Wayfair is one of the biggest e-commerce platforms that deals in home goods and furniture. It was founded in 2002 as a CSN store and currently enjoys popularity in Germany, Ireland, Canada, and the United Kingdom. It has over 33 million listings and a global supplier count of over 20,000. It is headquartered in Boston, Massachusetts, and currently operates five branded retail websites, i.e., Joss & Main, Birch Lane, AllModern, and Wayfair Site.
The company closed and redirected all its niche websites to wayfair.com in 2012 to promote repeat business by providing a one-stop shopping solution for its customers. Now that we have given you a brief history of Wayfair, let’s learn more about its business model.
Wayfair is registered as Wayfair Inc. It is owned by Niraj Shah and Steve Connie, college classmates who created the CSN stores for storage furniture and home entertainment shopping. Niraj Shah is listed as the company’s co-chairman, CEO, and president, while Steve Connie is the co-chairman.
Being a multisided platform, Wayfair has two target audiences/ customers, i.e., those looking for home goods and suppliers of home goods. It connects suppliers to customers, thanks to its wide range of products which differ in prices and style.
Being a purely online retailer, Wayfair is heavily invested in offering its customers an excellent shopping experience through its websites. It has a user-friendly website whose interface is influenced by the customer’s browsing and shopping habits. It also organizes flash sales during holidays and festivals, allowing customers to enjoy exclusive offers.
Wayfair offers 24/7 customer service support and a flexible return policy as part of its customer relationship management initiatives. Shoppers can also pick between the four offered delivery options. For fast and accurate delivery, Wayfair chips in by supporting direct delivery to customers. The platform also cuts costs to support suppliers, which explains why it has many of them, allowing customers to access a wide array of products.
Key Resources And Activities
The main resources that support Wayfair’s diverse operations are its large number of suppliers, employees (16,000+), and the e-commerce company’s tech platform. Additional resources include the company’s five brands, i.e., All Modern, Perigold, Wayfair Site, Joss & Main, and Birch Lane; an automated payment system, automated logistics processes, an algorithm system that tracks customer habits and patterns and the company’s enforceable contracts with its suppliers.
The entity’s activities aim to develop and maintain the platform to support its multisided operation. It is therefore committed to connecting customers and suppliers, providing a diverse selection of home goods and furniture, and offering a positive customer experience to all its customers. Additional activities include:
- Coming up with strategies that support agile delivery
- Personalizing customer experience through behavioral and shopping habits analysis
- Managing supplier contracts
- Coming up with strategies and customer relationship management initiatives that support excellent customer service
- Excellent management and update of the platform’s catalog
- Regular updates and enhancements of algorithms
- Offering the customer base products designed by experts
Wayfair Value Propositions
Every company must have value propositions to stay in business. Under its business model, Wayfair has the following value propositions:
1. Wide Selection of Goods
Wayfair has over 20,000 suppliers under contract who offer their customer base diverse options. The platform operates purely online, meaning it operates with minimal inventory and doesn’t have to pay for storage costs.
2. Ideal Products
Wayfair is committed to helping people find what they need. Thanks to powerful algorithms at play, the platform’s interface are based on the user’s browsing habits and patterns.
3. Providers’ Empowerment
Wayfair empowers suppliers to effectively offer their top stock choice, which is also an advantage to customers who get an array of products to choose from.
4. Great Prices
Wayfair allows customers to obtain what they need at the right current prices.
How Does Wayfair Work?
As an e-commerce platform, Wayfair offers its customers a wide range of furniture and decor products through its brand consortiums. It tracks their browsing habits and patterns to offer the best recommendations. They also get diverse offerings that are easy to discover and purchase. The company has over 20,000 suppliers and operates on minimal inventory.
Its business model aims to fulfill customers’ varied tastes, purchasing styles, budgets, and goals, which explains its large online selection of home improvement products, housewares, decor, and furniture. According to its 2021 annual report, it has over 33,000,000 product offerings.
How, then, does this entity support such a huge operation? Wayfair’s business success largely depends on its smooth logistics. Since it has minimal inventory, it heavily relies on its logistics network for order fulfillment. The platform offers a drop shipping service, which is its primary fulfillment method. Thanks to its powerful tech integration with suppliers, it can easily see and ship orders to its customers’ homes. It doesn’t keep the listed products in stock and only acquires them when an order is made.
Deliveries are made through UPS, DHL, FedEx, postal service, or third-party line haul trucking companies depending on the package size. It may also use third-party home delivery agents occasionally. The company keeps redefining its logistics network for a faster and more excellent home delivery experience to increase sales and customer satisfaction.
How Does Wayfair Make Money?
1. Product Sales
Unlike other companies with diverse offerings, Wayfair only sells home goods and furniture, which is its primary revenue source. The company made over $13 billion in 2021 from product sales alone. It assumes responsibility for order fulfillment and goods acceptance. This revenue also extends to the shipping cost the customer pays. The company exercises discretion when establishing prices, carefully selects suppliers, and assumes inventory risk during shipment
Wayfair also makes money by running adverts. It is paid by third-party advertisers who place ads on their sites and pay based on the number of clicks, impressions, and actions. Even though this is not as lucrative as product sales, it still brings in some money for the company.
How Does Wayfair Spend Its Revenue?
Part of Wayfair’s revenue is spent on marketing and meeting its value propositions. Let’s expound on these.
Wayfair spends approximately 10% of its revenue on marketing to widen its reach, bring in new clients and help it enjoy repeat business. It uses both paid and non-paid advertising. Its paid advertising is done through online channels such as display advertising, paid social media marketing, and search engine marketing. It also pays for direct mail and television adverts, which may not be as popular as they used to be with increasing technology.
Non-paid advertising, which doesn’t hurt the platform’s revenue, is done through email, mobile push notifications, search engine optimization, and non-paid social media marketing. Marking also increases the company’s customer engagement, which entities strive to achieve.
2. Customers and Suppliers Fulfillment
Wayfair spends a chunk of its revenue on fulfilling its customers and suppliers. It has to maintain a large online selection of furniture and household goods to approximately 27 million customers. It must also ensure that all the brands offer customers a curated experience capable of helping them discover the right products.
Part of its revenue is also spent producing quality editorial content to inspire its customers, which happens independently or with the help of contractors. A related example is the 3D augmented reality feature that allows customers to envision their homes if they buy given items.
Wayfair assumes responsibility for item shipments that require financing and customer support. It also offers cash-back rewards to encourage repeat shopping. As for suppliers, Shopify has to ensure that they have continued access to a large customer base for increased sales and profitability. The company has even gone ahead to provide data-powered insights for excellent decision-making. It also spends on additional services such as 3D image creation and sponsored content for media enhancement. Lastly, Wayfair has to maintain a solid logistics network that empowers direct shipment to customers.
Wayfair Key Partners
Wayfair partners can be grouped into the following categories:
1. Brands Consortium
Wayfair has five brands. Joss& Main offers a wide range of decor items, while Perigold sells some of the best furnishings for different styles and spaces. Birch Lane deals with furniture, lighting, and decor goods, while AllModern sells all types of furniture, similar to the main Wayfair site. These 5 brands make up Wayfair and are responsible for its revenue generation.
2. Product Delivery Partners
These are the services that Wayfair uses to deliver products to its customers successfully. They include UPS, FedEx, DHL, US Postal Service, and third-party haul trucking companies. The company also uses last-mile home delivery agents occasionally.
3. Suppliers and Vendors
Suppliers have contractual relationships with the company to maintain a large and diverse product inventory. They use the online platform to find customers and ship their products. Vendors, on the other hand, provide the technologies and services needed for the successful operation of the platform.
This business has its fair share of competition, given the popularity of e-commerce. Some of the companies with online operations that deal in the same products include:
IKEA is a household name. It has been in existence for nearly eight decades and enjoys global operations. It is recognized for at least 1% of the world’s commercial-products wood consumption, which makes it a force to reckon with.
2. Target Corporation
Target is a Minnesota-based company with over 1800 stores in the United States. Even though it doesn’t exclusively deal with furniture and decor, they form part of its products.
3. Ashley Furniture
Ashley Furniture is known for its wide range of home furnishings. It is headquartered in Wisconsin and has 1,000+ stores globally, with a presence in over 100 countries.
4. Restoration Hardware (RH)
Commonly known as RH, Restoration Hardware is a California-based furniture company with physical retail stores and an online platform. Its outlet stores are spread all over Canada and the US.
Walmart is one of the biggest corporations in the world. This multinational retail corporation has 10,000+ stores and clubs under 46 banners in different regions. It operates a chain of supermarkets that also sell furniture and decor and is by far one of Wayfair’s biggest competitors.
Williams-Sonoma is a common name in furniture and decor thanks to its signature brick-and-mortar stores. It operates in more than 60 countries with brands such as West Elm, Pottery Barn Kids, PBteen, and Mark and Graham.
Wayfair’s Achievements, Weaknesses, And Opportunities
The Wayfair’s My way membership program has been a huge success. Members enjoy several benefits by paying an annual fee of only $29.99. These include free shipping, product installation discounts, and next-day deliveries. The company has also received several green certifications owing to its commitment to sustainability, i.e., energy-star certified, water efficient, environmentally preferred, and reclaimed wood certifications.
Even though Wayfair has done an excellent job with its sustainability initiatives, it can still do more by inspiring its customer base to make the world more sustainable through eco-friendly decor ideas. It should also tap into the physical market offerings by building physical stores and managing a blended operation.
Online operations generally have flaws, and Wayfair hasn’t been spared. There have been complaints about the company’s digital platforms, such as issues with its mobile application and website.
Given its magnitude, Wayfair has faced challenges such as;
1. High Competition
E-commerce is a highly competitive field. Despite Wayfair’s impressive performance over the years, it still faces competition from entities such as IKEA and Target. The company still has a long way to go to enjoy the market share percentage that companies such as IKEA have. However, its performance is still impressive, given that it has only been around for two decades and operates online exclusively.
2. Lack of Physical Stores
Wayfair’s operations are purely online, which has its fair share of advantages. However, a good percentage of furniture shopping is done physically. In fact, other competitors, such as Target, have both online and physical stores. Wayfair may therefore have to diversify its operations.
3. Inaccurate News
Wayfair has also been affected by false news. A rumor surfaced in 2020 alleging that the company was involved in child sex trafficking. Despite its false nature, the company still had to treat it as a crisis.
Like most businesses, Wayfair was also heavily affected by the Covid-19 pandemic, which even saw it downsize. However, things are picking up from the look of things as normalcy sets in.
Comparing Wayfair’s Business Model To IKEA’s
IKEA is a leading large-scale furniture retailer and one of Wayfair’s biggest competitors. Let’s compare the two and find differences or similarities in their offerings.
The cheapest product at Wayfair is approximately $120, and the most expensive is $4,000, while IKEA has a price range of $150- $3,200 for its products.
IKEA shipments take 1-2 weeks, and smaller items are shipped at $39, while larger furniture, such as sofas, attract a shipping fee of $59. For Wayfair, shipping generally takes 1-3 weeks but can be shorter. It also offers free shipping for orders above a certain amount.
3. Return Policy
One of the reasons IKEA is a lot of people’s favorite furniture shop is because of its generous return policy, i.e., 365 days. However, you’ll need proof of purchase, and the items must be in perfect condition.
Wayfair only offers a 30 days return policy for people seeking a refund or store credit. The product also has to be in original packaging.
IKEA also beats Wayfair when it comes to warranties. It offers limited warranties upon purchase, which are usually based on the product. On the other hand, Wayfair does not offer warranties but has protection plans that must be purchased.
5. Delivery Methods
Wayfair has a robust logistics network and therefore beats IKEA when it comes to delivery. It offers various delivery options depending on the customer’s budget and preferences. The methods can even extend to unpacking and set-up.
On the other hand, IKEA doesn’t have any unpacking or setup service even though it does shipping and delivery. Buyers may have to source outside help to set up their furniture upon delivery.
IKEA and Wayfair are large-scale companies; therefore, one should not expect the type of service smaller entities offer. It is safe to say that these two entities have decent customer service; otherwise, they wouldn’t have been in operation for a long duration.
From these comparisons, the perks of shopping at IKEA seem to outweigh Wayfair’s. However, both business models are successful and enjoy a good percentage of the market share. Wayfair hasn’t been around long enough and can still improve in the future.
Wayfair has overcome a number of challenges to get to where it is today, especially given the fragmentation of the furniture and household goods market. It has acquired a commendable customer base in Europe and North America, which was under IKEA’s control for many years.
With such an impressive history, we can expect Wayfair to expand its business and even venture into physical stores. The company should also sink its tentacles deeper into the European market, where it still has lots of potentials.