Wayfair.com, not your daddy’s furniture store

wayfair

Imagine the last time you shopped for furniture. Was it a good experience? Did you visit several stores before purchasing? Did you weigh the costs of furniture delivery vs renting your own U-Haul? Did you have to call your friend over to help move it?

For many Americans, this was the struggle. Furniture was hard to purchase. Considerations had to be made for comfort, style, price, and delivery method. There were few places that offered the perfect combination (and that let you do so while sitting at home in your pajamas). That was until 2002, when two entrepreneurs founded Wayfair.com, an e-commerce destination for home goods to cater to almost every taste, style, and budget.

Today, Wayfair is the largest online seller of furniture, home furnishings, décor and goods exceeding over $1.3 B in annual revenue on 7 million products through a network of over 7,000 suppliers [1]. Based in Boston, MA, Wayfair employs more than 3000 people globally and continues to grow rapidly in the ecommerce space. So much, that for Black Friday 2015, Wayfair saw the greatest year over year sales of any online retailer [2]. Which begs the question, how have they become so successful? What makes them different than Amazon?

The answer lies in Wayfair’s operating model. At the core, Wayfair is a platform for furniture suppliers and consumers. Although Wayfair owns two warehouses, the majority of their orders are handled by suppliers who either ship direct to the customer or through a Wayfair-managed delivery network that includes partnerships with FedEx, UPS, and USPS. This differs from Amazon, which owns and fulfills through 70 of their own warehouses in the US [3]. With Wayfair’s model, the cost of inventory management is dramatically reduced, but in order to make this work, Wayfair has to insert itself into the equation, and provide value for their suppliers, the furniture companies. This value is delivered through a suite of supplier management tools that not only encourage manufacturers to sell through Wayfair, but also provide real-time order and inventory management that especially helps smaller companies who lack such internal capabilities.

Not only are the supplier tools thoughtfully engineered to make selling via Wayfair easy, but they also ensure that Wayfair can continue to scale and onboard additional suppliers efficiently. This in turn allows them to lead the market in offering the widest selection possible (“a zillion things”) [4].  With a few clicks, suppliers can upload their current inventory and within hours, and have it showcased live on the site for millions of customers to see.

Aside from the obvious benefit of riding on Wayfair as a means to market your inventory, Wayfair provides suppliers with tools to view order monitoring in real-time through proprietary analytics software [4].  For many suppliers, these tools provide powerful and accurate insights into each sale, which equips them to continue to grow their numbers over time. In a sense, Wayfair acts as an enabler, providing the toolset and analytical knowledge to make decisions on what products to stock and what customers like. In turn, Wayfair benefits from the supplier’s improved business strategies.

As Wayfair makes strides in enabling suppliers to easily sell via Wayfair’s platform (operating model), the consumer sees a steady increase in product selection on the storefront (business model). That, in turn, only entices new suppliers to join, and the cycle continues. These network effects are critical to maintain Wayfair’s position in the market in being ‘all things home’.  On the site, each customer will experience the site differently. In the backend, the site is learning the preferences and interests of each shopper, and is displaying based on machine-learned preferences [4]. While Joe may prefer beachy linens, Mary may prefer modern and bold. After a few searches, clicks, and purchases, both would be enjoying their own custom Wayfair.com experience.  Ultimately Wayfair’s ability to match preferences to individual drives more sales for the company.

In the end, you have a very happy network of suppliers who, previously, did not have access to such a large population of online shoppers. Since 2008, Wayfair has retained 72% of its original suppliers [4]. With suppliers as the focus and technology as an enabler, Wayfair uses its operating model to continue to develop partnerships with new suppliers and to foster long term relationships that help them efficiently drive sales, and at the same time, expand the capability and selection of Wayfair.com.

Wayfair’s operating model ultimately allows them to delight their customers. Now, there’s a one-stop-shop for all things home that can deliver to your door without you breaking a sweat. As a customer, the process is about as pain free as it gets, just like it is for the suppliers.

 

[1] https://www.google.com/finance?q=NYSE%3AW&fstype=ii&ei=7K1nVvraKNa_e7rhtugL

[2] http://bostinno.streetwise.co/2015/12/02/amazon-rival-wayfair-w-stock-price-up-on-holiday-sales/

[3] http://www.amazonfulfillmentcareers.com/amazon-fulfillment/locations/

[4] http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=9710730

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1 thought on “Wayfair.com, not your daddy’s furniture store

  1. Great post! Although I’ve shopped on Wayfair.com before, I didn’t know what separated their model from other furniture retailers with an online presence. It certainly seems that not holding the inventory provides a huge advantage in terms of cost savings, but that also means Wayfair, as you said, has to be diligent in ensuring they are creating real value for their suppliers in other ways. Right now, it seems like most of the value to suppliers is in allowing them to reach a large customer base. The risk with that is the same one we see in other network-based companies, such as Twitter or Instagram, that the value really comes from being able to maintain a critical mass of customers. And although the cycle is working in Wayfair’s favor now (more customers -> more suppliers -> even more customers -> even more suppliers), I could see it just as easily reverse and unravel. I think value-via-network companies should look to find alternate sources of value-add, to both their suppliers and customers, to hedge against this risk and keep their network strong.

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