Online home-furnishings giant Wayfair will have sales of about $4 billion this year, nearly double what it sold two years ago. But with its free delivery feature, Wayfair’s profit margins are considerably less than those of its competitors.
Early on a fall morning, the sweat was already beading on Sean Williams’ brow as he and his partner wrestled with a problem worthy of a geometry class: figuring out the series of lifts, tilts and tugs needed to squeeze a sectional sofa through the front door of a New Jersey home.
Just a few days earlier, Jeanne Korchak had found the perfect L-shaped sectional for her Fair Haven home from a website run by the online home-furnishings giant Wayfair. Now it was up to Williams to flawlessly deliver and assemble the sectional. A single rip or ding and Wayfair would wind up taking the furniture back.
After Williams declared he was done, Korchak stepped into the room, her eyes zeroing in on a beige sofa cushion. “Is that a stain?” she asked. The room fell silent.
These days, ordering a shirt or a pair of shoes online and having them delivered to your home is easy. And while online grocery delivery may occasionally result in a broken egg or melted ice cream, it is hardly the end of the world.
But ordering big, expensive furniture — a sofa, dining-room table or mattress — online is a more complex challenge. Is that chair more teal or more turquoise? It is hard to tell through the pixels. Do the cushions feel like you are sitting on a cloud or on a boulder?
And that is before the demanding task of delivery. Oversize couches meet small door frames. Fragile crystal chandeliers meet floors. Vanities are the bane of all deliverymen, managing to be both bulky, weighing hundreds of pounds, and delicate, with easily scratched or nicked tops.
This is the knotty space that Wayfair is trying to own.
This year, Boston-based Wayfair will sell around $4 billion worth of ceiling fans, dog beds, espresso machines, hot tubs and artificial Christmas trees (around 55,000 sold in the last 12 months) online. That is nearly double what it sold two years ago and just a little less than the home-furnishings giant Williams-Sonoma, which owns Pottery Barn and West Elm.
It is a growth story that has proved irresistible to Wall Street; Wayfair’s stock price has more than doubled this year, to $71.
But the big question hovering over Wayfair is whether the company can ever make money by delivering bulk furniture virtually for free. The company is expected to lose nearly $200 million this year and has been a favorite of short sellers, betting that the company’s stock price will fall.
Most major furniture retailers will change at least $130 to deliver a couch. But Wayfair will ship or deliver any purchases costing $49 or more for free, bringing large pieces of furniture into the entrance of your home. (Taking the item to a specific room or assembling it costs extra.) And if the order is damaged or if the customer simply does not like the color, Wayfair says, it will take the item back.
Noting that Wayfair’s profit margins are considerably less than those of its competitors and that Amazon has signaled its interest in the space, some analysts argue that it may be difficult for Wayfair to produce profits. There has also been speculation in the industry that Amazon or Walmart could acquire Wayfair.
Wayfair was founded by Niraj Shah and Steve Conine, friends and engineers who graduated from Cornell University in 1995. Within three years, the pair had sold their first company, an information-technology consulting business, for $10 million.
But in 2002, as dot-coms collapsed, the two men noticed that small, specialized online retailers were still growing at a rapid clip.
“One lady had a website selling birdhouses that she stored in the garage,” Shah said in an interview. “She was looking to sell her business because she couldn’t keep up with the demand.”
So the two men started racksandstands.com, a website selling, well, stands and racks for televisions. In its first four months, the site amassed $400,000 in sales.
By 2010, the company was an incongruous collection of 270 websites, from cookware.com to everygrandfatherclock.com to outdoorrugs.com. So Shah and Conine consolidated the sites under one digital umbrella, and ultimately called it Wayfair.
Today, sitting under that umbrella is a dizzying array of more than 8 million products. The company offers 7,328 types of coffee tables, 106,430 different area rugs (20,073 of them blue) and 759 different standing coat racks.
To help customers wade through its virtual bazaar, Wayfair has some of its 1,000 software engineers constantly developing new features for its app. One allows consumers to snap a photo of an item, a couch or chair, that Wayfair then matches with products on its website. Another recently released feature produces a 3-D image of the Wayfair product, allowing consumers to see how a piece looks in a room and, perhaps more important, whether it will fit the room’s dimensions.
In an effort to bring down some of its costs, Wayfair has spent much of the past year changing its shipping and delivery models.
“We’re bringing it in-house,” said Sharif Sleiman, Wayfair’s head of supply chain and operations as he strolled through one of two new warehouses that Wayfair has built just outside Princeton, New Jersey.
The combined warehouses — the size of 17 football fields, with racks that stretch 40 feet to the ceiling — hold some of Wayfair’s most popular smaller household items and furniture, from scrub brushes to lamps, that can be shipped throughout the Northeast on United Parcel Service or FedEx trucks.
“We’re able to deliver faster, within one or two days,” Sleiman said, “and we’re seeing less damage.”
But delivering the bigger pieces of furniture is much trickier. A year ago, all of the “last mile” warehouse facilities were run by third parties. But concerns about inconsistent customer service and damaged tables and beds prompted Wayfair to take over half of the facilities, trying to infuse a sense of teamwork and enthusiasm among its workers.
Williams and other deliverymen are employed by a third-party freight-delivery firm, but Wayfair puts the drivers through extensive customer training, shows them how to handle fragile items and gives them bonuses for good customer feedback.
Williams’ first delivery that morning — dropping off and assembling a cocktail table — went smoothly. But in Fair Haven, he hit a snag with the sectional sofa.
On this day, at least, Wayfair escaped the fate of returned furniture. A few dabs with a baby wipe and the mark on the cushion disappeared.
Korchak declared that she was pleased with her purchase, and, about 30 minutes after he had arrived, Williams pulled the truck out, headed for his next delivery.