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Wayfair’s $112 billion plan to take over your entire home

The furnishings giant is almost 20 years old. But it says it’s just getting started.

Wayfair’s $112 billion plan to take over your entire home
[Source Photos: rawpixel]
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This story is part of Home Bound, a series that examines Americans’ fraught relationship with their homes—and the once-in-a-lifetime opportunity to hit the reset button. Read more here.

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It started with speaker stands. Steve Conine and Niraj Shah launched RacksandStands.com in 2002, when they were 28 and 29, respectively, and when the concept of buying things on the internet was just getting started.

The speaker stands sold well—well enough for Conine and Shah to launch another site, and another, and another, using the same formula of product-specific sites. They soon launched 250 separate websites, for niche topics like EveryCuckooClock.com, TheWokStore.com, and AllBakersRacks.com. Within a decade, the system they had built amassed $500 million in revenue per year (or about $2 million per year per site).

“We started thinking long term,” Conine says. While their strategy was successful, they saw a clear advantage in launching a destination site—a place like Amazon. Consumers would know to visit the site to begin their shopping journey, rather than land there through search engines and ads. So Conine and Shah hired a branding agency and rolled their dozens of websites into one.

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They called it Wayfair, a name designed to mean nothing.

In 2020, Wayfair did $14.1 billion in business in furniture and home goods. That gives it 2% of the $840 billion home category in North America and the U.K. (according to Wayfair’s Euromonitor data and its own analysis), making it only one-tenth the size of Home Depot. But anyone who has shopped for furniture and furnishings online knows that Wayfair has an expansive digital presence that no other home store can match.

During COVID-19, Wayfair reported its first quarter of profitability since it went public in 2014. Sucharita Kodali, a VP and principal analyst at Forrester, attributes some of that to a broader boost in online shopping and home goods during the pandemic. But Wayfair has experienced 50% year-over-year compound growth since it was formed in 2014. And 2020’s year-over-year growth was in line with this, at 55%. So with or without the pandemic, Wayfair argues it still would have been profitable.

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Wayfair is deceptively difficult to analyze, even for business analysts. It appears to be a massive furniture and home goods website, but it’s also a large infrastructural network that delivers products from manufacturers to people’s homes, and a technology company powered by 3,000 engineers and zero furniture designers. Wayfair doesn’t just want to sell you your next love seat; it wants to be your destination for every future home project, from remodeling a bathroom to redecorating your whole house, with just a few taps.

By current projections in the growth of the home industry, Shah explains that even without gaining more market share, Wayfair will be selling $112 billion a year in home goods by 2030. “We obviously intend for our share capture to build over time,” he says. But Wayfair’s competition is robust across the fragmented home industry. It includes home improvement chains like Lowe’s, big-box retailers like Walmart, furniture giants like Ikea, decorating services like Houzz, and countless direct-to-consumer startups dipping their toes into the furniture and housewares market. Wayfair’s quest to rule the home sounds impossible, but so does turning a website that sells speaker stands into a $14 billion business.

[Source Photos: rawpixel]

Building the Wayfair brand

Wayfair’s brand is designed to be a flavorless container. Contrast that to Ikea, Crate & Barrel, and Pottery Barn. Close your eyes and you can, no doubt, picture what these brands look like. A seasoned shopper can easily tell the difference between a Crate & Barrel and its own more modern spin-off, CB2.

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Those brands are built from careful design and constant curation. Wayfair is the opposite. It’s just everything the company can possibly sell, presented with a user experience that is meant to home in on your tastes before you stop scrolling. Wayfair is the opposite of a curated shop. It’s an infinite marketplace tucked into a simple website, ready to serve you an endless buffet of options until you find something you’d like to buy.

That “throw everything at the wall” philosophy is even evident in the company’s name. “It’s a made-up name,” Conine admits. “We thought [these] two words go well together. It has no other connotation. . . . We’d come out of naming 250 sites. We were a little cavalier about it.”

Conine says that Wayfair was an “empty vessel” by design. The founders knew its meaning would be built through customer experience, and not simply through the ease of one transaction. It was the speed, price, selection, and dependability over time that would make Wayfair mean anything.

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Unlike, say, Target, Wayfair has no internal design team following trends and developing new products. It makes no attempt to curate its furniture through careful buying or scrupulous interaction with manufacturers. “We actually want all the things on our site,” says Liza Lefkowski, the company’s VP of global brand. “We’d never not accept anything because of its aesthetic or price point.”

Today, that means Wayfair sells more than 22 million separate items (for comparison: Ikea sells 9,500), which companies can post to Wayfair using simple publishing and analytics tools. That should create a chaotic-looking site, with products presented 22 million different ways. Instead, Wayfair has a surprisingly consistent look, from its user interface to the furniture itself.

That’s by design. “There is a Wayfair aesthetic,” Lefkowski says. “There is one look we put out there, but it is meant to be an inclusive look that celebrates home.” Think couches with rivets on the armrests. Teal throw blankets. Twelve-piece wicker patio furniture sets. It’s distinctly Wayfair in its indistinctness.

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To help create consistency across its site, Wayfair offers vendors a portal to list their own products, with specific guidance on what to include, from close-up images of the fabric so customers can see what they’re getting to an explanation of what it’s made out of. These details are all about increasing consumer confidence in their purchase. Meanwhile, vendors get access to both online guidance and metrics for improving their sales. Wayfair also makes its own advisers available on request.

But it doesn’t try to be too prescriptive. Whatever HGTV shows may pretend, people do not design a home’s interior with a blank slate, but rather chip away at their decor over time, replacing this or that. That means no one actually builds their entire home from an Ikea catalog, however convincingly Ikea sells that vision. “What you find in most homes is very few people subscribe to one aesthetic,” Lefkowski says. “People collect things over time. . . . They find a personal style, and you can never put your finger on it. If you ask people what their personal style is, they have a tough time telling you.” Wayfair, with its tens of millions of products, meets them where they are.

Wayfair’s contained chaos

Having 22 million different products with no central design thesis means that Wayfair faces a problem: How do you help people find what they are looking for? It’s a problem Wayfair is working on, but hasn’t completely figured out.

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As you scroll and click through the site, your selections—ranging from price to style—inform an algorithm, which starts customizing what you see. That follows you to your Wayfair email, which will pitch you on specific products based on your browsing history (yes, that eerie phenomenon that is pretty common with most retail sites today).

Ironically, one site built from 250 brands is now breaking off into more brands and sites. Wayfair.com uses its own fabricated brands like Greyleigh and Andover Mills to organize collections that might fall into more specific niches, such as midcentury modern. They are organized as collections, not through the design process (as with Target) but after being listed by unaffiliated vendors to reduce the mental load of someone browsing the site.

“These aren’t brands we’re hoping to build into stand-alone brands. These are more half-ways,” Lefkowski says. “We’re using it as a way to find ‘more stuff like this thing I like.'”

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Wayfair also has sub sites. You have probably heard of AllModern, Joss & Main, and Birch Lane. These sites are spin-offs from Wayfair. They offer a more focused selection of what Wayfair offers (though, I’d argue, it all still kind of looks like Wayfair). Its high-end site, Perigold, will gladly sell you a $2,000 accent table, but as I scroll through options, my brain bounces around among so many different looks that I can’t even tell what I like anymore, let alone why one end table is $1,000 more expensive than another.

This is a central tension in Wayfair’s marketplace business. In trying to be all things to all people, it can end up being nothing. There’s a reason why having a point of view matters—it foments desire in a way Wayfair does not.

“This is an area where we clearly have work to do,” Lefkowski says when I mention how prices and styles blur on Wayfair sites. “But we’re always trying to make that price-value trade-off more obvious.”

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[Source Photos: rawpixel]

The quiet logistics powerhouse

Probably the biggest reason Wayfair has been successful is the design of everything that you don’t think about: its operational infrastructure. “It’s very easy to put up a sexy website and promise consumers [the product] ships fast,” Conine says. “You’ll do that, you can get one order from a lot of people . . . but it’s hard to create a durable operating experience.”

Shipping furniture is a pain. The products are big, heavy, and fragile, which is a perfect storm for pricey deliveries that inevitably fail when goods arrive damaged. However, Conine views this challenge as a competitive advantage over larger, would-be competitors. “Mass-market brands don’t go into the category,” he says. “If you’re a Walmart and know you can ship socks reliably, to say, ‘Let’s sell bar stools!’ is going to have a lower [customer] satisfaction rate. We can be the best in a difficult category.”

Online retailers are low-margin businesses already, so those that succeed have curated what they sell carefully to protect their margins. “In Amazon’s world, they focus on light, small packages,” says Shah, pointing out that a vast majority of Amazon’s shipments weigh less than 5 pounds. “In our world, the packages are different, bulky, and prone to damage. Dollar per cubic foot is pretty low.” Indeed, Shah says that logistics eat up 20 cents of every revenue dollar, ranging from ocean-freight costs to the last-mile delivery to your door.

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Around 2014, Wayfair began tackling the problem head-on by building its own logistics network. Rather than relying on other services to ship its products, Wayfair built 18 million square feet of warehouses globally and constructed a network of two-person delivery crews that now deliver 75% of all packages shipped by the company.

As for getting all these items from different overseas manufacturers to the U.S., Wayfair created its own freight forwarder. That means Wayfair doesn’t own cargo ships, but it does handle a lot of the logistics for getting items on those ships. That in turn gives it more control over the shipping process and leverage with cargo companies (Amazon owns a freight forwarder, too). Wayfair offers all of its suppliers the option to take part in its shipping network.

In international shipping, scale is key. Smaller businesses are easier for shippers to ignore than big ones, because smaller businesses have smaller dollar contracts to ignore or cancel. Countless stories have arisen over the past year of companies suffering from supply chain problems during the pandemic, when a lot of overseas manufacturing and shipping activity ground to a halt. Peloton, notably, directed more than $100 million toward freight to fulfill customer orders faster. To this day, even Apple cannot source some of the chips it needs for its products.

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Wayfair’s system is set up to distribute goods from abroad through the United States quickly. With tighter control over shipments, Wayfair doesn’t just receive its goods at California ports (which is common in international shipping, as costs tend to be low because of the West Coast’s proximity to Asia); it also operates in D.C., Texas, and New Jersey. The company predicts demand, distributing items to various U.S. hubs for quicker regional delivery. Because of Wayfair’s investments in logistics over the past several years, it has had enough leverage to keep delivering products internationally pretty predictably, relatively speaking, even during COVID-19.

Forrester analyst Kodali notes that Wayfair’s resilience during COVID-19 may have had less to do with its shipping logistics than its business model. Peloton has problems because it has more or less one product, she explains. “When you have a marketplace, you’re not just dependent on one supplier,” Kodali says. “You can fill in the gaps with others.” When something sells out in the empty vessel that is the Wayfair brand, it can simply be replaced with another option, and another.

[Source Photos: rawpixel]

The future of home

Ask cofounders Conine and Shah about the future of the home goods business, and they will quickly say what a lot of companies say nowadays. Theirs isn’t a home goods company; it’s a technology company. They have a point. Wayfair neither designs nor manufactures furniture. It builds websites, and it operates shipping logistics. That means its core competency is closer to Chewy or FedEx than Herman Miller.

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Wayfair currently employs 3,000 engineers and data scientists who are tasked with building out its technological platform. That’s more than the entire head count working on Snapchat or Slack. As Shah admits, that’s also far more people than the company needs to maintain its own platform. The investment is for a 5- to 10-year vision of the future that’s far more ambitious than the Wayfair you know today, and it’s being led by a small R&D team of fewer than a dozen people called Wayfair Next.

Wayfair Next is the company’s attempt at future-proofing its business while expanding its revenue potential. And in a somewhat ironic twist, that means Wayfair is even teaming up with some of its competitors to do so. That’s because Wayfair is leading the creation of a new standard to help sell furniture and home services online.

Shrenik Sadalgi, the head of R&D at Wayfair, runs Wayfair Next. He is also the founding chair of an initiative called 3D Commerce at the Khronos Group, a nonprofit industry consortium that helps companies develop shared technological standards around topics like augmented reality.

As Sadalgi explains it, digital photography used to be a mess before the JPEG came around. Every company had its own way of rendering photos, and they weren’t interoperable. But once everyone agreed on JPEGs, digital photos simply worked.

What he wants to spearhead is basically a JPEG for a 3D piece of furniture. Such would allow Wayfair’s catalog to instantly live in 3D space on any platform. That means a Google search could pull up a Wayfair couch that you could see in your living room without even loading the Wayfair app. It also means you could take something like a 3D home walk-through used by real estate agents today and add all sorts of virtual objects to it.

Upward of 70 companies are on board with this initiative, ranging from tech firms (Google, Microsoft, Facebook, Amazon) to furniture companies (Target, Lowe’s, Crate & Barrel, Ikea). Long term—perhaps a decade out—Wayfair imagines that many of us will have some sort of 3D scan of our home. Maybe it’s something you’ll grab with an iPhone (which can do 3D mapping today) or maybe it’s something you get on a typical home inspection (Apple AR headsets are reportedly coming next year, and it’s likely they’ll be able to scan spaces, too). 

The precise details are in some ways less important now than the clear trend in that direction, Conine explains. With a 3D furniture standard, and 3D homes, the way Wayfair and every other digital furniture retailer works would change.

“It wouldn’t be difficult for us to, say, toggle a button to show everything [on the page] in your space,” Conine says. “Instead of inspirational photography, we could put these couches in your living room. That’s a simple experience.” All sorts of companies have experimented with using augmented reality toward this purpose, allowing you to hold up your phone awkwardly to try to picture a credenza in your dining room. But digitizing one’s home would allow photorealistic renders to live on Wayfair itself. Basically, Wayfair would turn your house into its catalog, generated with new products as you browse. (That’s less far-fetched than it may sound, given that, like Ikea, Wayfair’s furniture photography is mostly computer generated already.)

But where Conine gets more passionate is with a second example of what the company can do with a scan of your home, which pushes Wayfair from home furnishings to home services. “You can take what was taxing . . . say, a bathroom renovation, or a reroof,” Conine says. “I don’t need a contractor; I can put a bid out and have contractors bid. You give them this information, bam!”

Not everyone is convinced of this possibility—in part because homes are notoriously tricky to work on, full of complicated histories, and in part because contract work is a notoriously word-of-mouth business. And monthlong bathroom remodels don’t lend themselves to amassing online reviews as fast as driving for Uber. “I would be somewhat skeptical of that [vision],” says Forrester’s Kodali. “It’s going to be a while before we hire major contracting projects through an online bid. You may hire someone to install a toilet, or do something small.”

Yet even if Wayfair falls short of this ambition, its foundational work today could help bridge the gap between online shopping and our actual homes tomorrow. Does all of this mean that Wayfair is a home brand or a tech brand or a logistics brand or a design brand? Conine says it doesn’t really matter. Customers don’t sweat such classifications, he says. “Consumers just want a home brand that will solve their home stuff.”

About the author

Mark Wilson is a senior writer at Fast Company who has written about design, technology, and culture for almost 15 years. His work has appeared at Gizmodo, Kotaku, PopMech, PopSci, Esquire, American Photo and Lucky Peach

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