Wayfair Is Betting BIG on Physical Stores | Fast Five Shorts

Wayfair, a company that built its entire business online, is making a big bet on massive physical stores planning a large showroom in Denver by year end, followed by Cincinnati, Yonkers, Fort Lauderdale and Princeton in 2027, according to a big write up in Bloomberg this last week, which is why we're covering this story.

Wayfair CFO Kate Gulver said the furniture category is cyclical and Wayfair wants to quote meat shoppers wherever they are, end quote once spending rebounds and even as high mortgage rates and weak home improvement spending have hit furniture sales broadly, the new locations add to existing flagship stores in Chicago, Atlanta and Columbus, Ohio, and follow the company's first large format store in Wilmette, Illinois in 2024.

Unlike most retailers, Wayfair stacks its showroom floors with inventory still owned by its 20,000 thousand global suppliers, a model that reduces upfront inventory risk and makes a store expansion more capital flexible.

Roughly 75% of home furnishings transactions still happen in physical retail industry wide, and Wayfair's own data shows markets with stores outperforming national growth rates.

Shelley, as the former Serta Simmons CEO, what's your take on Wayfair getting into larger physical stores?

Are you long or short on this being a successful strategy?

I think this is a really smart move for Wayfair and something that they've also been very measured about.

I remember competing against them when I led home for Walmart.com and really studying how they went to market and the furniture business is tough right now and it's a high consideration category.

Folks think a lot about it before, you know, they make a purchase.

There's a famous quote that's like if you buy a good piece of furniture, you only cry once.

So you know, this is a high consideration set category.

And so I think physical stores help consumers in so many ways because you get overwhelmed with the assortment.

Online stores help narrow that assortment into key items that are probably, you know, really transitional from a taste level standpoint and fit into most people's homes.

You know, Wayfair has experimented a long time like they were doing pop ups in Natick like 10 years ago.

They experimented with like different retail formats over time and I think they're kind of hitting their stride there in terms of being really thoughtful in big markets and really measured in terms of the approach.

I think the inventory model is excellent.

They're not spending a ton of money on inventory to stock these stores and so I think that this is an omnichannel retail story.

I think the store showrooming Helps make online more productive.

The customer acquisition costs are probably lower, and I think this makes Wayfair more profitable over time and also helps their brand reach ultimately with consumers.

Right, right, right.

So do you like the fact that the stores are bigger, too?

Like, do you think that they're large showrooms?

Does that impact your assessment of this, of this headline at all?

It is.

I like the fact that they're bigger.

But when you think about the Wayfarer assortment, it's still like the tip of the speaker in terms of what they offer.

And so we can say they're.

I think when you're shopping for furniture, you want to see a lot because you want to feel like you see a lot.

If you think about the.

The psychology about it, right?

It's like, I want to know that I saw everything and I picked the perfect thing for me because I'm spending a lot of money on it.

And so.

And so I think within the Wayfair environment, it's still very tip of the spear in terms of this is their absolute best assortment.

But it's almost a requirement when you're shopping for home furnishings in a physical location, you want to see assortment.

That's why the Natick Mall thing never really wetted my whistle.

And I told the CEO that in 2017, I was like, you got to go big.

And he laughed in my face, which I've told that story a hundred times on this show.

But now here he is going big.

So I think I've talked about this.

I like this strategy a lot.

And, Shelley, I forgot that we were dueling competitors between Target and Walmart two at a time.

That's crazy.

All right, Chris, what, What.

What's your take here?

Do you like this?

Because you've been in more.

Like you said at the outset, you've been in more stores.

Kudos to you than anyone I know.

And I'm curious what you think here.

Do you think wafers got a whole.

Got it in here?

The stores themselves are fantastic.

Like, they're done well, they're marketed well, they're easy to navigate.

And to Shelley's point, like, they present product to a customer that potentially is not familiar with their product.

Like, 75% of home furnishings still happening, those purchases happening in person is not something to sneeze at.

And so there's a need for them to have a physical presence.

I think Shelley used a really good word when she was talking about this, and that was the word measured.

I still have concerns about the financial Runway here and the risk that this presents.

In the near term.

You know, the article itself talks about that there's no real clarity on when consumers are actually going to begin to be comfortable making these types of purchases again at the rate that they had in the past.

And so, yes, Wayfair needs to meet them where they are.

I agree that physical stores is the way to do that.

I just say that they have to be as measured and disciplined as possible in how they do that, because we don't know if customers are going to be prepared to buy those big ticket items for their house six months from now, two years from now, longer than that.

And so you don't want to necessarily put that financial risk out there so far in advance of when the need is actually there.

I'd suggest that this is the right direction, but pace is everything to me.

Yep, yep.

Yeah.

And the one, the one thing I can say, the one saving grace with, with Wayfair too, is they're the most left brain run retail organization I've ever seen.

So they are probably pacing this out very judiciously.

It would be my hunch.

So I'm curious, I want to get your last take on this point too.

The other thing is when you think about large stores, they're going up against ikea.

And so the one thing I've always posited is the great thing about Wayfair, like you said, it's just the tip of the spear, their assortment, when you have a large store like this.

And also it enables you to show a breadth of esthetics and different items relative to the.

What is the typical IKEA aesthetic?

Do you think that's also a factor here?

I think it's an advantage of Wayfair.

I think IKEA is one thing to people, right?

You know, and they've, they've been tried and true in terms of what that is, and it works for them.

I think Wayfair has a lot more style than ikea.

I think they have, you know, they can reach different consumer aesthetics, they can change it more easily.

And I think in a lot of cases they can, you know, expose consumers to a broader assortment, even when they're shopping in stores.

So I think it's an advantage.

I think Wayfair actually hits a sweet spot here because they're also more favorable from a price standpoint than most big furniture stores.

And so there is this place for Wayfair where it's like, I don't want to buy furniture from Walmart, Target, IKEA is not near me, but I don't want to spend as much as going to an Ashley Furniture or even something like that.

And so I think that there's a sweet spot here for them where I think that they actually have, you know, a good market position.

But I agree with what Chris said.

It's like they're, they're rolling it out at a good pace where they can still learn and grow in a really smart way.

Yeah.

Yep, 100%.

Yeah.

And the other point you guys got me thinking about too is like, you know, with their, with their drop ship marketplace model, you know, you could have the vendors participating in the store showroom aspect of the furniture in a way that, you know, is not really potentially done across retail, you know, really anywhere, you know, when you think about it.

So there's, there's a lot of cool angles to this story.

It's great to hear that we're all kind of pro Wayfair's store ambitions.