kind of understand why they would want to visit,” he said.
“What’s interesting is those latter three are things that we already have effectively spent the money on,” Shah said. “We have a household brand. We have tens of millions of customers who we e-mail every week. We have a supply chain that’s quite vast that enables fast delivery to customers everywhere that is full of (supplier-owned) inventory.
“So all of a sudden, you start thinking, ‘Man, if you get that store, right, and it’s just another channel you’ve added into the mix, in addition to the stories you tell on TV and what you’re doing on social media and what you can do with catalogs, what you do online, you can start to see … that’s quite a nice leverage point.”
Roll that forward to a point in time when, perhaps consumers’ home category spend is a 50-50 split between online and offline, and, “Well, jeez, you’re now getting to participate in that 50% offline that you wouldn’t otherwise,” he said.
“So we’re pretty excited about it.”
In addition to Wayfair, the company’s family of brands include AllModern, Birch Lane, Joss & Main and the high-end Perigold.
“We think these concepts make a lot of sense,” Shah said. “We’ve hired up a very seasoned team of folks who have significant physical retail experience. It’s quite a substantial team, and we’ve made sure that a number of internal Wayfair folks who have a lot of expertise have transferred over to that team.”