After several years of pilots and pop-ups, online furniture and home goods retailer Wayfair says it is ready to create a more permanent physical presence starting next year, though details are being held close to the vest.
Co-founder and CEO Niraj Shah said the company is currently “laying the groundwork” for a series of geographic and brand extensions starting next year, including into European countries such as Ireland and Austria, as well as a “new kind of omnichannel shopping experience that blurs the lines between the online and offline.”
Shah said this next phase of physical retail experimentation will see multiple formats of Wayfair’s different brands to help identify which types of stores work best.
“Some customers clearly value the physical shopping experience,” the CEO told analysts on a conference call, adding that Wayfair is currently in year four of its physical retail journey. Wayfair previously tried pop-up stores in different malls, as well as a permanent store at the Natick Mall in Massachusetts, which the company closed in December after 15 months.
“In each step along the journey, we feel like we had a learning agenda that we were able to complete and maximize, which sort of leads us to now,” Shah said. “We have some ideas for different concepts that … we would then want to scale.”
Some of the formats will include smaller items that customers can walk out with that day, while others will likely be showroom-type locations where the furniture will be delivered at a later date.
“That would just flow through existing infrastructure we already have,” Shah explained. “That infrastructure doesn’t care whether the order was placed in a store or over the phone or online. It’s an order that we’ll deliver.”
Facing Headwinds
Part of the emphasis on physical retail likely comes from a realization that the eCommerce boom seen over the past two years may be coming to an end. Wayfair reported that total net revenue was down nearly 19% year over year in the third quarter, to $3.1 billion. U.S. net revenue was down nearly 21% to $2.6 billion.
Active customers, however, reached over 29 million as of Sept. 30, an increase of 1.5% year over year, and orders per customer remained steady at about 1.9.
“Consumers have naturally shifted some spend toward travel and entertainment, and from eCommerce toward brick-and-mortar demand,” Shah noted. “Interest in the home remains resilient, but it’ll take a few more quarters for our growth, and eCommerce growth in general, to get back to normal.”
Still, the home category is among the sectors of the economy hardest hit by supply chain bottlenecks, resulting in inventory shortages, extended transit times and inflation of both wholesale costs and retail prices. To combat this, Wayfair has begun selling products that are still in transit, including those on the water, and extending delivery times to provide fewer out-of-stock messages to customers.
Shah expects the ripple effects from factory closures in Asia and supply chain bottlenecks to “cloud the picture through much of 2022,” despite interventions from governments and private businesses. “To be clear, there is no panacea solution for the supply chain challenges,” he said. “It will take some time for the world economy to work through, but we’re staying flexible and doing all we can.”
Shah added, though, that despite short-term volatility and “some macro murkiness,” he’s focused on the long term: “The Wayfair model is resilient.”
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