Wayfair has been called the canary in the coalmine of the home furnishings market. If that is the case, then an abrupt adjustment is coming for the category. But when the inevitable occurs, Wayfair is well-positioned to profit from it.
The online home furnishings retailer saw overall first-quarter sales decline by 13.9% to $3 billion, with U.S. revenues falling 9.9% to $2.5 billion. It also retreated to unprofitable territory with a net loss of $319 million in the period ended March 31.
Admittedly, Wayfair was up against exceedingly strong comparables this quarter, after seeing revenues rise nearly 50% in first-quarter 2021 over the same period in 2020. But then it hit speedbumps, largely credited to supply-chain issues, and ended the year down 3.1% to $13.7 billion and with U.S. revenues of $11.2 billion off 5.5%.
CEO Niraj Shah described the current market as entering a “softer period” in the earnings call. He added, “We are seeing early signs of normalization in consumer behavior” and shared that the normal seasonal curve is happening in a “more muted fashion.”
A return to normal is what’s ahead for the home furnishings category overall. While home furnishings retailers are still enjoying consumers’ pandemic-induced swing to refreshing their home spaces – in the first quarter, U.S. furniture and home furnishings store revenues rose 5.% over the previous year – that level of growth is unlikely to hold up through the rest of 2022.
Inflation is hitting American’s budgets hard, up 8.5% overall in the past year, squeezing expenditures on high-end purchases like furniture. And double-digit inflation in home goods is stressing the category more. For example, furniture and bedding prices are up nearly 16% and decorative items are tracking a 12.2% increase.
Another indicator of the new normal ahead for the home furnishings market is a cooldown in the housing market reported by Reuters. In normal times, demand for furniture and home furnishings rises and falls with the housing market.
With housing prices up 35% over the last two years and 30-year mortgage rates nearing 5% now, and further increases expected, more Americans are going to be priced out of the home market which will drag down home furnishings spending.
Wayfair is ready for it
When the proverbial you-know-what hits the fan, Wayfair will be better off than most home furnishings retailers. It’s cultivated relationships with over 25 million customers and over 23,000 suppliers and invested heavily in its technology stack that powers the entire operation. As a result, it is able to put the right product out of over 30 million available before the right people.
Wayfair is a true partner with its suppliers – “We’re the only major retailer who doesn’t write checks for inventory,” Shah said in the earnings call – and shares its success across its supplier network, with no single supplier accounting for more than 2% of sales. Further, the supplier sets the retail price on the Wayfair platform and can adjust it on a daily basis.
“Our suppliers are leaning in aggressively to get share,” Shah related. “That’s, obviously, a great customer value proposition. We do our role in bringing that promise to customers.”
And as the retail market for home furnishings tightens, Wayfair will benefit from a highly promotional environment where the lowest-priced offer wins with consumers.
It routinely sponsors heavily promoted events, like President’s Day, Memorial Day and Black Friday. And it hosts an annual two-day Way Day event that offers significant savings across Wayfair.com and its other platforms, including AllModern, Birch Lane, Joss & Main and Wayfair Professional.
The just-concluded April 2022 Way Day event, which isn’t accounted for in first-quarter earnings, was reported to be the company’s best Way Day ever.
“Our Way Day event represented two of the four largest days in Wayfair’s entire history. For context, the other two were during the pandemic,” Shah announced.
Looking forward, Shah sees the supply chain challenges it faced last year beginning to dissipate which will put it in a favored position since the company finds it does better when overall supply meets or exceeds demand. “We believe this will accrue to Wayfair’s benefit,” Shah said.
As for the remainder of the year, it anticipates that year-over-year comparables will even out after the volatile 2020 and 2021 period. So perhaps, this quarter’s 13.9% dip will be its biggest and growth and profits will return.
“We believe the pendulum will swing progressively towards equilibrium here over the course of 2022,” Shah predicted. “It is also encouraging that we are driving share capture in the US thus far in 2022 and expect that to continue.
“We also expect year-over-year revenue growth to progressively accelerate over the course of 2022, aided by improving product availability, speed of delivery and customer value, as well as normalizing year-ago comparisons,” Shah concluded.