(Chris Devlin) #1

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FORTUNE.COM // JUNE.1.19


beer, and start spending the next 25 years
investing in their homes.”
Shah and Conine are hardly the first
entrepreneurs with a hunger to domi-
nate home goods. The category is littered
with the dead and dying, from Levitz and
Sears (see our feature in this issue) to Bed,
Bath & Beyond. And going Internet-only
is no insulation. One Kings Lane raised
$100 million in funding only to sell for
$30 million. And it was lucky to find an
exit. The much-hyped millennial-focused
Dot & Bo merely died on the vine. Way-
fair is likely past the point of suffering
such a fate. But it could yet be crushed by
Amazon. Digital Commerce 360 pegged
Amazon’s 2017 home goods sales at $12 bil-
lion—up 50% from the prior year. If Jeff
Bezos and company once seemed ambiva-
lent about a category often considered to
be too expensive or too difficult to fulfill,
that’s clearly no longer true.
Another similarity to the Seattle giant:
Investors are clamoring for information
on Wayfair’s path to profitability. In my
conversations with Shah, he seems uncon-
cerned with outside criticism. He asserts to
me, and subsequently to investors during
the May earnings call, that the company’s
U.S. operations have been “adjusted Ebitda

their taste and often need help. Instead, they get pushy salespeople
on commission. Big items like sofas often require long lead times
and are difficult to get home. Either you hire a U-Haul or incur
expensive delivery charges. It’s also a lousy business for suppliers
because even the largest brick-and-mortar retailers have only so
much room. It’s tough for retailers, too, because customers often
disappear for years at a time. And financially, it’s brutal for online
retailers because customers can’t touch the product, which creates a
barrier to buying (“friction,” as they call it) while also increasing the
chance of pricey returns.
Wayfair is fixing this morass with a virtually unlimited selection
for every taste and budget—more than 14 million products from
11,000 suppliers. It employs more than 2,300 engineers and data
scientists who drive loyalty and attempt to reduce friction through
extreme personalization. An additional 3,000 customer service
reps foster satisfaction and loyalty. The company has more than
12 million square feet of warehouse space, including a dozen North
American and European fulfillment centers, from which it hand-
delivers bulky packages, many within two days. Shah says this
growing network is the key to implementing next-day and same-
day delivery. Wayfair is also creating new technologies to improve a
consumer’s ability to design, stage, and even virtually feel furniture
before buying it. And it’s dropping $1 billion in advertising a year
because, all together now, the millennials are coming!
“Their propensity to buy online is four or five times our core
customer today. Now roll this story forward a decade, two decades,
when the whole population of buyers becomes folks who grew up
with a phone connected to the Internet. They’re married with a
house and kids,” Shah says. “Millennials are just starting to age
into that spot where they’ll stop spending so much on travel and


SOURCES: THE COMPANY, S&P GLOBAL


2002 2005 2010 ’15 ’18


$6.8 B.


0


1


2


3


4


5


6


$7 billion

WAYFAIR REVENUES


2017 2018 2019


0


100


200


300


400%


S&P 500 INDEX 31.3%


WAYFAIR STOCK GROWTH


SINCE JAN. 1, 2017


Apr. 26, 2019
340.8%

–$504.1 M.


WAYFAIR


PROFITS


–$500 million

–400


-300


-200


-100


2014 2015 2016 2017 2018


WAYFAIR IT’S ALL CLICKING


REARRANGING THE DECK CHAIRS?


Wayfair has seen revenues surge, as well as its stock price. But mounting losses have skeptics wondering whether the company has
a realistic path to profitability. Says cofounder Shah: “In the end, you’ll get the investors you deserve.”