Wayfair opens first major store outside Chicago

Wayfair store in Wilmette, Illinois.

Courtesy: Wayfair

What retail apocalypse?

Online retailer of home furnishings Honestly is opening its first namesake store near Chicago, following a string of other digitally native companies that have turned to physical stores for growth.

In an ironic twist for a company that became a $12 billion powerhouse by convincing consumers to buy sofas and beds online, Wayfair is leaning on the most fundamental building blocks of retail. That's because no matter how far technology has evolved, shoppers still can't try out a new mattress from their laptop or phone.

“If you think about the categories that we're in, they tend to be very visual categories, or very tangible, or, you know, informed purchases, because it's fairly expensive and you're going to put a lot of care into choosing the right item, Wayfair CEO and co-founder Niraj Shah told CNBC.

“Depending on what purchase someone makes, they may prefer the in-store experience and start working with an associate,” he said. “Or maybe they want to discuss financing or they want help with design, and we can provide all those experiences. We also offer them online, but sometimes in-store can be more fun or more effective.”

The 150,000-square-foot megastore in Wilmette, Illinois, will open May 23. Wayfair follows other direct-to-consumer brands that have opened stores, including Warby Parker, FigsCasper, Glossier and Everlane.

Wayfair's retail ambitions come as online-only companies look to plan their next phases of growth in a landscape that has evolved since their businesses were founded, making it harder than ever to run a profitable e-commerce business .

Privacy changes enabled Meta And Apple iOS has made it harder for marketers to target customers in ad campaigns. Companies are also facing increased competition from China-affiliated startups such as Shein and Temu.

Returns and the scams that come with them are a never-ending money-losing game. With the rise of online marketplaces Amazon, Walmart And Goalvirtually anyone can be a retailer – and brands can compete with their own manufacturers.

Many companies that started out selling directly to consumers now offer their wares in department stores and big box stores, but even that comes with pitfalls. Brands that have earned their competitive advantage by collecting massive amounts of data about their customers don't have as much visibility when working with wholesalers, nor do they make as much money.

They are also subject to the whims of their partners and can be pulled from the shelves without notice, or risk losing a primary source of revenue if that wholesaler suddenly goes under or sees sales drop. When brands have their own stores in addition to websites, they have much more control over mitigating those risks.

Moreover, the scorching growth of e-commerce during the Covid-19 pandemic has weakened and fallen below pre-pandemic lows, US Census data shows. Given the seemingly inextricable role that online shopping plays in the lives of most Americans, some may be surprised to learn that the vast majority of retail sales — about 85% by 2023 — still occur offline, according to Census data.

“For some of my companies in our different experiences, [stores] can be your very best channel from an economic perspective – if you have a really good brand,” says Larry Cheng, a founding partner of Volition Capital, a technology growth equity fund that invests in software, internet and consumer companies. “It does not work. anywhere, it's a complement to online sales, it's a complement to attracting new customers, the economy can be great.”

What to expect in the Wayfair store

Wayfair's new location will be somewhat similar to an Ikea in size and restaurant, but the range will offer a range of diverse styles as it evolves into a one-stop shop for all things home.

“You'll see furniture, you'll see the market, which is very decor-oriented, but we have home improvement, including major appliances, kitchen cabinets, tile, doors, hardware. You'll also see housewares, small electrical, there will be storage and organization,” Liza Lefkowski, Wayfair's vice president of merchandising and stores, told CNBC.

“You see some categories outside of furniture, but they are very important to your home,” she said.

Wayfair store in Wilmette, Illinois.

Courtesy: Wayfair

Wayfair store in Wilmette, Illinois.

Courtesy: Wayfair

For now, Wayfair is opening just one large-format store to join a handful of smaller stores it has opened under specialty retail brands All Modern and Joss & Main.

In the future, Shah envisions a “full portfolio of large format stores” with national coverage.

Brick and mortar is back

Wayfair's brick-and-mortar store ambitions reflect a larger wave of brick-and-mortar openings.

In early 2010, new store openings easily outpaced closures until the tide turned in 2017. Nearly 8,000 storefronts closed and only about 5,000 new ones opened that year, according to the Coresight Research report. US and UK Store Tracker database.

The spike in store closures led to headlines about the so-called retail apocalypse and warnings that stores would become extinct if shopping moved online.

For a while that seemed to be true. The number of new store closings exceeded the number of openings until the trend changed in 2022. For the first time in five years, more storefronts opened than closed, resulting in a net 1,575 new openings. There were 307 net new openings in 2023, and as of May 10 there were already 521 net new openings in 2024.

Discount stores such as Dollar general, Five below, Burlington And TJX Companies have fueled much of that growth, says John Mercer, Coresight's head of global research and managing director of data-driven research. But direct-to-consumer retailers also play their role.

To take Warby Parker, the eyewear company that launched the direct-to-consumer movement. In May 2023, the retailer said it believed it could open more than 900 stores in the US. He opened about 40 in 2023 and another 40 are planned in 2024. The new store openings contributed to a 12% increase in sales in 2023 compared to 2022.

Figs, which sells scrubs and other products for healthcare professionals, sold its products exclusively online until it opened its first store in Los Angeles in November. Another one is planned for this summer in Philadelphia. CEO Trina Spear told analysts during the company's first-quarter earnings call on May 9 that 40% of people shopping at the Los Angeles store are new customers.

“And this is in our most penetrated market of Los Angeles. So that's great to see,” Spears said. “Healthcare professionals are just like everyone else, right? They want to connect with brands both online and offline, and we see that in our Century City store.”

Shoppers browse clothing at an Untuckit store at the King of Prussia Mall in King of Prussia, Pennsylvania, October 20, 2018.

Jeenah Moon | Bloomberg | Getty Images

Other private direct-to-consumer brands have also expanded into stores, including bedding company Brooklinen, furniture store Burrow and clothing brands Everlane and Untuckit.

'Puur continues playing [e-commerce] saying, 'We're reaching a certain number, we're doing great [e-commerce]but we won't be able to reach this number anyway… if we don't turn to another channel,” said Rebecca Fitts, who was previously part of Warby Parker's in-house real estate team and is now the senior vice president of corporate strategy at a real estate consultancy Alvarez & Marsal Real Estate Solutions.

“I don't think every brand will hit a Warby store count, but they're certainly looking at those lessons, and it bodes well,” she said.

High entrance fee

If direct-to-consumer brands could all open stores and suddenly increase sales and profitability, they all would. But the fundamentals of retail can pose a steep learning curve for companies that started out as online disruptors.

Expanding into physical retail is challenging and expensive.

Companies looking to open stores must figure out a physical location, along with furniture and supplies, and the logistics, such as transporting inventory, says Amish Tolia, co-founder and CEO of Leap, a startup that helps brands open of shops. stores. They also need to determine how to attract more traffic and operate a store, he said.

All those components require time, energy, budget and resources, right? And so for as long as we can remember, if you want to set up your own fully branded retail environment next to a multi-brand department store, the barriers to enrollment have always been incredibly high,” said Tolia.

Wayfair store in Wilmette, Illinois.

Courtesy: Wayfair

A woman walks past an Allbirds store in the Georgetown neighborhood of Washington, DC, on Tuesday, February 16, 2021.

Al Drago | Bloomberg | Getty Images

Brand of mattress Purple has also opened about 60 stores, but said at the ICR consumer investor conference in January that the showrooms may be “the most difficult part of our model right now” because about a third of locations are “closed for one reason or another is problematic'.

“So we're going to slow down [store openings] over the next year a little bit and try to figure out how we can make sure we get them where they need to be so they're profitable,” said Rob DeMartini, CEO of Purple. “They are great brand beacons. But they still have to make some money.”

Wayfair, which hasn't made an annual profit since 2020, will face the same challenges as it begins its store expansion.

The company spent about $348 million on capital expenditures in 2023, but also cut costs to save hundreds of millions of dollars and strengthen its cash position.

Wayfair said it's starting slowly and plans to roll out stores carefully, taking time to see what works and what doesn't before making future investments.

“The challenge here is the upfront capital expenditure,” says Volition Capital's Cheng.

“But at the end of the day, there is no one channel that is the silver bullet for all these brands,” he said. “The good brands work for all of them.”

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