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retail watch | Oct 31, 2024 |
Wayfair launches paid membership program (again)

For an innovator and early adopter, Wayfair is pretty late getting into the paid membership game.

In yet another retailer’s attempt to try to adopt one of the foundational strategies that has made both Costco and Amazon so successful, the online home furnishings giant just introduced Wayfair Rewards, a paid membership program that offers customers discounts and perks all for the low, low price of $29 a year.

As with many other similar programs, the consumer appeal is saving on purchases—sort of—as well as special access to sales and other promotions, plus free delivery. But unlike other such programs, Wayfair Rewards doesn’t offer a universal discount on all purchases, and free delivery is already baked into Wayfair’s infrastructure.

“We designed Wayfair Rewards to deliver extraordinary value to our customers with meaningful perks that can be felt immediately,” the company’s chief commercial officer, Jon Blotner, said in a statement announcing the program on October 22. He added: “Wayfair Rewards gives our members unmatched value and a seamless shopping experience that provides substantial, rapidly accumulating benefits and keeps rewarding them long after they’ve checked out.”

Sounds pretty good, right? Well, if you’re a regular Wayfair customer, you could do pretty well by signing up for the program. The key benefit is 5 percent back on all spending, with some exceptions buried in the small print (primarily services like installation, assembly and design). It’s a good deal if you’re a frequent Wayfair shopper; less so if you’re a one-time purchaser seeking an immediate discount on a big-ticket purchase.

There are other bells and whistles, like early access to the retailer’s Way Day sale events, a dedicated customer service phone line (who even knew they had phones?) and what Wayfair is calling “exclusive member-only sales,” the frequency and extent of which is vague at this point. All of this is available not just for shopping on Wayfair, but also its sub-brands, AllModern, Joss & Main, Birch Lane and—perhaps most interesting—its upscale Perigold brand, which is not always part of company-wide initiatives.

The free shipping component also has some disclaimers, which may or may not be similar to the brand’s usual provisos. Free shipping has been a hallmark of Wayfair since its founding—much to the consternation of its suppliers, which are de facto footing the bill, either through direct fulfillment or via Wayfair’s CastleGate in-house distribution system, which can also carry higher costs for its vendors.

So, how does Wayfair Rewards stack up against other similar retail programs? The gold standards are Amazon Prime, Costco, Sam’s and BJ’s. At the latter three, the equation is pretty simple: Without membership, you can’t get in the door.

Amazon no doubt modeled Prime after Costco, and its members now account for an overwhelming percentage of its revenue. Free delivery is the silver bullet here, but there are also other drivers of sign-ups—special prices during Prime Days, not to mention access to its streaming platform, Prime Video.

Amazon Prime now costs $139 per year—although it does have a monthly rate of $14.99 too—up from its original ticket of $79 when it debuted in 2005. Costco’s annual price is increasing this year for the first time in seven years, up to about $65 depending on the level of membership. The company has said its membership rolls barely blinked at the increase.

In the home furnishings sphere, there’s the RH membership program. For a $200 annual fee (up from its original $100 fee in 2016), members receive a 25 percent discount as well as complimentary design services. The company has said it launched the program as much to cultivate customer loyalty as to even out its purchasing patterns—which tended to spike during sales and plummet off-sale, creating logistical nightmares. It says about 95 percent of its revenue is now generated by its 400,000 members. It is clearly the foundation of RH’s revenue model today.

Over at Williams-Sonoma, its Reserve program costs $99 and doesn’t offer any ongoing discount, but does include free shipping (with some exclusions), a subscription to its recipe app and four complimentary virtual classes—the latter two of which clearly appeal more to the kitchen side of the business than the furniture one.

Interestingly, this isn’t Wayfair’s first attempt at a membership program. The company tried this before with its MyWay program in 2018. That membership plan was also about $30 ($29.99 to be exact) and offered some of the same perks as Rewards. In fact it had discounts on home services like assembly and next-day delivery, elements above and beyond the new plan. It’s unclear why it never took hold, but in March of 2020 it was discontinued without a lot of fanfare. In that, Wayfair isn’t entirely alone. Ethan Allen debuted a membership program in 2019, looking, like RH, to end all sales and get off the promotional roller coaster. In the years since, the retailer has resumed hosting sales, and its membership program has been scaled back.

At Wayfair, we’ll probably have a better sense of how many of its customers signed up for its Rewards program when it announces its next earnings on November 1. With cuts in its overhead, its first full-scale store and now this Rewards program, the company continues to look for ways to generate income—and more importantly, profit. One has to think that would be its greatest reward of all.

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Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.

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