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If you've been spending a lot more time on your couch this year, you are not the only one. Wayfair (NYSE: W) has profited from the demand for home goods driven by the COVID-19 pandemic. "The home category is seeing broad-based demand as our customers reprioritize their spending on where and how they live and away from other experiences like travel, entertainment, and dining," said CEO Niraj Shah during the third-quarter earnings call. But it's more than a need for home office supplies and decor for Zoom rooms that is driving its recent growth. Shah pointed out that the top five best-selling categories during Way Day 2020, its annual sale day, were the same five categories during the sale one year ago.
A blockbuster quarter
Wayfair's total revenue rose a whopping $1.5 billion to $3.8 billion, up 67% year over year. Its gross profit was $1.1 billion or 29.9% of total net revenue, and diluted earnings per share was $1.67. The number of active customers in its direct retail business reached 28.8 million, up nearly 51% year over year. Repeat customers are a huge part of Wayfair's business, and they represented 71.9% of all total orders in the third quarter, placing 11.3 million orders.
Wayfair offers nearly 18 million products on site. It focuses on four key areas: furniture and decor, housewares, home improvement and large appliances, and professional or B2B. It has a variety of brands, including Birch Lane, AllModern, Joss & Main, and luxury retailer Perigold, allowing it to target a variety of different consumers.
A rising tide
In general, interest in home improvement tends to track with higher housing prices. The current trend is driven partly by the massive increase in the median existing home sales price, which was $311,800 as of September. The other factor this time is that people are home more. They aren't traveling or dining out as much, which means they have more discretionary income to spend on their homes. This has similarly driven sales at luxury furniture retailer Restoration Hardware (NYSE:RH), which has seen a strong rebound.
A Wayfair competitor, Overstock (NASDAQ: OSTK) has benefitted from the same trend. Although Overstock sells far more than furniture, its home furnishings business saw 141% growth in new customers. Overstock is also looking to dive more into office furniture and some office supplies such as monitor stands and chargers. Both Overstock and Wayfair see the shift to buying furnishings online as far more than a temporary trend.
Homeowner spending on improvements and repairs is expected to track up through next year according to the latest version of the Leading Indicator of Remodeling Activity (LIRA) from the Joint Center for Housing Studies of Harvard University. The LIRA forecasts annual growth of 4.1% in renovation and repair during the first quarter of 2021 but a drop to 1.7% by the third quarter. Annual expenditures in the category are expected to rise from around $332 billion to $337 billion by the second half of 2021.
More homes may also mean more need for furnishings. With many business and technology workers continuing to work from home, the rise of the co-primary home has meant that second homes and vacation homes need to be outfitted for more than just a two-week vacation. The September numbers from the National Association of Realtors showed that sales in vacation destinations were up 34% year over year.
Catering to professionals
Wayfair caters to professionals with a program that offers free shipping over $35 as well as commercially rated products and business exclusives. Last year, Wayfair updated its mobile shopping app with virtual staging through an augmented reality and room design tool. It also has relationships with organizations, such as the Real Estate Stagers Association, that offers special incentives for members who use Wayfair.
Sotheby's International Realty last year announced a partnership with Wayfair's Perigold brand to add premium pieces into the Curate by Sotheby's International Realty augmented reality app. Agents can create virtual staging with Perigold furniture inside the app and on the Sotheby's website.
Wayfair's future success depends not only on individual homeowners but also real estate agents, home stagers, house flippers, corporate clients, and all the businesses that rely on Wayfair furniture to outfit their offices. Wayfair's strong third-quarter results show just how much the combination of a strong real estate market and a lot of consumers spending time at home can drive its business forward.
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