(Chris Devlin) #1

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FORTUNE.COM // JUNE.1.19


Ireland; and various U.S. cities, with
dozens more “Wayfairians” joining each
week. The number of active customers,
defined as having made a purchase in the
past year, also jumped nearly 40% year
over year, to 16.4 million, and the company
is approaching household-name status.
According to internal surveys, aided brand
recognition (“Have you heard of Wayfair?”)
is about 90%.
And yet. If you’ve had even a cursory in-
terest in Wayfair, you know there’s a black
mark on the company. It’s deep in the red.
So much so that some believe Shah and
Conine are on the road to ruin. Despite sig-
nificant top-line growth, Wayfair lost more
than half a billion last year, and losses near-
ly doubled in the most recent quarter over
the first quarter of 2018. One prominent
short, Andrew Left of Citron Research, re-
fers to Wayfair as “the anti-Amazon.” A pair
of academics published a widely quoted
paper that asserts the company’s massive
investments in infrastructure, ad spending,
and European expansion are unsustainable.

OT LONG AFTER graduating from
Cornell back in 1995, Niraj
Shah and Steve Conine decided
to compare their meager bank
accounts. Both fresh-faced
engineering students who liked
talking business, they possessed
highly analytical minds and
more than their share of pluck
and will. But little else. At the
time, Conine was up several
thousand dollars and so rubbed
it in. But Shah was blasé. “We’re going to be so successful,” Conine
recalls him saying, that “the difference in our savings today will be
irrelevant.”
The nascent dotcom boom was beginning to reveal a vast Inter-
net landscape, and Shah and Conine followed the money. In short
order, they built and sold an IT services consulting company and a
mobile development shop, earning enough to self-fund, circa 2002,
a humble-sounding venture called RacksandStands.com out of a
spare bedroom in Conine’s house. It offered anything you could
ever want to hold your stereo. They learned quantitative marketing
via Google AdWords and bonded with suppliers and distributors.
They handled customer service themselves, did their best to ensure
that shoppers received their orders on time, and measured every-
thing they could. “In four months, we became one of the largest
online sellers of entertainment furniture,” Shah says.
So they replicated the model across 250 or so almost comically
vertical segments. JustSouthwesternRugs.com. EveryCuckooClock
.com. AllBakersRacks.com. HolidayDecorationsDirect.com. “We
spent nine, 10 years building the systems and infrastructure and
worried less about the front end until we had operational consis-
tency,” Conine adds. “It’s easy to start an e-commerce site and build
a sexy front end. It’s very hard to durably deliver the experience
you’re promising.”
Today, Shah and Conine are the CEO and cochairman, respec-
tively, of Wayfair, the world’s 12th-largest online retailer. With
$6.8 billion in sales, Wayfair is still well behind Amazon and
Walmart, but ahead of Best Buy and Costco, according to the
research firm Digital Commerce 360. The company sells a whole
lot of furniture and then some, from kitchen islands and bathroom
vanities to throw rugs, bunk beds, and hot tubs. Nearly all of its
goods are delivered for free (even the 350-pound sectional sofas)
and typically within a few days. Like its progenitors, Wayfair of-
fers nearly unlimited choice, measures everything, and commits
to making customers happy at all costs. That formula hatched in
Conine’s bedroom has showered the cofounders with a collective
net worth of more than $4 billion and vaulted their brainchild
onto the Fortune 500 for the first time.
By almost any measure, Wayfair is killing it. Annual revenues
have increased sixfold since the company’s 2014 IPO and are
growing 40% annually, to $1.9 billion in the most recent quarter.
The company employs well over 12,000 people in Boston; Berlin;


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DEEP DIVE: Wayfair
relies on extreme data to
tailor everything from
promotions to logistics.

WAYFAIR IT’S ALL CLICKING