Wayfair opens first large-scale store in suburban Chicago

What is the retail apocalypse?

online retailer of household goods wayfair is opening its first store of the same name near Chicago, following in the footsteps of other digitally native companies that have turned to brick-and-mortar stores for growth.

Ironically for a company that became a $12 billion company by persuading consumers to buy sofas and beds online, Wayfair is leaning into the most basic building blocks of retail. That’s because no matter how much technology advances, shoppers can’t try out a new mattress from their laptop or cell phone.

“If you think about the categories that we’re in, they’re usually very visual categories, or very tactile categories, or, you know, the categories that we’re looking at buying. It’s expensive and you have to be very careful about choosing the right product,” Wayfair CEO and co-founder Niraj Shah told CNBC.

“Depending on what someone is buying, they may prefer an in-store experience and working with a sales associate,” he says. “Or maybe you want to talk about financing or ask for design help. We can provide all of those experiences. We offer them online, but in some cases, in-store. It can be more fun and more effective.”

The 150,000 square foot megastore in Wilmette, Illinois is scheduled to open on May 23rd. Wayfair follows other direct-to-consumer brands that have opened stores, including: warby hoodie, figCasper, Glossier, Everlane.

Wayfair’s Retail Ambitions As the online-only company has evolved since its founding, it plans its next stage of growth at a time when running a profitable e-commerce business has become more difficult than ever. It happened while I was trying to do it.

Privacy changes meta and apple iOS has made it more difficult for marketers to target customers with advertising campaigns. Companies also face more competition from China-linked startups such as Shein and Temu.

Returns and the fraud that comes with them is a never-ending game of losing money. With the proliferation of online marketplaces, Amazon, walmart and the goalalmost anyone can become a retailer, and brands can compete with their own manufacturers.

Many companies that started selling directly to consumers now sell their products in department stores and big box stores, but there are still pitfalls. Brands that gained a competitive edge by collecting vast amounts of data about their customers become less well-known and less profitable when they partner with wholesalers.

Also, because they are subject to the whims of their customers, they risk being removed from shelves with little notice or losing a major source of income if a wholesaler suddenly goes bankrupt or sales decline. If a brand has its own storefront in addition to a website, it has more control over mitigating those risks.

Additionally, U.S. Census data shows that the breakneck e-commerce growth during the COVID-19 pandemic has slowed and remains below pre-pandemic lows. Given that online shopping seems to play an integral role in the lives of most Americans, Census data shows that the majority of retail sales (approximately 85% as of 2023) Some may be surprised to learn that it still happens offline.

“In our various experiences, in some of my companies, [stores] “If you have a really good brand, from an economics perspective, you’re the best,” said Larry Chen, founding partner of Volition Capital, a technology growth stock fund that invests in software, Internet and consumer companies. It can be a channel. That doesn’t work.” No matter where you are, you’ll get added benefits to your online sales, added benefits to attracting new customers, and great financial benefits. ”

Wayfair’s new store will be somewhat similar to IKEA in its size and on-site restaurant, but its selection will offer a variety of styles as it aims to be a one-stop shop for all your household goods.

“We have a furniture and market, which is very decoration-oriented, but we also have a home improvement store that sells large appliances, kitchen cabinets, tiles, doors, hardware, and other household goods, small appliances, and storage and organization needs,” Wei says. Lisa Lefkowski, Fair’s vice president of merchandising and stores, told CNBC.

“You’ll see different categories beyond furniture, but it’s something that’s very core to your home,” she said.

Wayfair currently plans to open just one large store to complement the small number of smaller stores it has opened under its specialty retail brands All Modern and Joss & Main.

In the future, Shah envisions “an entire portfolio of big-box stores” nationwide.

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

In the early 2010s, new store openings far exceeded closings until the tide turned in 2017. Nearly 8,000 retail stores closed that year, and only about 5,000 new stores opened, according to Coresight Research’s US and UK Store Tracker Databank.

The surge in store closures has sparked headlines about the so-called retail apocalypse and warnings that stores will disappear as shopping moves online.

For a while, that seemed true. New store closures exceeded store openings until 2022 when the trend changed. For the first time in five years, more stores opened than closed, with net new store openings at 1,575. As of May 10, the number of net new store openings in 2023 is 307, and the number of net new store openings in 2024 is already 521.

discount retailers etc. dollar general, Five Below, Burlington and TJX companies “These are the big drivers of that growth,” said John Mercer, Coresight’s global head of research and managing director of data-driven research. But direct-to-consumer retailers have a role to play as well.

take warby hoodie, an eyewear company that is said to have started the direct-to-consumer sales movement. In May 2023, the retailer said it believed it could open more than 900 stores in the United States. The company plans to open approximately 40 stores in 2023 and another 40 in 2024. Due to the opening of new stores, revenue in 2023 increased by 12% compared to the previous year. 2022.

figThe company, which sells scrubs and other products for healthcare workers, sold its products exclusively online until it opened its first store in Los Angeles in November. Another event is planned for this summer in Philadelphia. Chief Executive Officer Trina Spear told analysts during the company’s first-quarter earnings call on May 9 that 40% of shoppers at the Los Angeles store are new customers.

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

Other privately held direct-to-consumer brands are also expanding into retail stores, including bedding company Brooklinen, furniture store Barrow, and apparel brands Everlane and Untakit.

“Continue to be pure [e-commerce] “We are reaching a certain number, and we are achieving great results,” he said. [e-commerce]But no matter what, you can’t beat that number…unless you turn on another channel,” said Steve, formerly of Warby Parker’s in-house real estate team and now with real estate advisory firm Alvarez & Marsal. Senior Vice President of Business Strategy at Property Solutions.

“I don’t think every brand will reach Warby’s store count, but I’m sure they’re taking these lessons and that bodes well,” she said.

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

Expanding into brick-and-mortar stores is difficult and expensive.

Amish Toria, co-founder and CEO of Leap, a startup that helps brands open retail stores, says companies looking to open a store need to pay for things like furniture, supplies, and inventory transportation. In addition to logistics, it is necessary to understand the physical location, he said. store. They also need to decide how to drive foot traffic and operate their stores, he said.

All of these components require time, energy, budget, and resources, right? So, for as long as we can remember, outside of multi-brand department stores, we’ve built our own fully branded retail environments. If you want to, there are different barriers. Entry has always been incredibly high,” Toria said.

Some direct-to-consumer brands have already disappeared because they expanded too quickly and demand declined.

allbirds‘s market capitalization has increased from $4.1 billion after its initial public offering to approximately $114 million, but in recent years it has rapidly opened dozens of stores, with a total of approximately 60 stores as of the end of March. It became. But the shoe and clothing retailer now plans to close 10 to 15 “underperforming” stores in the U.S. in 2024 so it can focus on “maximizing productivity in its remaining stores.” Executives said this at the first quarter results conference on May 8th.

mattress brand purple has opened about 60 stores, but at the ICR Consumer Investor Conference in January, the company said at the ICR Consumer Investor Conference in January that about one-third of its stores were “having problems for some reason,” and that showrooms were probably “not suitable for our models at this time.” “This is the most difficult part,” he said.

“Then let’s take it easy. [store openings] “Next year we’re going to see a little bit more underperformance and to make sure they get to where they need to be so they can be profitable,” Purple CEO Rob DiMartini said. We’ll see what we can do about it. They’re a great brand sign.” But they have to make some money. ”

Wayfair hasn’t made an annual profit since 2020, but it will face the same challenges as it attempts to expand its retail operations.

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

Wayfair said it is off to a slow start and plans to carefully roll out its stores over time to see what works and what doesn’t before making any future investments.

“The challenge here is upfront capital investment,” said Volition Capital’s Cheng.

“But ultimately, across all these brands, there is no silver bullet like this one channel,” he said. “A great brand works for all brands.”