Wayfair is an online retailer that brought in $500 million in revenue.Wait, who?
It’s an online retail store for furniture, home decor, and baby stuff. Originally it was a huge set of independent stores — one for bar stools, one for TV stands… you get the idea.
Now it’s consolidated all of those stores under the Wayfair brand to build a unified shopping experience.
But it comes at a cost.
Owning “Strollers.com” is pretty sweet for search engines. If you Google “strollers,” that’s probably one of the top results you’d get.
Wayfair CEO Niraj Shah said it’s worth it. We spoke with him about the company and where it’s headed. Here’s what we found out:
- Google search was a huge part of their incoming traffic. It’s among one of the “big three” sources — paid advertising, natural search and direct traffic from new and returning customers.
- Shah is banking on “Wayfair” becoming as search-engine friendly as something like Amazon. The company is willing to take a hit on search engine traffic to build a bigger brand — which it already has, with some sites dropping in the search rankings thanks to redirects.
- Wayfair is still on track to grow this year, but it raised $165 million to have a more attractive balance sheet. Wayfair’s founders bootstrapped the company up until its funding round in June, but they decided to bring in investors that could help the company go public and pad the balance sheet.
- Wayfair took off because it focused on things Amazon wasn’t good at. Namely, furniture and other types of home decor. When Amazon was taking off, the online furniture retail market was going relatively unnoticed, even though it’s huge for 30- to 55-year-old shoppers.
BUSINESS INSIDER: What do you guys do, and how is it different from Amazon?
Niraj Shah: We really focus on the whole market — furniture, decor, home improvement, housewares. In that market, we have the largest selection available. We have over 4,000 bar stools and 1,800 bedroom sets. What you find in that market, where items are style-based, the way they ship and deliver is different from a small parcel. In that market we’ve gained the lead, in 2011 we did 500m in sales. That’s because consumers, who were in the market for those goods, it doesn’t take too much effort on Google to figure out we have the best selection and service. That recipe is what we think people want.
Amazon is clearly the 800-pound gorilla in e-commerce. It’s the clear leader in a number of markets, including media items and electronics. They’re making huge headway like consumables. If I talk to you about accent pillows or mirror sets, typically consumers don’t necessarily think of Amazon as their source. The shopping experience at Amazon isn’t tailored for customers in that kind of category. We focus on those categories and that’s what we’ve done — we’re coming up on being 10 years old now, and having that growth through this period. There aren’t many pure e-commerce companies that are larger than us.
BI: So why didn’t I know about it? Disclaimer: I’m a 24-year-old male.
NS: Our target demographic is 30 to 55, particularly women. If you think about yourself, at 24 you typically aren’t a big buyer of furniture and decor items. You’re renting an apartment and your furnishing is low-quality. The driver that pushes you to being one of our customers, which all happen at around 30 — getting married, buying a house and having kids. Home then becomes a big focus for you and it’s a place where you spend a lot of money. Your home becomes welcoming and hosting relatives.
Up until we launched Wayfair, we went to market with a large series of domains: allbarstools.com, cookware.com, csnlighting.com. Rather than us being out there with a domain for a place with everything home, we’re out there with these 200 websites. A lot of folks might have visited us at this and that, but not put the whole store together. The rebranding to Wayfair, it’s a real focus to wayfair.com. Now we are in the market with that site … It’s a much more memorable experience.
We’ve redirected probably 75 of our stores and we’re in the process of really only having three brands. Wayfair, all modern — the contemporary modern aesthetic — and Joss & Main — which is similar to One Kings Lane.
BI: But aren’t you sacrificing a lot of search engine traffic by wrapping that all up?
We’ve always taken the view of wanting the biggest selection in the market. By having a really big selection, that’s made our site really SEO (seach engine optimization) friendly. We’ve also been willing to be an aggressive advertiser. We’ve advertised on Google and Yahoo and Bing.
Over time, in the early days, it was all paid search (in 2002). What happened over time was that all these other channels developed. Paid search is now one channel, natural search is another channel, you get direct traffic. Basically, natural search, paid search and the shopping comparison engines are the three biggest channels.
Among those three, no one is dominant over the other. There’s no question that Google is a big source, but we have millions of folks that are loyal customers. We also advertise in other online retail venues. There’s a number of different sources, but Google controls a lot of traffic.
One of our domains is strollers.com, and strollers.com was a site we had for years and we redirected it to Wayfair in the first wave of moving sites over. No question that Strollers cites well in the SEO, and when we redirected it, it doesn’t place that high. If you type in strollers.com, it redirects you to Wayfair. The plan is to redirect people permanently. Over time, though, we think Wayfair can be a much larger site than any of our sites can be. As an end game, we think Wayfair will have much better SEO.
BI: So why did you raise that whopper of a round, worth $165 million? You bootstrapped the company up til then.
NS: We had the transition to Wayfair.com in mind, but it wasn’t just for the transition. We thought we might want to do some brand advertising. We thought we’d do some TV now. We thought that having a stronger balance sheet — whether for that or for acquisitions — is useful and we could see the benefit to having investors. At the time we didn’t have any institutional investors. We thought if we want to take it public they can help with that.
Steve Conine and I, this is the third company we started together. When we started this, we were able to do a lot of the initial work ourselves. The main thing about this business, once you start it, it begins generating a lot of cash flow. We were able to fund all its needs from operating profits.
The first company we started was a company called Spinners — we went to Cornell together in ’91 — right out of college where we built custom internet applications for Time Warner, The New York Times, those kind of folks. We sold that and left it in 2000, and then we started a software company which we sold shortly after and we started Wayfair in 2002.
We started Wayfair after the bubble had burst, the dark days after the Internet boom. For us, we had been involved with the Internet for about 7 years. We were pretty bullish bout it, in hindsight it was a great time to start it. It was hard to raise venture money those years, so there was a lot less competition in the market. We started the business and we were able to grow it for 3 to 4 years before the investment community embraced e-commerce. Needless to say it’s easier to grow a company when you have less competition.
BI: So why focus on furniture?NS: Amazon was clearly around and getting large in 2002. We thought, let’s pick categories, we thought we could do a better job with stuff other people weren’t focusing on. Our very first category was racks and stands — TV stands — and that was quite successful. Then a bunch of our suppliers who made TV stands but also made desks, they told us we were doing a great job. They’d say, “hey, you’ve become the number 1 furniture retailer in 90 days, that’s amazing.”
Our suppliers told us about other categories, and one by one that led towards other furniture. Then we had customers who bought a bed from us, we thought we should also mirror. We started expanding on all furniture.
BI: What are the plans for 2012?
NS: We closed our most recent round in June. So we’re going to be rolling out with editorial content. In the fall we announced we hired Kris Kennedy, she was an editor at Better Homes and Gardens. We hired her to head our editorial push. If you think about magazines and other sites, what they do for content at homes — style and colour — there’s a lot we’re working on. The idea is to help folks get inspired, make good style decisions, and make the site more engaging.
We’re also working on a two-day delivery program. These items are larger items, they’re TV stands and bar stools. Pretty soon we’re going to see a program like that have a number of items in it. We’re doing a lot with the website coming up.
There’s a lot we do on the supply chain. We sell 4.5 million items from 5,000 brands. These are large items, spread all over the country. What we’ve been doing to make the supply chain more efficient and make it easier for customers, there’s a lot of interesting things on that side. There’s a lot of investment we’re putting into supply chains.
BI: Do you expect to see a drop in sales now that you’re losing some search engine juice?
NS: This year we’re on track to grow and a very good rate.