Forget about Wayfair being the canary in the coal mine. It’s much more like the elephant in the room.
In a particularly ugly set of financial results for the past quarter—and coming on a day when Wall Street was in free fall—the giant online home furnishings platform reported pretty much across-the-board declines in just about every financial measure.
Sales were off 14 percent, totaling $2.99 billion compared to $3.48 billion in its first quarter a year ago. Bottom line results also shifted, from an $18 million profit a year ago to a loss of $319 million, or $3.04 a share, this year.
The list goes on. Nearly every key customer criterion declined, including total number of active customers (those who had made a purchase in the past 12 months), which was off 23.4 percent; orders per customer, dropping from 1.98 last year to 1.87 today; and orders from repeat customers, which fell 26 percent.
Not surprisingly, investors and shareholders didn’t like what they heard and the stock was off about 16 percent by midday, trading dangerously close to its 52-week low. Since the start of the year, Wayfair’s share price has dropped by almost three-quarters, and at about $74 a share it is way, way off its 52-week high of nearly $340 a share. While the stock of other home brands have stagnated in recent months, Wayfair’s abrupt fall from grace signals that while it asymmetrically benefited from the pandemic, it is now experiencing an asymmetric decline.
Company co-founder and CEO Niraj Shah, ever the optimist, was clearly looking at the glasses Wayfair sells and seeing them half-full. “The companies that will be most successful in navigating this dynamic environment are those that can act with agility, balancing near-term demands with outsized longer-term opportunities, which is an apt description for Wayfair,” he told investors. “We are well positioned to outperform and gain share from here, and we are not losing sight of the massive market opportunity still ahead. … We have complete confidence in the structural economics of our business based on the investments we have made and the key drivers that should propel profitability higher over time.”
He pointed to the retailer’s recent Way Day—the company’s annual two-day promotional event in late April—as proof that Wayfair is on the right track. “Shoppers are still very interested in the home category, as evidenced by our most successful Way Day event ever last week, which included two of the four largest days in Wayfair’s entire history,” he said.
During the depths of the pandemic, when the home business was booming and the move to shopping online was massive, Wayfair was the right company in the right place at the right time. Its top line revenues soared—and the company recorded its first profitable quarter since its IPO in 2014.
Now, with a decided slowdown in spending on home products and absolutely no physical retail presence, Wayfair is 180 degrees away from the market. Supply chain issues that have plagued the home furnishings industry are only adding to the bad news.
What will it take for Wayfair to reverse course? Shah said the company expects “supply chain constraints to ease,” although he did not put a time frame on it. Many companies in the home furnishings space continue to struggle with delivery slowdowns, particularly from the recent COVID-19 shutdowns in China, and there appears to be no letup in the historically high rates being charged for shipping containers and ground transportation.
The company does plan to open its first handful of stores later this spring or summer for several of its subbrands in the greater Boston marketplace. While the company has not officially announced a Wayfair branded store, real estate reports have confirmed plans to open its first location next year, a 150,000-square-foot store in the Chicago suburb of Wilmette, Illinois.
But it will take much more than a few stores and a drop in container prices for Wayfair to turn itself around. For the moment, the company seems to be returning to its pre-pandemic profile of ongoing losses. Although it continues to have enough financing for the time being, investors are increasingly skeptical of unprofitable businesses, particularly those well into their second decade of public life.
From all appearances, there’s no danger of Wayfair going away. But there are also fewer signs of it going ahead.
Homepage image: ©Sdx15/Adobe Stock
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.