The rise of e-commerce has been a defining cornerstone of our era; as millions opt to shop online rather than heading into a store, demand for low prices is soaring, and competition between companies within this sector is fierce.
Not only must Wayfair compete with the success of giant online retailer Amazon, but it must also position itself ahead of Ikea, whose stores have become something of a wonderland for millennials and students looking to furnish their homes without breaking the bank.
Most companies within the e-commerce sector, particularly those selling furniture and home goods, will operate a global strategy with a production or markup revenue model. Read more about business strategies here.
Wayfair: An Overview
Wayfair was founded in 2002 and is headquartered in Boston, Massachusetts, and Berlin, Germany. It is a global e-commerce company specializing in furniture and home goods.
In addition to selling furniture, Wayfair has several features on its website to improve the customer’s experience, including a 3D room planner, room ideas, wedding registry, and finance options.
As of June 2021, Wayfair’s net revenue for the previous 12 months was $14.8 billion. It employs more than 16,000 people throughout North America and Europe, offering 22 million products to over 31 million active customers.
Wayfair positions itself as an industry leader in four key ways:
- Expertise in homewares and furniture.
- An unparalleled selection of products.
- Tangible value.
- Seamless user experience.
Wayfair’s website claims, “we are here to help everyone, anywhere create their feeling of home,” indicating a truly global vision. Here are some of the most powerful and enduring mission statements from companies around the world.
Wayfair’s Business Strategy
Wayfair adopts an e-commerce business model which allows it to operate globally. It was initially created by consolidating 250 separate homewares websites into a single brand. Key business activities include analyzing customer behavior, updating the online platform, ensuring fast delivery, and maintaining a responsive customer service department.
The company’s business strategy focuses on providing a wide selection of products to its large customer base using a ‘drop ship’ model. This revenue model involves Wayfair acting as a marketplace; while this has helped the company scale, it also puts significant pressure on Wayfair’s margins.
Due to the company having no physical stores, Wayfair’s marketing costs are extremely high. For example, in 2019 it spent over $1 billion in advertising alone. While this figure seems large, it is necessary to ensure Wayfair’s website receives enough traffic.
Its value propositions are as follows:
- Offer a wide selection of products while holding minimal inventory.
- Empower customers to find desirable products at the right price.
- Allow providers to offer their full stock.
5 main brands can be found on Wayfair – Wayfair.com, BirchLane, AllModern, DwellStudio, and Joss & Main – the stock of which comes from around 7,000 merchants. Other key partners include wholesalers, suppliers, manufacturers, and delivery companies like FedEx.
Wayfair has two key income streams: direct retail, where the company generates income through sales, and advertising, which generates income by charging external sponsors for advertising space.
Wayfair SWOT Analysis
A SWOT analysis assesses the strengths, weaknesses, opportunities, and threats to a business. It is cost-effective and extremely useful for generating business insights.
- Cost structure. Wayfair’s labor and real estate expenses are reduced because it leverages a wholesale-to-consumer model, meaning it can offer consumers lower prices.
- Reach & distribution. A strong distribution network combined with outlets across the US and Europe ensures that all products reach consumers quickly.
- Product portfolio. Wayfair offers over 2 million products, empowering customers to find items that are right for them. This also means the company’s conversion funnel will have fewer leaks; people who are offered a greater choice when shopping online are more likely to make a purchase.
- Partnerships. One of Wayfair’s greatest strengths is its ability to forge successful partnerships. Its partnerships include suppliers, advertisers, transporters, and professionals such as designers and contractors.
- Customer acquisition. While Wayfair is good at acquiring customers, it spends a significant amount of money doing so; a 2017 study found that the company paid approximately $69 to acquire a customer but would lose $10 on that same customer over time.
Things have improved in recent years, with Wayfair finally turning a profit in 2020. In 2021, things are still looking positive for the company, but the amount Wayfair pays to acquire a customer will need to decrease significantly to see sustained growth and success.
- Cash flow problems. Financial planning can often be poor, resulting in unplanned borrowing.
- Quality control. Wayfair’s budget for quality control is lower than many of its competitors’ budgets. Unfortunately, this means some products will be delivered to customers damaged or will break during use, leading to negative reviews and a drop in customer retention rates.
- Product expansion. While Wayfair has concentrated its efforts thus far in the niche area of furniture and homewares, the company now has the opportunity to expand its range of products and offerings thanks to making its first annual profit.
- Decreased shipping prices. This could bring down Wayfair’s products’ cost, allowing the company to either increase its profitability or pass these savings onto its customers to gain market shares.
- The rise of social media. Given that Wayfair is entirely e-commerce based, the rise of social media presents a big opportunity for the company in terms of brand awareness and marketing. It has been estimated that there are over 4.48 billion social media users worldwide; Wayfair should concentrate its efforts on harnessing this power to bring more traffic to its website.
- Increasing competition. More people shop online than ever before, and with this influx of demand comes more competition from other companies who want to capitalize on it. This increased competition puts downward pressure on prices, but companies must balance low prices with quality products, or consumers will soon look elsewhere. These can be challenging demands to meet.
- Economic uncertainty. In the post-covid world, uncertainty is rife within many economies as governments attempt to control expenses and reduce deficits. Individual consumers also face uncertainties about rising inflation; for this reason, they are likely to be cautious with their spending. In addition to this, Wayfair works across numerous countries, and currency fluctuations can be unpredictable.
- Suppliers’ bargaining power. In recent years suppliers have become increasingly demanding about prices. Their new bargaining power stems from supplier shortages. Since Wayfair effectively acts as a middle man between suppliers and consumers, this spells bad news, particularly because it will likely drive up prices for consumers who may decide to shop elsewhere.
Wayfair Competitor Analysis
Even though Wayfair will never be able to overtake prominent e-commerce businesses like Amazon – which has strengthened its offering through services like Prime Video – it is still ranked as one of America’s top e-commerce companies and is certainly enjoying the increased popularity of online shopping.
However, with this growing popularity comes fierce competition. Below is an analysis of Wayfair’s top competitors.
The Home Depot
Home Depot, Inc., known simply as Home Depot, is the largest supplier of home improvement supplies in the US. It is headquartered in Atlanta, Georgia, and in 2020 it generated $12.8 billion of net income.
Thanks to lockdown causing more people to spend time in their homes, Home Depot has seen its net income and revenue grow double digits. To cope with this surge in demand, the company has invested heavily over the past two years. However, the future may see more caution from consumers as the full financial impact of the pandemic is realized.
Home Depot’s business strategy focuses on large-scale customer acquisition rather than market share, achieved through a low pricing strategy and saturation marketing.
Recently, Home Depot has begun to focus on market development by expanding into Mexico and Canada. In November 2020, the company acquired H.D. Supply Holdings, Inc. for an astounding $8 billion, setting Home Depot up for further expansions across the globe.
For more information, read our in-depth Home Depot SWOT analysis.
Macy’s, Inc. is a multichannel retail company operating under the Macy’s, Bluemercury, and Bloomingdale brands. It was founded in 1929 by Fred Lazarus and is headquartered in New York, New York.
Unlike Wayfair, which focuses strictly on home goods and furniture-based e-commerce, Macy’s sells a range of products from cosmetics and clothing to home furnishings, both in-store and online.
As of January 2021, Macy’s operates in over 700 stores across 43 states, the District of Columbia, Puerto Rico, and Guam.
Macy’s exceptional customer relationship management (CRM) has driven its high brand value and ongoing success; as of 2021, it ranks 164th in the Fortune 500.
Moreover, in 2020 Macy’s announced its three-year Polaris strategy to stabilize profitability and position the company for growth. Part of this plan is to expand in-demand product categories like home, putting additional pressure on Wayfair to provide a desirable range of products at affordable prices.
Perhaps even more worryingly, for Wayfair, 47% of new Macy’s customers came through digital channels in the first quarter of 2021. As a result, competition between these two brands is certainly set to grow more fierce over the coming years.
Ikea was founded in the town of Älmhult, Sweden, in 1953. What began life as a mail-order catalog business is now an iconic home furnishing brand recognizable right across the globe. It is headquartered in Delft, Netherlands.
Ikea has taken the do-it-yourself or DIY concept to a new level with its modern yet affordable range of flat-pack furniture. Not only is Ikea’s brand vision clear, but it is also extremely cost-effective due to customers assembling products themselves.
Operating in-store and online across 445 different locations, Ikea achieved a global gross profit of around 11.7 billion euros ($13.74 billion) in 2020. It employs over 200,000 people and offers around 9,500 products.
In addition to these impressive numbers, Ikea is also on 7 Forbes lists, including best employers for women and best employers for diversity.
One of the key threats faced by Ikea is from competitors who imitate its low-cost business model. This requires Ikea to constantly innovate to stay nimble and agile. It has sought to do this in several ways, and the most successful of which is by taking advantage of the ‘green’ trend by adapting its business model to be environmentally friendly.
If you are interested in finding out more about Ikea’s business strategy, you can read our Ikea SWOT analysis.
Haverty Furniture Companies, Inc. is a retail company founded in 1885. It is headquartered in Atlanta, Georgia, where it began as a single downtown store. Since then, it has grown to be one of the top furniture retailers in the US.
Havertys operates in over 120 locations across 16 states with around 3,500 employees. Furthermore, the company operates its own credit service, which aims to help customers finance their purchases. It targets the middle- to upper-middle income market, favoring quality goods over high-pressure sales tactics. The company’s mission statement, which emphasizes a desire to help customers achieve their vision for home decor, reinforces this.
Comparing second-quarter results in 2021 with 2020, consolidated sales increased to $250 million from $110 million the previous year. Since Havertys operates in-store only, it struggled due to closures during the Covid-19 pandemic where other e-commerce companies like Wayfair did not. Nevertheless, the company achieved gross profit margins of 56.6% in the second quarter of 2021.
On the Havertys website, the company’s core values are stated as follows:
- Customer focus.
- History and heritage.
Amazon.com, Inc., is an American multinational technology company headquartered in Seattle, Washington. Its primary offerings include e-commerce, digital streaming, cloud computing, and artificial intelligence. Jeff Bezos founded it in 1994.
Amazon primarily sells products purchased for resale through third-party sellers, but it also manufactures several electronic devices like Kindle and Fire Tablets which can be bought on its website.
In 2020, Amazon pulled in a staggering $386 billion in total revenue. This impressive figure can partly be attributed to the Covid-19 pandemic, which forced many people to shop online due to government restrictions and safety concerns. In addition, since Amazon offers an unparalleled range of products – over 12 million – and has next-day delivery options available through Prime, it quickly became the go-to for millions of shoppers.
Right now, Amazon is the fourth most prominent company in the world. This is because it understands the needs of the local areas in which it operates and provides tailored services for the people who live there; this is part of Amazon’s success.
By 2039, Amazon has pledged to have 100,000 electric vans delivering parcels, demonstrating that the company is both innovative and environmentally conscious. Ethical businesses are more likely to thrive in contemporary society, and Amazon shows a clear awareness of this.
Like Wayfair, Etsy is an e-commerce company that works within a particular niche: handmade, craft, and vintage items. Etsy was founded in 2005, making it a relatively new competitor, and is headquartered in Brooklyn, New York.
The company offers a two-sided marketplace connecting buyers and sellers. This type of business model has become increasingly popular in recent years with the rise of similar companies like Depop and Vinted.
Around 85 million items can be found on Etsy’s website. Its seller services include a centralized hub for sellers to track orders and manage their inventory and a shop manager dashboard.
In 2020 Etsy generated 1.7 billion dollars in revenue, which was up by more than 100% from the previous year. While this is partly due to the rise of online shopping during the global pandemic, vintage items are also currently on-trend, and Etsy has been able to capitalize on this.
Etsy’s greatest strength is its diverse product range; many items that are sold on its platform are unique and one-of-a-kind.
How Wayfair Stands Out
Wayfair targets a very specific e-commerce niche, meaning it can pool more resources into product research to curate a selection of truly desirable homewares.
Although Wayfair has struggled to make a profit in the past, things are looking up for the retailer, and its seamless user experience and affordable prices are likely to keep customers coming back for more.
Frequently Asked Questions
Question: Which is the largest e-commerce company in the world?
Answer: Amazon is the largest e-commerce company in the world, and its success looks like it is only going to increase as time goes by. It has achieved this through efficient supply mechanisms and a diverse product range.
In terms of other successes for Amazon, it ranks 10 on Forbes Global 2000 and 173 on Forbes’ list of America’s best employers.
Question: How has e-commerce been affected by the Covid-19 pandemic?
Answer: The e-commerce sector has seen unprecedented growth over the past year and a half due to Covid-19. In fact, the sector’s share in global retail increased from 14% in 2019 to 17% in 2020.
Homeware stores, in particular, have seen growth due to the large volume of people across the world who have been forced to spend more time at home. This has led to home repairs and redecorating, both of which have certainly boosted sales.
Question: What is Wayfair’s competitive advantage?
Answer: Wayfair’s competitive advantage over other furniture and homeware stores is its drop shipping model, which provides a frictionless shopping experience. As a result, it does not have to grapple with inventory and overhead costs.
Question: Who is Wayfair’s biggest competitor?
Answer: Since each company’s offering is slightly different, there is no single biggest competitor for Wayfair. Amazon is the biggest e-commerce company, but it offers a much wider range of products and services than Wayfair.
Home Depot is the largest homeware store. However, it operates both in-store and online, resulting in a slightly different business model, which will ultimately yield different results.
Question: Why choose Wayfair?
Answer: Wayfair offers a wide range of affordable homewares and furniture which have tangible value. Furthermore, the user experience on Wayfair’s website is excellent due to tools that offer decorating advice and finance options.
Wayfair is becoming an increasingly well-known company and is likely to see continued growth into the future even as the effects of the pandemic begin to wane. In addition, its affordable range of products and easy buying process makes it a strong competitor within the e-commerce industry.
Here are a few similar companies to read about:
- Home Depot 5 Biggest Competitors.
- All You Need to Know About Amazon.
- Amazon Flywheel Explained.
- Amazon CEO Jeff Bezos Bio.