Wayfair’s Big Moment

Though eCommerce often draws the sort of breathless praise of reporters, analysts and commentators that leads to terms like “wave of the future” or “the death of traditional retail” being thrown around with casual abandon — something curious happens when the conversation gets more specific.

Because broadly speaking — the experts aren’t wrong, eCommerce and mobile commerce are at this point inarguably the shape of things to come, and PYMNTS wouldn’t be in business otherwise. However, that prediction is hinged on taking the broadest definition of digital commerce.

Writ large that includes firms that fall into an expanded definition of commerce that captures Uber, Airbnb and their many on-demand imitators;  the technological service providers like Stripe and PayPal and the big name vertical jumpers like Google and Apple. Strip that element out of the conversation — and confine the discussion in digital commerce to something like classic retail (pay a price, have a good provided) — and the conversation gets rather narrow.

Headlines, analysis and investor sentiment tends to view the goods-based eCommerce landscape in the U.S. as a story that is about Amazon, eBay (to a much lesser degree) and everyone else.

Great news for Amazon, good news for eBay, terrible news for eCommerce players that fall into the chasm of a category that is everybody else.

And not merely bad news because it is no fun to watch a competitor get all the love and adoration (though that surely is a bummer), but because that narrative has real bottom line costs for players. Etsy has seen has seen its stock price decline sharply for a month despite reporting revenue growth, profitability growth and expanding interest in their marketplace. Investors are aware all of these otherwise positive signs are in place, but are nonetheless withholding dollars, because a month ago Amazon launched its Amazon Homemade market (apparently Amazontsy didn’t test well).

While Amazon’s victory in the homemade marketplace is far from a given, investors are less confident in Etsy’s long-term prospect fending off a full-frontal assault by Amazon.

But even as Amazon’s dominance dominated headlines this year, its market share declined some as more up-and-comers keep … well up and coming.

Up-and-comers like Wayfair, though at 13 years old and over a year out of their IPO, perhaps that description is slightly out-of-date. This year, however, Wayfair made like Prometheus and snatched some of Amazon’s headline fire with big numbers on during the holiday kick of week.

How good? Well …

A Recliner Every Three Seconds

Wayfair — parent of the flagship Wayfair.com site and its ancilliary sites Joss & Main, AllModern, DwellStudio, and Birch Lane — saw a sales spike of 130 percent year-to-year during the five-day period that kicks off holiday shopping. At one point on Black Friday, the site was reportedly selling one recliner every three seconds.

“We are continuing to see an industry-wide shift to eCommerce that is especially evident during the peak retail season,” Niraj Shah, CEO, co-founder and co-chairman of Wayfair, noted in a statement. “Wayfair is benefiting from that shift.”

Wayfair’s spokesperson concurred.

“As consumers are getting more comfortable making larger purchases online – and seeing positive results, Wayfair has seen its customer base growth. Particularly with our focus on creating an online showroom so that customers can visualize and entire design motif – and feel comfortable recreating it in their own space.”

And while that sentiment is undoubtedly true, Wayfair certainly boosted its efforts to surf the rising eCommerce in two ways – both time-honored retail classics.

The first is with enhanced advertising, as Wayfair has seeded the airwaves with more televised ads this holiday season, highlighting their range of attractive and useful product range (all sung to a catchy tune).

The second is with good, old-fashioned discounting and free shipping.

Wayfair during its Cyber Week blowout sale was discounting some items as much as 80 percent and offering free shipping for orders over $49. Since it isn’t exactly a challenge to reach $49 while buying furniture, no matter how discounted, that is a whole lot of free shipping to offer out.

The Market Likes — And Dislikes — Wayfair

Wayfair actually managed to pull off the biggest year-over-year sales growth of any online retailer in 2015 — news that investors initially liked quite a lot, as the firm saw its share price shoot up 14 percent in the days after its results were posted.

However, the stock price spent much of November on a roller coaster ride, with prices bumping up and down on the day. All in, Wayfair’s stock price lost 10 percent of its value in November, brought on by a continued assault by short-seller Whitney Tilson, among others.

More on that in one second.

Wayfair has also seen some fairly high level defections — even in the light of its extremely strong early holiday performance (or perhaps spurred on by the stock bump it precipitated). According to recent reports, Wayfair Inc. major shareholder Steven Conine just unloaded about $3 million worth of his stock, or 78,283 shares. That transaction recorded an average price of $38.05. Wayfair’s stock closed at $44.78 yesterday (Dec. 7).

The Undesirable Attentions Of Short Sellers

Wayfair also has an unique problem: a collection of short-sellers predicting their doom. Tilson has led the charge, alleging that Wayfair’s furniture products (which are made in China) contain unhealthy amounts of formaldehyde. He has called for an immediate change in their supply path — and a chief compliance officer’s appointment.

“I don’t think Mr. Tilson is really focused on consumer safety per se,” CEO Shah said last week on Bloomberg TV. “I think he’s focused on the stock price and trying to get it down below where he opened his short.”

Shah further noted that they purchase from mainline manufacturers to safeguard quality, as opposed to contracting directly with Chinese distributors to save money as “many others do.”

But Tilson is not the only short seller taking an active interest in Wayfair, short seller Andrew Left of Citron Research has also been on the short train lately — sounding a familiar refrain.

“Amazon is going to kill [Wayfair] on price, because Amazon has bots,” Left told Real Money. “Anything that sells volume on Wayfair, Amazon will lower the price. They’re going to kill [Wayfair] on price. That’s why they’re Amazon.”

But so far, those short sellers have not brought Wayfair down, as stock price is consistently climbing this holiday season. And it seems arguing that Wayfair — or any eCommerce firm — is doomed because Amazon exists and will undercut them on price is a little off track.

First, because Wayfair (and many other players) are working hard to leverage technology to make it harder for Amazon to see their lowest prices and automatically undercut them.

But more importantly, the argument that because a firm can be undercut on price means they will automatically lose might be lacking in nuance, because by that logic Walmart’s low prices and nearly ubiquitous scale would preclude the existence of almost every other retailer on Earth.

And while Walmart has certainly shuttered many a shop, they are not the only retailer on Earth — a fact that the now undefeatable-seeming Amazon is a testament to.

Because consumers generally like to be able to shop at more than one place, even if they have a favorite. And Wayfair is betting that they can be one of those places — and be a digital space for enough consumers that it won’t always be “an eCommerce firm that isn’t Amazon or eBay.”
A tall order, but one that at least so far in holiday 2015 Wayfair is delivering on.