Wayfair: The Company Inside Your Home

Often called “The New Amazon,” Wayfair is the company behind the furniture in over 22 million people’s homes.

Wayfair’s founders, Niraj Shah and Steve Conine, believed in choices. When the firm was started, few retailers offered customers a choice between more than five or so items. Today, Wayfair offers customers over 40 million items to choose from.

Shah and Conine met as engineering students at Cornell University and started a consulting firm after graduation.

The two were “working 120-hour weeks, working ourselves to the bone.” Their schedule wasn’t sustainable, so the two “kicked around different ideas” and landed on a one-stop online shop for furniture items.

In 2002, CSN stores was created on a shoestring budget. A combination of Shah and Conine’s initials, the site was a collection of 200 sites that sold furniture and storage.

Wayfair’s success lies in its founder’s CS and engineering background. Shah says, “One of the things that allowed us to be successful is that we had the service mentality you need to have as a retailer, but also we had the technology and quantitative skills to make sure that the website was very functional, well designed, and easy to navigate.”

In 2003, they added patio and garden goods suppliers and began hiring employees. Over the coming years, CSN Stores expanded their offerings, selling home décor, kitchen furniture, luggage, and bedding.  

Shah and Conine struggled to transition their relationship from personal to professional as their startup grew. Conine said, “All of a sudden, you're taking really legit critical feedback from your friend. It's a hard pivot to make, but once you get over it and realize this person has my best interests in mind, it was critical for our longer-term success.”

One of the things I admire most about Wayfair’s founders is their ability to navigate this shift. Many founder pairs never make it out of the trenches.

The two differentiated their roles to create separation. They decided that “Niraj was a much better CEO sales guy. He was great at figuring out where we were going, where we would have problems, and making sure we were getting ahead of those things. [Conine] was good at just getting the stuff done.”

The pair made the right choice. In 2006, CSN Stores made $100 million in sales.

Though the firm continued to grow, Shah and Conine quickly recognized a need for a new name. CSN Stores just wasn’t catchy enough. They unified their aesthetic under a new name: Wayfair. Wayfair.com launched in 2011.

That year, the company raised $165 million from investment firms to begin its expansion plan. In 2012, the pair launched Wayfair Supply to cater specifically to business and government customers.

In 2014, the firm was valued at $2 billion. Its official IPO raised over $300 million later that year.

Wayfair’s acquisition strategy is one to admire. Following the IPO, the firm acquired DwellStudio, a NYC-based retailer focused on modern furnishings. In the years to come, they acquired other firms across the B2C sector, including Buyster and Trumpit.

Wayfair hit its first major hurdle in 2017. A Supreme Court lawsuit forced firms to pay state sales taxes, even if the seller doesn’t have a presence in the taxing state. Wayfair quickly absorbed the hit, boosting its advertising and promotion spend. In 2018, the firm’s first “Way Day” sale quadrupled revenues and increased the site’s number of unique buyers by 400%.

After a few years of growth, in 2019, Wayfair was added to the Fortune 500 list.

In more recent years, Wayfair faced lousy press due to employee layoffs. Despite recent poor media coverage, Wayfair remains one of the world’s largest home retailers, offering items from over 11,000 suppliers across the globe.

The firm’s B2C drop ship fulfilment model generates $3 billion in net revenue (2023) annually, with 86% coming from the U.S.

Market segmentation and Wayfair’s 1.5% market share work to its advantage. CEO Shah stated, “We've driven healthy market share growth on the back of considerable availability improvements, double-digit percentage growth in small parcel speed badging, and meaningfully more competitive prices,” in a 2023 Earnings call.

Though the firm’s margins (~27.5%) are slimmer than those of its competitors, like Williams-Sonoma, it maintains its advantage through advertising, using it to buy growth. Because it doesn’t have physical stores, the firm can invest over $1 billion annually in advertising.

Lessons

Use advertising strategically to gain market share.  Niraj Shah says, “Building a brand in the early days is expensive,” and yet Wayfair knows precisely how to cut costs and gain a substantial market share. The firm spent $1.4 billion on advertising for just under $14 billion in sales in 2021. While this number is exceptionally high, Wayfair spends it because it can. Without physical locations, the firm keeps operating expenses at a minimum. Their advertising goal isn’t walk-in traffic but retention. Furniture is a long-term investment, and Wayfair exploits this by creating a simple online purchasing process that keeps customers coming back. CEO Shah says, “Rather than focus on, well our competitor is doing this, we should do this….we try to focus on what does a customer want and how do we deliver the best experience for the customer?” The firm spends its profits on advertising to deliver on its customer service and accessibility claims. The goal is to ensure that customers “come check us out and then let them recognize what we're offering versus what whoever else they might consider is offering.”

Businesses that change how millions of people behave have virtually unlimited upside. “Our goal wasn't to build something and sell it. Our goal was to build something that we thought could be significant.” Ten years ago, shopping for furniture online would’ve been unthinkable. Today, approximately half of Americans do. Wayfair, unlike some of its competitors, seizes opportunity, leading to success. The firm leveraged COVID-19 isolation, offering customers another chance to purchase things they fundamentally need. This is one of the most essential strategies I see Wayfair doing: They fundamentally changed how we buy furniture. Choice is their value proposition. Wayfair offers clients tens of thousands of options, while traditional brick-and-mortar stores offer ten or less. Steve Conine says, “Can't find what you want? Don't despair. You could be shopping on Wayfair.” Wayfair invests in usability, offering customers 24/7 customer service and flexible shipping options. Customers feel like they’re shopping in person. Conine jokes, “Rather stay home in your underwear? You could be shopping on Wayfair, where our great service shows that we care. Come check us out. We don't mind if you stare. Decking in your house like a millionaire. You could be shopping on Wayfair.”

A strong company culture translates to a strong customer base and a unified brand image. Conine says, “the fun thing about Wayfair is it's a real reflection of Niraj and my personalities, and we've really focused a lot on the culture of the company.” Wayfair executives aren’t afraid to laugh at themselves and acknowledge their mistakes. Like many other firms, Wayfair “hire[s] people who are bright, people who are hardworking, people who are analytical, and people who are team-oriented,” but unlike other firms, they don’t focus on “subject matter expertise. We just care about getting great people.” While speaking on creating a positive company culture, Conine says, “We've done these quarterly videos inside Wayfair for the last couple years now that are kind of spoofs, but they're things where our culture kind of shows through in these.” Wayfair’s relaxed culture breeds awareness, cultivating success. Additionally, Wayfair has a long-term vision in terms of its brand. CEO Shah says, “Everyone was aligned around that [long-term vision] because the equity was only held by people in the company.” Wayfair motivates employees through equity and stock options to cultivate unilateral success. As a result, Wayfair’s brand recognition is similarly unilateral. The firm entered the highly fragmented online furniture market and leveraged imagery to create awareness. And it worked—in Wayfair’s three early years, the firm boosted brand recognition by 52%.

A frugal mindset yields the most intelligent choices. Conine says, “I think that right away we both had the mindset of—and even today—this thing could go to zero tomorrow, but let's keep pushing hard because we really want to win it, and we really want to go big.” Conine and Shah’s own pockets initially funded Wayfair. Without the help of investment, the founders were placed in survival mode. Every decision they made would impact them directly. Shah says, “When you first start a company, obviously you have nothing to lose if it goes to zero because it was zero yesterday. And then you get a year into it, and all of a sudden you have something. You're starting to pay yourselves, and it's a little bit more risky to say, well, are we willing lose it all?” A scarcity mindset actualizes risk. Conine and Shah were forced to make difficult decisions, knowing that those choices would impact whether they ate the day following. Because of this, they spent time honing their decision-making process and making business decisions rooted in data and logic. In other words, when it’s your money on the line, you make better, more actualized choices than you would otherwise. This yields success. Every lesson Conine and Shah learned was an “expensive lesson, but a very good lesson.”

Crisis management begins with empathy. Similar to many firms, 2020 was a challenging year for Wayfair. While navigating employee hardships borne by COVID-19, Wayfair was also managing accusations of child trafficking. The claims were completely baseless and disproven by multiple agencies and publications. Though the claims were unfounded, a Wayfair spokesperson said, “We have temporarily removed the products from our site to rename them and to provide a more in-depth description and photos that accurately depict the product to clarify the price point.” The firm closely monitors its brand activities and quickly acknowledges potential threats. Crisis is inevitable but useless if entrepreneurs don’t learn from them. CFO Michael Fleisher says, “As leaders, you hopefully learn something that makes you better for the next one. You sort of hope the next one doesn't come, but they always do.” The accusations weighed on employees, but Wayfair understands that vulnerability and honesty are hallmarks of empathy and understanding. Wayfair responded accordingly, knowing that brands that respond honestly mitigate the risks crises pose. Fleisher said, “I think our job as leaders is both sharing our own concerns and our own challenges, but also asking about everybody else's.

Speeches

• Wayfair CEO: Furniture At Your Door | Mad Money | CNBC–Interview with one of Wayfair’s founders.
• Niraj Shah and making Wayfair profitable | Bold Types—Founder Niraj Shah on Wayfair’s business model.
• Building a Future-Focused Business for 20 Years with Wayfair CEO Niraj Shah—Interview with Comparably.
• Bloomberg Cornell Tech Series: Niraj Shah, Co-founder & CEO of Wayfair—Niraj Shah is interviewed by Bloomberg.
• Fireside Chat with Niraj Shah, Wayfair Co-Founder and CEO—Wayfair CEO talks digital strategy.
• Wayfair founders Niraj Shah and Steve Conine at Entrepreneurship Summit NYC 2013–Wayfair founders share strengths and leadership philosophies.

Videos

• Wayfair’s CTO describes how the e-commerce retailer uses AI and machine learning to support customers and manage risk.---The company’s take on AI and risk management.
• The Rise Of Wayfair—CNBC details Wayfair’s history.
• Interesting info about Wayfair–A brief company history.
• Why working from home is good for Wayfair—How Wayfair reacts to shifting culture.
• Wayfair: Niraj Shah & Steve Conine (2018)---Wayfair founders on How I Built This with Guy Raz
• Digital First, Physical Second: Wayfair’s Fiona Tan—MIT Sloan interviews Wayfair’s CTO
• How Wayfair Built a Furniture Brand from Scratch–HBR details Wayfair’s business history.

Suggested Readings

• It’s All Clicking for Wayfair, a Fortune 500 Newcomer–Fortune highlights Wayfair’s business successes.
• Back Bay Company Wayfair To Merge 200 Online Storefronts—Details Wayfair’s merger
• Wayfair, Speeding Towards IPO, Lands $2 Billion Valuation—Discusses Wayfair’s IPO.
• How does Wayfair work and make money: Business Model–A deep look at Wayfair’s business practices and strategies.
• How Dell, Square, and Wayfair think beyond a crisis—Wayfair’s crisis management strategy.
• Wayfair Earns Top Marks in Human Rights Campaign's 2022 Corporate Equality Index–Wayfair’s people strategy.
• Five Years Of Wayfair: Continuing Complexity In State Taxes–Details Wayfair’s landmark tax case.
• How Wayfair’s Co-founder turned Hotplates and Roosters into a Retail Empire—Company profile through the Founders’ lens.
• Why Wayfair Inc. Thinks It Can Be the Amazon of Furniture–A look at Wayfair’s future plans.

Book Recommendations

• The Supply Chain Revolution: Innovative Sourcing and Logistics for a Fiercely Competitive World—Broader discussion of supply chain logistics for firms like Wayfair.