Wayfair Inc. is shifting its logistics and fulfillment model to deliver products faster, the online home furnishing retailer said during its second quarter earnings call.
Wayfair also reported Tuesday that direct retail revenue, which primarily comes from orders placed online on the Wayfair.com, Joss & Main, AllModern, Birch Lane and Dwell Studio e-commerce sites, jumped 71.6% year over year to $755.7 million in the second quarter ended June 30. The web accounts for 96% of Wayfair’s business, up from 90% in the same quarter a year ago. In the first six months of the year, web sales rose 81.5% to $1.47 billion.
Wayfair aims to drive customer retention and satisfaction by altering its logistics and delivery model. Wayfair’s business model is ‘capital light,’ in that it doesn’t buy most of its merchandise and store it in its company-owned warehouses. Instead, it buys inventory only after a customer makes a purchase and operates what’s called a drop-ship model, where its suppliers typically handle the delivery and fulfillment.
Now, Wayfair is housing some suppliers’ highest-volume products in its own warehouses in order to speed up delivery time. “We can ship these products from our warehouses directly to the customer, often with a next-day or two-day delivery guarantee,” CEO and co-founder Niraj Shah said on the call, according to a transcript on Wayfair’s website. With this program, called CastleGate, Wayfair still doesn’t take ownership of the inventory and instead receives fees from suppliers for inventory management and fulfillment services, Shah said.
“There is a meaningful conversion-rate lift when we promised fast delivery on these larger bulkier items,” Shah said, without providing more specifics. Products eligible for fast delivery comprise a small portion of the e-retailer’s total inventory and represent a “high single-digit percentage” of revenue, he added.
CastleGate launched in 2015, and at the beginning of this year Wayfair had about 1 million square feet of warehouse space. It now operates 3 million square feet of space across facilities in Kentucky, Utah and Southern California, Shah said on the call. The e-retailer will open facilities in New Jersey and the United Kingdom in Q3.
In addition, Wayfair added a feature on its site where at checkout, customers can schedule when their orders are delivered on certain large items such as a bedroom set or a large patio set. “Rather than placing an order, receiving an estimated ship date and then subsequently receiving an email to schedule the delivery date a week or so later when the order is in transit, we allow customers to select their delivery date and time window right on the site as they complete their purchases,” Steven Conine, Wayfair’s co-chairman and co-founder, said on the call. The retailer is working on a mobile app to track delivery trucks from Wayfair’s facilities in real time.
Wayfair added 598,000 customers in Q2, and as of June 30, the e-retailer has 6.7 million active customers, up from 4.0 million a year ago. Repeat customers placed 1.7 million orders in Q2, up 49.6% year over year. While repeat orders rose, growth in repeat customers decelerated from Q1 2016, when repeat orders grew 71% year over year.
Wayfair is No. 24 in the Internet Retailer 2016 Top 1000 Guide.
For the quarter ended June 30, Wayfair also reports:
- E-commerce revenue of $755.7 million, up 71.6% from $440.3 million in the same period of 2015.
- Total revenue of $786.9 million, up 60.0% from $491.8 million.
- Net loss of $48.3 million, compared with $19.3 million.
- 38.4% of orders were placed on mobile devices in Q2, compared with 34.1% a year ago.
For the six months ended June 30, Wayfair reports:
- E-commerce revenue of $1.47 billion, up 81.5% from $809.7 million in the same period a year ago.
- Total revenue of $1.53 billion, up 67.0% from $916.1.
- Net loss of $89.5 million compared with $46.5 million.
Aside from the burgeoning online mattress retailers, Wayfair is the fastest-growing competitor in a booming segment of online retailing. Online sales of housewares and home furnishings grew 20.2% to $18.67 billion in 2015, and now account for 18% of the overall U.S. housewares and home furnishings market in the U.S. That’s up by 220 basis points from a 15.8% market share a year earlier. The 101 housewares and home furnishings retailers in Internet Retailer’s Top 1000 grew their online sales 21.6% in 2015 to $11.45 billion—a rate that’s nearly four times the overall growth in the home goods retail sales in 2015 of 5.6%.
Wayfair is the No. 1 retailer in the accessories and home decor category among the top web retailers in the U.S. The online retailer drives nearly half of all online sales growth in the housewares category. Internet Retailer’s new report analyzing the home furnishings category, “At Home on the Web,” is a 25-page downloadable PDF report that provides an in-depth look at the housewares and home furnishings e-commerce market. Last year, according to that report, Wayfair grew web sales by 85.2%, to $2.04 billion and accounted for 29.9% of the growth of the entire online home furnishing market and 17.0% of all incremental sales of home furnishings, off and online.
Wayfair was named Internet Retailer of the Year in the second annual Internet Retailer Excellence Awards in June, given its 42.1% five-year compound annual growth rate and its ability to dominate the housewares category.Favorite