Can Wayfair Stay 'Sticky' And Keep Making Money?

Wayfair finally turned a profit. Can they do it again?

Earlier this week, the online home furnishings retailer announced it had made money in its second quarter, the first time it had ever shown a profit since going public in 2014. For a business that has been much maligned for its inability to show profitability it was a huge moment, one punctuated by an entire array of astonishing numbers:

        • Its stock traded Friday at an all-time high of $323 and change, up around 15% for the week but an incredible more-than-six-fold jump over its slump this past winter just after it had reported another yearly loss.

        • Wayfair said it activated nearly five million new customers during the quarter, more than the past four quarters combined. One million former customers who had been inactive for at least a year returned and were “reengaged,” the company said.

        • Sales for the quarter were up 84%, coming on top of the impressive top-line results Wayfair has posted over the past few years.

        • Its active customer base is now 26 million and for the first time in its history, the growth from existing shoppers was more than what it achieved from new customers.

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“We believe much of this step change in online penetration will prove to be sticky,” said CEO Niraj Shah on the company’s earnings call.

Certainly, Wayfair’s achievements during the quarter are beyond remarkable. Many people (including this writer in an earlier Forbes piece) doubted whether the company would ever achieve profitability. While it put up nearly as incredible growth numbers for the first quarter it failed to make any money, prompting the question, “If not now, when?”

That question has now been answered, suggesting of course the next one: “Can they do it again?”

How sticky its new business will turn out to be is of course the deciding factor in all of this. Wayfair’s results were due to its unique position in the market, at the crossroads of the surge in online business and increased focus by house-bound Americans on redecorating their homes.

Wayfair was one of a number of retailers who benefited from this convergence. RH’s stock has more than tripled since March and other retailers from Bed Bath & Beyond to Macy’s to Home Depot and Lowes have all talked about the strength of the home furnishings and remodeling sector of the economy.

And while e-commerce spikes are starting to subside as physical stores reopen and people start venturing out to shopping areas again, there does not seem to be any let-up in the home business. That’s good news for Wayfair.

But as we’ve seen over the course of its history and wild ascent, just getting more sales has not been the panacea for Wayfair. Its customer-acquisition costs, marketing and reliance on free shipping have weighed heavily on the company. And it still lags competitors like Amazon on its distribution framework and Williams Sonoma and Bed Bath & Beyond on physical store networks. Building out capabilities in both areas are still musts and they will end up being expensive musts to get to where the company ultimately needs to be. Getting more business from existing customers, as it showed it can do, will be critical to bringing its marketing and acquisition costs down.

And while some observers are skeptical the company can hang on to its new customers and keep growing with its old ones, Wayfair says it is the right spot at the right time. “Our observations tell us that this new cohort of customers is reengaging with our platform at higher than usual rates and that this is translating into higher-than-average repeat order rates,” Shah said.

Wayfair will need to show it has the consistency to be successful over a longer period of time. But it at least started that process, something it was unable to do for more than 24 consecutive quarters. It’s a start that Shah and his group have to have given a huge sigh of relief over. Now they just have to do it again…and again…and…

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