Wayfair (W -1.94%) has made billions by being online from the beginning. But now it's opening physical stores in its home state of Massachusetts and indicating there are more to come.
The e-commerce home goods and furnishings retailer said in a Dec. 7 press release that it will open three stores next year, two under the AllModern name at open-air shopping centers operated by privately held WS Development in Lynnfield and Dedham, Massachusetts, as well as a Joss & Main store in Simon Property Group's Burlington Mall, also in Massachusetts.
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Wayfair began operating pop-up shops at locations in four states in 2018, followed by a retail store in a Natick, Massachusetts, mall in 2019 that lasted about a year. Now the Boston-based company says it plans to follow up on these three new openings with additional stores, including larger format stores under the Wayfair and Perigold brands.
Here are some takeaways from this move into physical retail by one of the world's largest online merchants.
Wayfair is responding to a consumer shift
This year has been a rough one for Wayfair. Last month it said third-quarter U.S. net revenue declined 21% from the same period a year earlier. Total net revenue was $3.1 billion, a 19% decline that was marked by a striking slide in the number of orders by repeat customers. The bottom line was no better, with a net loss of $78 million in the quarter.
There's more, but the point is that there's a trend here that the company clearly intends to address. Niraj Shah, Wayfair's co-founder and chief executive officer, said that the company is feeling the effects of a shift in post-lockdown consumer behavior. "As various geographies reopened post-pandemic, consumers naturally shifted some spend toward travel and entertainment and from e-commerce toward brick-and-mortar," he said in the company's third-quarter earnings statement.
Responding to that shift will include more of the kind of physical presence that seemed to be falling permanently out of favor until the coronavirus came calling.
Good news for the owners of these retail spaces
Wayfair says it plans to open more stores covering all its brands in "optimal formats, sizes, and geographies over the next two years." That should be seen as good news for the eventual landlords of these new locations.
Wayfair has the deep pockets to do the research and commit the resources to choosing locations and sustaining operations (read: pay the rent) that increase its own prospects for sustained success -- and for the owners of those locations and surrounding sites.
A vote of confidence for brick-and-mortar retail
Shah cited supply chain issues and mounting inflation as challenges the company is facing. It's not alone, of course.
But there's more going on here that could help physical shopping reverse a couple of decades of relentless erosion.
Online shoppers are growing tired of delivery issues -- from supply chain delays to well-publicized delivery issues with the post office, Amazon, and FedEx, to the plague of porch pirates. This is contributing to the return to in-person shopping.
That bodes well for retail landlords in general, not just for the stores themselves, but all those restaurants and other service providers that thrive in and around such settings.
Wayfair's heft adds to a trend worth tracking
Wayfair's expansion into physical retail is telling, though it likely doesn't herald a reversal in the growth of online shopping, and the company doesn't anticipate that, either. As Shah says, "Demand and interest in the home remains resilient, but it will take a few more quarters for our growth -- and e-commerce growth in general -- to get back to normal."
Wayfair is far from the first online brand to develop a physical presence, as retailers each develop their own mix of physical and digital shopping.
Amazon (NASDAQ:AMZN) has been doing this for a while now, including buying Whole Foods in 2017 and signaling to the Wall Street Journal in August that it was planning to soon open a few large-format department-type stores both to sell merchandise and facilitate returns.
And now Wayfair, another online-first company, is dipping its toes in these new waters in what could well be a sign that brick-and-mortar retail may be about to make a big splash again in the months ahead.