Wayfair CEO Niraj Shah Talks Growth and Future-State with Ray Allegrezza 

In the home furnishings industry, everyone should know who Wayfair is. And whether they love them or hate them, there’s no denying the tech company’s impact on the home furnishings market over the past ten years.

Ray Allegrezza, The FAM’s Editor at Large and executive director at IHFRA, saw this coming, and that’s why he brought Wayfair co-founder Niraj Shah to speak to several hundred industry leaders at a conference he hosted in 2008. 

He remembers Shah telling the audience that customers were buying furniture from him online and that most people at the conference scoffed at the idea. 

Now 13 years after that presentation, Allegrezza caught up with Shah to talk about the myriad changes impacting Wayfair and the entire home furnishings sector. Shah also offers his take on where we are headed, what he thinks retail will look like moving forward, next-gen retail technology and systems, and more. 

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Ray Allegrezza: Can you share the backstory of how and where you and co-founder Steve Conine met and came up with your initial business plan?

Niraj Shah: I first met Steve during my senior year of high school, when I’d attended a six-week summer program at Cornell University. We were friendly but didn’t really keep in touch after the program ended. Then, a year later, once I’d started at Cornell as a freshman, Steve and I happened to wind up living in the same dorm just a few doors apart.

We were both engineering students and got along pretty well; we actually ended up living together our junior and senior years. In the last semester of our senior year, Steve and I enrolled in an entrepreneurship course, and one of our projects was to write a business plan.

That entire process—thinking about the kind of business we would run—led to what would become our first business, Spinners, which was essentially an internet consulting company that built websites for businesses (as many of them didn’t have an internet presence at the time). That was really the start of our entrepreneurial journey, which ultimately led to Wayfair as we know it today.

RA: It appeared—at least to me—that you guys never had to break a sweat to raise money from investors.  Was that the case, and if so, why was that?

NS: We didn’t raise any outside capital for the first ten years of our business. It was a completely bootstrapped operation–my co-founder Steve Conine and I would even field customer service calls from the basement in our early days. We would receive feedback from a customer about the site, hang up the phone, and immediately turn around to fix it.

I think that an entrepreneurial, ownership-oriented mindset became a real part of our culture as we grew. Everyone aligned on a long-term outlook and felt invested in what we were building, so there was a laser-focused on creating a best-in-class experience that hasn’t let up to this day.

By remaining self-funded for so long, we had the ability to focus on innovation, customer service and efficiency–in other words, developing a business model that works. Keep in mind, we started the company in 2002, when it might have seemed risky to start an e-commerce company. But when you’re committed to a long-term vision and build a team that can overcome short-term challenges together while building the right mousetrap, the results will follow.

RA:I believe you two started out online in 2002 selling storage units for CDs and other small storage items.  From day one, you and Steve were resolute that online retail was the way to go.  What convinced you that this was the right channel to launch with, especially since the dot-com bust was still fresh on lots of minds?

NS: It was pretty clear to us that online retail was the future, even in the midst of the dot-com bust. In fact, during that time, we’d noticed that many niche businesses were finding success online where others had not. Customers had begun to realize that they could turn to the internet to find a much larger selection of those items compared to what they may be able to buy locally.

For example, if a customer wanted to buy a birdhouse from a brick-and-mortar store, they may have one or two places in town that sold them, and those stores may offer only three or four different options. But online, they could choose from hundreds of different options, and also have it delivered directly to them. As a business owner, too, it’s much more feasible to run a business selling birdhouses online than it would be to open a traditional brick-and-mortar specialty shop for a niche product like that. And this wasn’t just for birdhouses, but for all sorts of products.

After doing a lot of research, we confirmed that there is potential to build a successful business in this space, and we launched our first site, RacksandStands.com, soon after.

RA: At one point, operating as CSN stores, you operated well over 200 product-specific sites.  What were the upsides and downsides to that? 

NS: The upsides to this model were that each site we launched served as a massive learning opportunity, allowing us to grow our cumulative knowledge and apply the things we learned from one site to the next. For example, with our first site, RacksandStands.com, we learned not only how to execute a successful business concept, but also how to deliver a great shopping experience to our customers. We took all of these learnings and brought them to the next product opportunity, then the next, etc.

But, one of the downsides to this was that even though a customer had a wonderful experience on one of our sites, they didn’t know they could have the same great experience at our other sites, because to the customer, they didn’t seem connected at all. This also made it difficult for us to cross-promote or recommend different products to a customer who may very well have been interested in buying them. If a customer was visiting our site for, say, grandfather clocks, we weren’t in a great position to easily recommend other, non-grandfather clock items to them which they may very well have been interested in purchasing. In that sense, there was a lot of missed potential we weren’t able to capitalize on with this model.

RA: By 2011, you brought everything under one roof called Wayfair. Talk to me about the reasoning to do that, and the challenges and opportunities that came with that move. Was there ever any second-guessing that decision?

NS: By that time, CSN Stores was already a successful business, and changing that successful model was inherently risky. But we realized that in order to capture the bigger opportunity in the home category, we’d need to consolidate everything into one strong, singular brand.

One of the reasons for this was that we’d learned doing so would unlock more repeat business from our customers. For example, if a customer had purchased a grandfather clock from us for their new home, it’s unlikely that they’re going to purchase another one anytime soon – but they may be interested in purchasing other items for their home as well. Being able to offer and recommend our other products to customers as a singular brand unlocked massive opportunity for us.

Of course, creating and building a brand is not easy to do, as it takes time to develop that brand’s identity and establish it in the customer’s mind—but we were confident that doing that work upfront would pay off in the long run, and it’s led to the strong Wayfair brand that people know today.

RA: Critics often maintain that your operating costs are often much higher than say a competitor like Overstock.  How do you respond to that?

NS: Building a lasting company requires a balance of ambition and recognition that true durability isn’t built overnight. The foundational work we’ve done to create an enduring business and the meaningful connections we’ve nurtured with customers continue to compound and validate our approach.

RA: A few years ago, professors at Emory College and Wharton alleged that, not as a fault of your company, but as a fault in the furniture category, Wayfair spent approximately $69 to acquire a new customer but lost $10 on that customer over time.  Is that an accurate statement today, and if so, how do you counter that?

NS: When it comes to growing our customer base, we have a highly analytical marketing team that’s steering toward ROI and payback targets that are finely tuned across all channels. They’re focused on new customer acquisition, but also driving repeat purchases and maximizing lifetime value.

We’re laser-focused on ensuring that recently-acquired customers turn into loyal, repeat customers. The average Wayfair customer visits the site nine times and browses across 29 products as part of each purchase cycle.

As investors have noticed our business is a profitable one, and the quantitative approach lets us both have ambition in investing into the business, while also ensuring that we have great financial outcomes and profitability.

RA: How do you get customers to return to you on a frequent basis so that you can lower your marketing costs?  Also, how do you do that with your existing customers for home furnishings, considering they probably don’t need to buy a new sofa multiple times a year?

NS: What’s most important to us is giving each customer a world-class experience that they can’t get anywhere else.

During the height of the pandemic, when more and more people had to reassess their spaces to suit lifestyle changes, and people who hadn’t been part of the step-change in e-commerce adoption tried out Wayfair for the first time. These customers experienced the many features that make Wayfair unique and have kept our tens of millions of customers returning again and again: an unparalleled product selection, a rich interface for browsing, inspiration, and product discovery, and customer service and delivery that are tailored especially for the Home category.

We view the shift toward e-commerce as a secular one—we fully expect it to continue and believe that the differentiated features of our business model will remain fundamental to our success.

RA: You started as a two-man operation. You now have well over 16,000 employees and in addition to your activities here in the states, also operate in Canada, the United Kingdom, and Germany.  With that in mind, how has your role and the role of Steve changed over the years?

NS: Steve and I spent the early days doing everything—developing the site, bringing new suppliers on board, handling customer service issues, you name it. As we gained momentum, we started to build out our team with smart, ambitious people. 

What’s important to us, then and now, is ensuring that good ideas can come from anywhere and that there is a high degree of trust. As entrepreneurs, autonomy has always been important to us and we’ve recognized that it’s key to unlocking innovation. To make that work, you need communication and transparency. 

We’re continuing to learn every day and are constantly asking ourselves, how can we help guide collaboration and smart decision making, even in the face of risk and ambiguity. Once a business reaches the scale we have, I think leaders need to set the vision and strategy in a way that resonates so that your entire team is motivated and knows how to support each other day in and day out, even amid uncertainty.

RA: While most people think of Wayfair as a dominant e-tailer, which it is, you’ve also invested heavily as a provider of state-of-the-art logistics. How many of the thousands of products you offer does your own logistics operation touch?  Also, has your move as a logistics provider helped you with your own supply chain since the pandemic?

NS: Today, our logistics network consists of 17 warehouses and over 18 million square feet across North America and Europe. 90 percent of our U.S. large parcel orders flow through the Wayfair-controlled middle mile network, and our last-mile delivery facilities cover 70 percent of U.S. large parcel deliveries.

Our International Supply Chain offers suppliers a suite of door-to-door services, helping them get products from their manufacturing sites directly to customers’ doorstep through Wayfair. Obviously, this unlocks fast shipping and a great post-order experience to customers, but for our supplier partners—many of which are entrepreneurs growing small businesses themselves—it also offers exceptional value by providing end-to-end convenience and the ability to scale quickly on the Wayfair platform.

We’re continuing to reap the benefits of our long-term orientation to scaling and making strategic investments over the years. We’ve created a massive, flexible supply chain network that’s powered by scalable, agile tech infrastructure, which makes us uniquely positioned to meet demand under any circumstances.

RA: It seems that e-tailers continue to take on more of the characteristics of brick-and-mortar retailers and vice-versa. Do you agree, and do you see that trend continuing?

NS: It’s all about creating a great experience for the customer. Home is an interesting category, when it comes to developing an offering that meets the unique needs of customers. It’s highly visual, it’s often tough to describe your own style, it’s often browsed and inspiration-driven rather than searched, and some categories require specialized knowledge. Not to mention, shipping big and bulky items that don’t fit in an envelope is a challenge. Whether the experience you’re building is digital, brick-and-mortar, or a combination, it starts with understanding your customer and their needs. From there, you can create opportunities that surprise and delight in a variety of ways.

RA: Along those lines, can you give us a progress report about the brick-and-mortar store you opened in 2019 at the Natick Mall?  Will there be more to come? Any plans for another outlet store similar to the one you operate in Kentucky?

NS: We have a test-and-learn culture, so evaluating the best ways to engage with our customers will always be part of our approach. The Natick store and our series of pop-up shops provided opportunities for us to experiment with physical retail and different ways to showcase our vast selection of products and reinforce our best-in-class shopping experience. We are now leveraging those learnings to further inform our long-term physical retail plans and are excited to more clearly define the omni-channel shopping experience across Wayfair’s family of brands.

RA: I think that we can agree that the only constant in this business has been change… lots and lots of change. How has the Wayfair customer changed over the years and how and what do you do to maintain customer loyalty?

NS: In some ways, it’s not hard to predict what customers will want. There’s always an appetite for faster shipping and convenient delivery options, for example. Customers are always looking for the best possible selection of items as well—we sell more than 22 million for any home need.

There are certain things that have become expected of the e-commerce experience as more people shop online. High-quality, beautiful product imagery is one example. It’s no longer just nice to have–it’s central to decision-making. We understand our customers well enough to anticipate many of those shifts in expectations, and when it comes to imagery, we’ve spent years building a robust library of 3D product renderings, and that library of lifelike digital models helps us create incredible photorealistic imagery at scale and continue to raise the bar on the engaging, inspiring experience we’ve built.

RA: In my book, all the great companies have great minds, but also generous hearts.  Talk to me about Wayfair’s heart and some of the ways it gives back.

NS: Yes, at Wayfair, giving back is very important to us. One of the ways we do that is through strong partnerships and relationships with non-profit organizations that are doing incredible work in their respective communities. For example, we’ve been a partner of Homes For Our Troops — a non-profit organization that builds and donates specially adapted custom homes nationwide for severely injured post-9/11 veterans—since 2018 and recently assisted in our fifth home build.

We’ve had a longstanding global partnership with Habitat for Humanity to help build and rehabilitate safe and affordable homes. From fundraising initiatives to employee volunteer mobilization to customer engagement opportunities, we’re deeply committed to supporting Habitat’s mission and ensuring more people have a decent place to live.

Earlier this year, we announced a long-term partnership with Community Solutions, a non-profit organization with a goal of achieving a lasting end to homelessness, and are donating a total of $1 million to their “Built for Zero” initiative by the end of the year.

We’ve also announced that we would be donating $30 million dollars towards social impact investments, as well as a $20 million investment in the Black Economic Development Fund (BEDF), which is an organization that invests in black-led institutions, anchor institutions, and businesses to improve their access to capital and expand economic opportunities in Black communities.

Our “Save Big, Give Back” campaign is one of Wayfair’s key annual events, with a percentage of the event’s sales going directly to select charitable partners, and also offers customers the opportunity to donate directly at checkout. Thanks to the generosity of our customers, last year’s event resulted in a combined $3 million contribution to Feeding America and the UN COVID-19 Response Fund, which we’re really proud of. Our goal is to continue giving back to the many communities in which we operate, and to bring to life our belief that everyone deserves a place they can call home.

Of course, we want to support our people and the communities Wayfairians live in. In 2020, we provided every frontline employee with two free, family-sized meals per week from local, family-owned restaurants throughout the most difficult months of the pandemic. The initiative supported our teams as well as struggling small businesses in areas across our logistics network. The restaurants could rely on the influx of orders from Wayfair, letting them stay open and retain staff during a time when that was anything but certain for independent businesses.

RA: Back in 2008 when I was the editor-in-chief of Furniture/Today I invited you to speak to several hundred industry leaders who came to our Leadership Conference.  I remember vividly you telling them with confidence, not arrogance, that customers were buying furniture from you online…and that was going nowhere…but up.  By the looks on many of the faces in that room, I don’t think they all believed you at the time.  Today, perhaps other than, ‘I told you so,’ what would tell them about Wayfair and e-commerce?

NS: I would say the future of Wayfair—and e-commerce in general—is very bright. We’ve got a vision for the future and are well-positioned to continue to build upon our growth as we move forward. Wayfair is a technology company, and even in the past 10 years, we’ve seen tremendous advances in tools and technology; I’m excited to see what the next 10 years will bring and how those advances will continue to push Wayfair forward as the leader in home goods.

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