Wayfair Finds Comfort in a Tough Corner of the E-commerce Marketplace

Online furniture and home goods leader Wayfair (NYSE: W) estimates that its total addressable market is nearly $600 billion, split between North America and Europe. Capturing market share depends on skillful customer acquisition initiatives.

The following segment of Industry Focus: Consumer Goods dives into Wayfair’s strategies for winning — and holding on to — new customers.

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A full transcript follows the video.

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Vincent Shen: With this home goods focus, Wayfair values the annual U.S. market at $275 billion. A really big market opportunity. They think that online penetration is around 10%. The market size doubles when you add Europe, where the company has started to expand with younger operations in the U.K. and Germany, the bulk of its business still based in the U.S. Adding those markets effectively doubles the opportunity. In their conference calls, they see this overall revenue potential for home goods at something like $600 billion. A massive market.

With the customers that they focus on, the CFO at an investor conference recently went very specific and defined their target customer as a woman — 70% of their customers are women — around 45 years old with a median household income of $80,000. This is somebody who, in terms of their disposable income, has moved on from experiences. They have a family, they have kids, and they really want to create a home that’s comfortable for them, a vision of something that brings them joy each day.

The company also speaks to this tailwind of how the aging millennial population, where the oldest millennials have started to enter this phase of their lives where they’re starting to buy homes, have families, and enter this demographic that’s very attractive for the company. This is also a generation that’s extremely comfortable shopping online. The idea of buying a sofa from Wayfair becomes less and less foreign and intimidating. That’s a big tailwind, big growth opportunity for the company. It’s really interesting. That’s on the what side, what they’re selling, and who side, in terms of who they’re selling to.

The way they sell online, if you think about the typical furniture buying experience, you have to go to many different stores to get different styles, different price points when you’re looking at a more brick and mortar-focused shopping experience. Wayfair definitely touts having a really broad selection. This is a really interesting idea — when you’re shopping for furniture or home goods, it’s one of the few times when you’re buying something where you might not know exactly what you want. I’ve been helping my wife recently shop for a computer, and we immediately knew, “We’re going to go with brands like Lenovo or Dell.” We have a very clear vision of what she wants. But, if you’re buying bar stools or a sofa or some other furniture, you might not know yet. You’re looking for inspiration, in terms of what that interior decor will look like. So, when Wayfair can boast 10 million products, 10,000 suppliers, it really gives them a wide shopping experience that’s harder for their typical brick and mortar competitors, whether it’s a specialty store or even a big box store like Walmart or Ikea, to necessarily replicate.

That’s another really interesting aspect, in terms of what makes the shopping experience with the company more compelling, in addition and on top of the service side of the business, where they’re really focused. They have over 2,000 customer service representatives in-house, not outsourced, that are focused on answering questions, helping customers find the right products. All of these things come together to create a pretty compelling experience, in terms of e-commerce, for a less traditional e-commerce product category.

Asit Sharma has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool has a disclosure policy.

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