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"People would debate whether home goods would be bought online" - Wayfair CEO Niraj Shah on furnishing retail disruption long before the COVID shift to e-commerce

Stuart Lauchlan Profile picture for user slauchlan January 19, 2021
At one point, people questioned if home furnishings was really a retail sector suited to the e-commerce revolution; Wayfair has proved it can be and this is how they did it.

(Wayfair co-founder Niraj Shah)

One of the retail success stories over the past year has been furniture and home goods firm Wayfair. As far back as April last year, in the early months of pandemic lockdowns around the world, the e-commerce pureplay was reporting a sharp uptick in business. As diginomica noted at the time:

At the start of March, Wayfair’s revenue growth was around 20% year-on-year. A few weeks later, by the end of March that figure has more than doubled and the first few days of April have seen a continuation of that level of business…But will the improvement be sustainable?

At that point, the increased growth was attributed in large part to shelter-in-place orders and remote working which saw people shut in their homes, many looking to build out a proper home office and many others just deciding to upgrade their living space if they were going to be under effective ‘house arrest’ for who knew how long.

But there’s more to it than that, insists Niraj Shah, Wayfair co-founder and CEO, noting that it’s 18 years since the company was founded (then known as CSN Stores), so e-commerce success dates back much further than the onset of COVID. He points to 2014, the year that the firm went public to make his point:

That year our direct retail sales were $1.1 billion, so we weren't super-small, but we weren't super-large. This year we'll be around about $14 billion. So 1.1 to 14 in six years. 

Clearly that’s impressive, but perhaps as striking is how Wayfair has shattered some misconceptions about the sector in which it operates. Shah argues:

In the early days, people would debate whether home goods would be bought online. Then it became clear that home goods were being bought online, but the debate became how big a piece of the market could move online?

There’s a comparison to be made with the COVID-driven uptake of online grocery shopping and delivery, he suggests. Pre-pandemic, this was not standard practice or not in the US at any rate), but now after 10 months of the virus, it’s become an enthusiastically-embraced phenomenon and one that’s likely to continue post-COVID. That begs a question, says Shah:

Why did you not buy your groceries online before the pandemic? The answer is basically, ‘I don't know’. It's one of those things where you don't actually understand whether you're going to like it or not. It's one of those things you cannot know and you're comfortable the other way. But perhaps you don't really understand the new way is going to be far preferable to you personally.

How Wayfair did it

The same can be said for the home goods category, he suggests - it’s another good idea that was waiting to happen. That said, he’s quick to add that there was also a hell of a lot of hard work that went into getting Wayfair to where it is today:

E-commerce is a very tough business and the reason why it's tough is that it's like an athletic competition that really rewards the fully well-balanced athlete versus someone who maybe has really strong arms or particularly strong legs. What I mean is that perhaps you're great at merchandising, but you're not great at logistics. Or perhaps you're great at merchandising and logistics, but perhaps you're not great at technology. Or perhaps you're great at all of those, but you don't have the kind of the deep supplier relationships and the technology that you need to really fully do what you want to.

What happens is, whatever you're not great at is actually what limits your growth, because that's the thing that eventually slows you down and being great at other areas doesn't make up for it. In other words, our quantitative marketing capability would not be enough to make up for the fact that we had poor merchandising or if we had a limited size catalog or if we had poor logistics. So our approach of investing in every area of the company…also ties with a technology vision of using technology in every area of the company for differentiation.

Technology is at the center of everything, he states:

One of the things you realise really early on is, if you fully embrace technology and and use it in transformative ways and embed it in all areas of your business, you end up being able to do things that you couldn't otherwise do. And if you're smart about understanding what customers want, you end up doing things that they really value and care about, whether it’s offering furniture for next day delivery or whether it's having an expansive selection of 10,000-plus table lamps while still making it easy for them to find what they want. Basically through the use of technology, not [technology] for the sake of technology,  you use it to create kind of bespoke experiences that are in fact what customers desire.

That philosophy is reflected in a break-down of Wayfair’s operational demographics. Out of a headcount of around 17,000, 10,000 work in various customer service and logistics functions, with over half of the remaining 7,000 staff working in tech roles, as software engineers product managers, product designers, data scientists and so on. Roughly 20% to 25% of the total headcount works on what could be thought of as “the e-commerce experience”, such as the apps or the website; far more are working on the infrastructure to support the catalog or the recommendations algorithms or the supply chain or operational engineering etc etc.

Customer view

Alongside tech, customer service is another huge priority. Home goods retail involves a lot of big and bulky items, vulnerable to being damaged in transit to customers. How complaints relating to such unfortunate  incidents is dealt with is critical, says Shah:

You have damage as a big challenge in the category, not just for e-commerce, but broadly. What happens is, when you have great service and you take care of the customers, that obviously is a big deal. If it becomes a customer's problem and the experience is full of hassle, well, a customer might tolerate it if they have no choice, but at the end of the day, if they can get a great experience somewhere they know, they're going to go back to that place.

It’s the customer experience that drives repeat business, he adds:

If they know that we have all these categories and they know they've had a great experience - they found this perfect item and the experience, including delivery and service and everything, went great - they're going to keep coming back. If something goes wrong and then they have a great service interaction, that only makes them want to come back more, because now they say, 'Well should anything happen, which I'm not expecting to happen, but should anything happen, I know I'm going to be taken care of very easily’.  Why would you not want that? It's that kind of approach, while we continue to make the experience better and better, that's driving the growth.

COVID and beyond

While Shah’s point about Wayfair’s e-commerce credentials pre-dating COVID is well-made, the pandemic has undoubtedly given online business a boost. At the same time, as with all retailers, the firm was faced with fresh challenges when the virus hit the US:

What happened is overnight we basically had to take a multi-thousand person customer service organization and get it working from home very well. Overnight, [with] the logistics operations, we had to figure out how to get those working with social distancing and cleaning protocols and safety protocols. That has worked fabulously. We've've been able to keep up-and-running in a very healthy and safe manner.

Wayfair’s earlier investments had positioned it well, he adds:

All the things that you do to try to make yourself a world class organization, from the depth of the supplier relationships to the capabilities of your teams of people, it pays off….If you try to catch up once you fall behind, it's too late in a crisis. You don't have the time to catch up. You're going to basically get whatever you were investing for, even though it was unknown, and I think that's been a big piece of why we've done so well.

Looking beyond the ongoing health crisis, Shah sees plenty of room for growth and innovation to come:

Just look at some of the categories that are among the most advanced online, whether that's shopping for electronics or office supplies, and you'll see that 50% to 60% of the market has moved online. And then there's a lot of other categories that might be at 20% or 30%. I think what you're going to see in all these categories is they're going to continue to tick up and while 50% to 60% might be the sort of place where you get to that balance of online/offline, there's still tons of room in those categories.

And the technology involved will continue to become more sophisticated to enhance the customer experience and encourage more engagement, he predicts:

For example, there's technology that already exists today where you run your hand over a screen and you can ‘feel’ the fabric, you can ‘feel’ the texture. Now today that is quite an expensive screen - it costs thousands of dollars and the battery power is very significant - but the estimation is that in five years that will be the screen that will be on your advanced smartphone and it'll be the default screen.

If you think about how some of these things will happen, whether it's visualisation and rendering items in your own space, where you can just see the sofa in your living room by looking through the phone and it's easy and has super high quality, or that haptic reveal of ‘feeling’ the texture of the fabric, if you start to internalise all of these things along with same day delivery, next day delivery and really convenient reverse logistics…I think it's sometimes hard for folks to envision how things can still transform tremendously in three to five years that make [the shopping experience] even that much better.

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