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Why Mobile Shopping Is a Key Driver for Wayfair Stock

By John Ballard – Oct 16, 2020 at 7:15AM

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Most of Wayfair's orders now come from mobile devices, thanks partly to new features available on the e-commerce company's app.

Wayfair (W -3.94%) gained plenty of new customers during the coronavirus pandemic, with net active customers reaching a new high of 26 million in the second quarter. This represents a significant acceleration in growth over the previous quarter. 

The online home goods seller has benefited enormously from the consumer migration to e-commerce in recent months, but its recent growth also speaks volumes about its mobile shopping experience that has converted the high traffic to sales.

Mobile shopping plays to Wayfair's strengths

Most of Wayfair's traffic is generated from mobile devices, where mobile has been the most popular means of shopping online in 2020. 

In the fall of 2019, Wayfair announced new features for its mobile app, including augmented reality tools and Room Planner 3D, which allows customers to better visualize how certain items will appear in their homes.

A woman sitting on a couch and using a mobile phone.

Image source: Getty Images.

Along with offering convenience and a wide selection, Wayfair's strategy to gain market share is heavily dependent on its ability to offer a great shopping experience online. It provides the customers with quality imagery and personalization to distinguish itself from larger retail giants that sell across many categories. 

All of this paid off in a big way during the pandemic, with revenue surging 84% year over year in the second quarter. Orders placed through mobile devices made up 60.6% of total orders, compared to 53.5% in the year-ago quarter. 

These numbers show that Wayfair is right in the sweet spot of the consumer migration to e-commerce. Weekly average downloads of shopping apps increased by 20% from January through the week ending April 4, according to App Annie. 

App Annie also found that people are relying on mobile more than ever, with monthly time spent on mobile apps up 40% year over year in the second quarter. This trend played right to the strengths of Wayfair's slick mobile shopping experience and helps explain the underpinnings as to why the company has performed so well this year.

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Mobile shopping might be here to stay

The investments Wayfair has made in the mobile app should set the stage for higher conversion rates beyond 2020. In 2018, research from Criteo found that conversion rates on shopping apps were more than three times higher than through a mobile browser in North America and Latin America. Converting traffic to sales is crucial for online retailers because the last thing a business wants to see is abandoned shopping carts.

Wayfair saw conversion rates pressured toward the end of last year, stemming from the impact of tariffs. During the 2019 fourth-quarter conference call earlier this year, CEO Niraj Shah mentioned that Wayfair had worked to improve the customer experience, which he expected would lead to better conversion in 2020. 

Even before the pandemic, management pointed to improving traffic and conversion trends at the start of the year, which picked up during March. Keep in mind, this was after the new augmented reality features were introduced to the mobile app last fall. 

While Wayfair doesn't expect the recent sky-high growth rates to continue as some people return to shopping at physical stores, growth could remain above pre-pandemic levels. For instance, eMarketer expects the pandemic to have a long-lasting effect on mobile usage, which would benefit Wayfair.

Moreover, while management has seen revenue growth decelerating from recent peaks in markets that have reopened, revenue growth is still well above the levels at the start of the year, as noted during the second-quarter call in August. 

In addition to the mobile improvements implemented last year, Wayfair also made changes internally that are leading to tighter execution across the business. "We believe these improvements are also showing through in our top line momentum and should bear long-lasting benefits well beyond the COVID period," Shah said.

Selling home goods online is not easy. A potential obstacle is that people want to see what an item will look like in their home before buying. Wayfair's focus on building a strong foundation for the shopping experience, such as augmented reality features in the app and logistics that is designed to handle bulky items, allows the company to not only ride the growth of e-commerce but also gain market share in the home goods market, which is ultimately why this growth stock continues to outperform.

John Ballard owns shares of Wayfair. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool has a disclosure policy.

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