You just moved to your HBS apartment and you need to get furniture. You are thinking about a trip to Ikea, but you need to get a car, make sure you have a day off, and find a friend to help you carry and assemble the things you got. Or – will you just buy your furniture online?
Wayfair is an online retailer for home goods. It sells everything from furniture, lighting and storage solutions to pet beds and seasonal decor. The company started in 2002, and grew as a collection of more than 250 standalone sites. In 2011, the founders decided to move all those sites to one destination and named it Wayfair. In a world of fast paced digital transformation, Wayfair is definitely a winner. As of Q3’16, it experienced a 53% YoY growth in direct retail and its brand awareness is increasing as the company invest more and more in marketing.
Wayfair’s mission is “to transform the way people shop for their home”, and with more than 7 million active customers, its seems like they are on the right direction.
Creating value with a unique shopping experience
Wayfair is creating a unique experience to its customers in several different ways:
First, as it logo state “a zillion things” – Wayfair offers a huge variety of home products – currently more than 7,000,000 by partnering with over 7,000 suppliers. This variety is unique especially as considering competitors like Crate & Barrel, or Bed, Bath & Beyond who has much more limited options. Second, the website provides with images of furnished rooms, ideas and tips around design and look and allows customers to create their own idea boards – saving products they like, organizing the boards and sharing them with other people. Finally, Wayfair is creating an easy and convenient shopping experience by shipping the products to the customers home, without needing to get to a physical store, saving time and money. In case customers experience any issues with their order, the company provides a great customer service and does its best to solve the issue quickly and efficiently.
Capturing value as the middle man
Wayfair manages an inventory light model as most of the inventory is being held by suppliers. The website is used as a platform to order the products, but once a customer placed an order, the relevant supplier is notified and ship the product to the customer, while a Wayfair last mile agent hands the product to the customer. Wayfair gets a commission from of every sale and therefore can capture value while limiting the risk on the company. In order to improve the customer’s experience, the company is now shifting towards a CastleGate – a system in which Wayfair will hold inventory of mainly small items in its distribution centers, allowing better control and speed for some of its most popular items, while still keeping the large expensive inventory items at the supplier’s sites.
So why are we still a bit worried?
Wayfair believes that by creating inspiring images, and providing detailed shots of the product it can get more customers to buy their furniture online. Today, while the online penetration of electronics is 54% and of apparel is 15%, online home goods are only 7% – a huge potential for growth. However, while the e-commerce space is developing, it is not clear yet whether customers will be willing to give up on the option to see and feel their furniture before they buy them. In comparison to other products like apparel and electronics, the shipping costs of home goods are high, therefore increasing the costs of returns and refunds. In addition, even after several years of operations, Wayfair is not profitable yet. Although it is known that the economies of scale are critical in the online retail business, there is still a question of the sustainability around the company’s business model. It will be interesting to continue and follow the company in the future and see if it continues to win the e-commerce home goods market.