Blog: Hail Mary or shrewd business move?

Wayfair’s foray into brick-and-mortar stores

Wayfair keeps popping into my news feed. 

Brick-and-mortar stores in the offing for the brand in 2021, streaming video technology being added to aid shoppers and, most recently, third quarter financial results that included a few surprises. 

Of these headlines, it’s the financials that are perhaps the most salient for the rest of the industry. They show the e-commerce category killer reporting a 19 percent quarterly drop in revenue compared to the same period in 2020, down to $3.12 billion from more than $3.8 billion in 2019. The slide indicates that the $14 billion company’s big bump in business during the pandemic was a singular event, not a sustainable trajectory. 

The year of pandemic propelled Wayfair to its best sales year to date, pushing sales to $14.1 billion from just $9.1 billion in 2019. 

One year later, virtually all pandemic-aided sectors are seeing their sales return to earth. Check out Peloton’s quarterlies, for example.  After two quarters now falling short of Wall Street’s projections, the market wonders whether Wayfair can re-gain its mojo. More importantly, for the industry as a whole, signs of near-normalcy are popping up everywhere. 

By becoming one of the hottest stocks of 2020, Wayfair helped to raise the entire industry’s profile. In the run-up to pandemic, the company had already positioned itself for the “shelter in place” sales surge by winning the SEO wars and gaining prominent placement for most major furniture-related searches. Just try to avoid Wayfair, West Elm and Birch Lane with an online search for, say, a sofa or bedroom set. It can’t be done. And Wayfair’s many websites, other than Wayfair and Birch Lane, include Joss & Main, AllModern and Perigold. 

Silver lining

The Boston-based company’s quarterlies did include some good news. First, 76 percent of the company’s orders came from repeat customers, up from 71 percent for the third quarter in 2020. The customer base is loyal and strong. Second, the average order during the quarter reached $283, or 16 percent above 2020’s 3Q average of $243. An average ticket uptick of $40 mitigates the effect of what was an overall lower number of orders.

For his part, Wayfair CEO Niraj Shah attributed the sobering numbers to “customers eagerly embracing reopening trends,” “supply chain issues,” and the high bar set by “extraordinary” demand in 2020. He predicted the need for “a few more quarters” before the company’s previously white hot growth can “get back to normal.” In other words, the same timeline as that for a ramp up of permanent stores.

Seeing its pandemic-inspired popularity begin to ebb over the course of this year likely accelerated Wayfair’s plans to (again) add brick-and-mortar stores, an announcement reported by Home News Now’s Clint Engel earlier this month.  

Flutie to Phelan?

Is the physical store play the logical next step and deliberate phase three of its retail rollout, or is it a “Hail Mary” end zone pass meant to appease investors? Beware of false binaries; there is no reason it couldn’t be both. 

Because Wayfair’s profitability depends in part on scale, adding distribution channels certainly makes sense. Maintaining margins in the industry has always been challenging, and that’s before you add last-mile delivery woes. In my market (Atlanta), for example, no matter which e-retailer you buy furniture from, its likely going to roll up the driveway in the truck of one of this region’s three major logistics companies, and all three are profoundly underwhelming. 

In the call with analysts, Shah catalogued the reasons for the return to real-world retail: “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.” 

With these fundamentals in place, brick-and-mortar becomes “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,” Shah said. 

That’s provided you get the stores right, of course.

Like most everyone else, Wayfair blamed part of its third-quarter profit margin pressure on the difficulty of hiring. As a technology-dependent, online platform-driven retailer, Wayfair faces a hiring hurdle that is made all the higher because the competition swimming in that same labor pool includes some pretty big sharks: Google, Apple, and Amazon, among many others. 

It gets no easier in stores, however, so staffing will be a challenge for Wayfair’s store rollout plan, as well. 

Brewing up a good blend

Before pandemic, Wayfair briefly operated a store in Natick, Mass., where Jordan’s Furniture has a major presence. The single location shut down after little more than a year, the latest in a series of “experiments” with “various small formats,” as Shah described them. These experiments have prepared the company for “a new kind of omni-channel shopping experience” that “blurs the lines between online and offline,” he said, without providing details. 

For a tech-rich company, this blurring and blending seems almost inevitable. Ikea has embraced cutting-edge technology that includes artificial intelligence and augmented reality.  

The Swedish home furnishings and decor giant recently launched Ikea Place, an augmented reality app that uses Apple’s new ARKit technology to populate and animate a catalog of 2,000 items. ARKit enables phone users to “place” 3D objects into the real world, or what we see of it. using a “reality composer.” Ikea also acquired Geomagical Labs, an artificial intelligence startup. 

Let the techno-games begin.

Which and how many physical retail markets Wayfair is eyeballing, and just what the company has planned for these markets, still are trade secrets. But, with furniture shoppers returning to the physical marketplace in force, only now more comfortable with digital shopping tools and apps like those Ikea is adding, Wayfair is wise to marry its strengths gained online with in-store, in-person service.

“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 on call. “The temporary swing back towards brick-and-mortar this summer was another interesting proof point.” 

This fluidity is creating an interesting nexus of the virtual and the physical. 

Ikea, which uses among the most sophisticated of online presences to drive sales in its real-world stores, is betting big on its increasingly sophisticated, big data-driven online-offline experience. With video streaming, visualization and, next, physical stores, Wayfair too is wagering on a blended future. 

Brian Carroll

Brian Carroll covered the international home furnishings industry for 15 years as a reporter, editor and photographer. He chairs the Department of Communication at Berry College in Northwest Georgia, where he has been a professor since 2003.

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