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C-Suite Strategies (A Special Report) --- Are Consumers Ready to Buy Furniture Online? The answer is yes, says Wayfair's founder and CEO; It's a matter of demographics Safdar, Khadeeja . Wall Street Journal , Eastern edition; New York, N.Y. [New York, N.Y]03 Oct 2016: R.8. ProQuest document link

ABSTRACT

The Wall Street Journal spoke with Niraj Shah, the CEO and co-founder of Wayfair, about how the company plans to overcome these structural and competitive forces. Traditional brick-and-mortar retailers are doing drop shipping, or shipping directly from manufacturers.

FULL TEXT

Wayfair Inc. thinks it can be the Amazon of home furnishings.

The Boston-based company, which has no physical stores and minimal inventory, has become the largest online-only furniture retailer in the U.S. Its revenue jumped to $2.25 billion last year from $1.32 billion a year earlier.

Wayfair undercuts traditional retailers by providing faster and cheaper shipping options. Its website, sporting the tagline "a zillion things home," offers an almost bottomless range of products -- more than seven million, from rugs to appliances -- shipped directly from a network of more than 7,000 suppliers.

But the 14-year-old company has struggled to convince investors that it's here to stay at a time when Amazon has been entering new categories, such as apparel and handmade goods. Wayfair, which says it was profitable as a private company, has reported losses since going public in 2014 and making heavy investments in logistics and technology.

The Wall Street Journal spoke with Niraj Shah, the CEO and co-founder of Wayfair, about how the company plans to overcome these structural and competitive forces. Here are edited excerpts.

WSJ: E-commerce hasn't penetrated the home category as deeply as other segments such as electronics. Is that because furniture is one of those things that people want to touch and feel before buying?

MR. SHAH: Furniture is going to be one of the more considered purchases. You started buying online by buying a book or a CD or a DVD. Eventually, you bought more and more complex items and more considered purchases. One of the last categories to get penetrated will be home. The second thing is that a lot of the early adoption of online shopping has been driven by younger audiences. Unlike music or apparel, you don't really buy home goods till you get into your 30s. You are starting to see online purchasers are now getting into the demographic where they are PDF GENERATED BY PROQUEST.COM Page 1 of 5 buying home as a category.

WSJ: Are returns a problem for you? Have you done anything to minimize your return rate?

MR. SHAH: Returns are actually pretty low. They run around 5%. The reason they're low is partially because consumers do think about the purchase before they make it, but also we did lot to help the customer understand what the item is. We collect up to 100 pieces of factual information on each item. We have over 1,000 full-time Wayfair employees in customer service. We offer swatch samples and other things that give you a really good understanding of the item.

WSJ: Traditional brick-and-mortar retailers are doing drop shipping, or shipping directly from manufacturers. Some have bought e-commerce players. Bed Bath &Beyond acquired One Kings Lane. With the right tools, isn't it possible for them to replicate your business model?

MR. SHAH: From an execution standpoint, we are pretty far along. Would it be impossible for someone to replicate what we have? I wouldn't say it's impossible, but it would take a lot of time and quite some resources past what they have today, even with these acquisitions.

WSJ: Many pure-play online companies, such as Bonobos and Warby Parker, have moved into the brick-and-mortar space. Have you given any thought to showrooming or any in-store concepts?

MR. SHAH: There's obviously an audience for whom the brick-and-mortar experience is really valuable, but what we've seen is the biggest opportunity is the online audience. In commodity goods, you can see the size to which Amazon has gotten, and they are only now recently opening a bookstore or two as a test concept. If you're the leader in a large category, you actually don't need stores until you're quite sizable.

WSJ: What, if anything, will prevent Amazon from cannibalizing your business?

MR. SHAH: Amazon certainly has aspirations to do everything, and some categories fit them really well. Their distribution network is not optimized around large bulky goods or in-home delivery where you need to do setup and installation. Home is one of the categories that fit them the least, so the opportunity for a specialist to be the core go-to for consumers is a very likely reality.

WSJ: Do you have a path to profitability?

MR. SHAH: Wayfair was profitable for nine years. We grew it to about $500 million in sales just out of cash flow as a profitable enterprise. As we look forward, we expect that we will be profitable again in the not-too-distant future, and the basic reason why is that today we have about a dozen investments we're making that add up to being significantly more than the aggregate operating losses we have.

WSJ: By staying private, you wouldn't have had to report to shareholders and would have been able to keep finances private. Why did you choose to go public?

MR. SHAH: We decided that some of the benefits around liquidity and particularly the fact that all employees in the company are equity owners and that equity then has an open market -- there are significant benefits to that for our PDF GENERATED BY PROQUEST.COM Page 2 of 5 company. It's easier to be long-term focused in a private setting than a public setting. In our case, we've chosen to stay very long-term focused in a public setting. I think the investors that we've spoken with appreciate that and understand that, so we're able to get some of the best of both worlds.

WSJ: Since its IPO, Wayfair's stock has seen wild fluctuations and large levels of short interest. Why?

MR. SHAH: If you are a category disrupter and you're aggressively growing and you're still far from your long-term profit model, you are going to have a fervent base of advocates who really understand the vision and really know how to measure success, and you're going to have a set of folks who are going to be skeptical and they much prefer the status quo. They tend to understand the models that were more of the past than necessarily of the future. Over time, the company's performance will prove out one camp or the other to be correct, and then the stock will then be valued accordingly.

Today Amazon is regarded widely as a success, but there was a long period of time when its stock had gone down. If you look at Netflix, you will see a similar pattern. When Google went public, there were a lot of naysayers. This is a pattern through history. ---

Ms. Safdar is a staff reporter in The Wall Street Journal's New York bureau.

Answer the following questions.

1. Before jumping into answering questions 2 to 4, spend some time navigating aroundWayfair's Web site and compare it to Amazon. Do you (personally) buy what the CEO says in the interview?
2. Identify the strategies of Wayfair and Amazon(among the generic strategies )?
3. To what degree do you think Amazom.com will diminishWayfair's lead in online furniture and home goods sales? Make sure to use the language of sustainable competitive advantage when answering this question.
4. Do you accept the premise thatWayfair, because selling furniture is its specialty, will be able to maintain its market share lead over Amazon.com, regardless of Amazon.com ambitions? Make sure that you use the concept of core competence and that you apply the VRIO model to answer this question.

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