The absolutely miserable news out of Wayfair yesterday confirmed what just about everybody else in retailing seems to understand: if you’re not wherever the customer wants to buy from you, you are nowhere.
Wayfair’s dismal first quarter showed declines in overall revenue, customer retention, shopping frequency, order rate and, most upsetting to be sure, a return to unprofitability after the retailer’s brief emergence into the black last year during the height (depth?) of the pandemic. And while Wayfair’s ever-optimistic CEO Niraj Shah continues to talk a good game about the future and the company’s opportunities going forward the fact of the matter is that for right now it is in a bad place.
Which is not to say Wayfair is going away. It continues to have financing and even if its stock is sinking fast – down more than three-quarters from its 52-week high last time we checked – it has the money to keep at this. But sooner or later something has to give and the way I look at it, here are its options:
1. Open a Shitload of Stores: Wayfair is planning to open three or four sub-brand locations later this spring or summer and while it hasn’t confirmed it yet, a large Wayfair-bannered location outside of Chicago next year as well. That’s nothing. Competitors like IKEA, the Williams Sonoma brands, Bed Bath & Beyond and Rooms To Go have dozens or even hundreds of locations. Just about every digitally-native retailer has learned it needs stores and Wayfair needs lots of them.
Unless it accelerates its plans fast and furiously to open 30, 40 or even 50 stores a year it will take decades for Wayfair to get the physical footprint it needs. Wayfair doesn’t have decades.
2. Buy, Baby, Baby: If Wayfair is truly adhering to the Amazon playbook, it should buy a physical retail chain just as Amazon bought Whole Foods. One can argue that deal has not been a huge win for Amazon but there’s no denying the fact that it helped it understand the grocery business in a way that would have taken far long if it had tried this just organically.
It’s the same equation for Wayfair. It has the money and instead of bringing on another building full of programmers it needs to immediately look at using that money to buy a physical retail chain. Who? How about At Home, which has the size and scale to immediately get Wayfair into the game. It’s privately owned now and so its investors probably wouldn’t turn down a deal to cash out. At Home’s private label merchandising mix fits nicely with what Wayfair is moving towards and these 250 or so locations also give it the distribution system it needs for online orders. Am I the only one who sees this?
Who else? Maybe Bed Bath & Beyond, maybe Crate & Barrel, maybe a consortium of regional furniture dealers they could cobble together. But maybe not.
3. Sell, Baby, Sell: Then there’s the fallback every direct seller has in their back pocket. Sell this thing to someone else, either a strategic buyer or private equity guys who can do their magic – more accurately, voodoo – and let them figure it out.
Strategically Amazon has a track record of buying other e-commerce operations – Zappos, Quidsi come to mind – and slotting them into its operation. It could do this with Wayfair and make itself the dominant-by-far online home furnishings resource. On the investor side, the first door I’d knock-on would be Sycamore Partners. They seem to love distressed businesses like this and certainly have the money to do the deal. Right now Wayfair’s book value is about $7.1 billion, which if not exactly chump change is certainly not out of the range of private equity guys in search of special dividends, management fees and all the other perks that come along with such deals.
Wayfair has a defined position in the marketplace, it is the go-to resource for home furnishings online and while it has hundreds of competitors there’s nobody else doing exactly what it does. It has a place. But that place becomes ever more tenuous without the physical footprint it desperately needs.
Look up the word – spelled “wayfare” – in the dictionary and you see the definition is “archaic : an act or course of journeying.” Couldn’t have said it better.
WarrensReport 