What retail apocalypse?<\/p>\n
Online home goods retailer\u00a0Wayfair\u00a0is opening its first namesake store, near Chicago, following a string of other digitally native companies that have turned to brick-and-mortar for growth.\u00a0<\/p>\n
In an ironic twist for a company that became a $12 billion powerhouse by persuading consumers to buy couches and beds online, Wayfair is leaning into the most basic building blocks of retail. That\u2019s because no matter how far tech has evolved, shoppers still can\u2019t try out a new mattress from their laptops or phones.<\/p>\n
\u201cIf you think about the categories we\u2019re in, they\u2019re typically very visual categories, or very tactile, or, you know, considered purchases, because it\u2019s reasonably expensive and you\u2019re going to put a lot of care into picking the right item,\u201d Wayfair CEO and co-founder Niraj Shah told CNBC.<\/p>\n
\u201cDepending on what purchase someone\u2019s making, they may prefer the in-store experience and getting to work with an associate,\u201d he said. \u201cOr they may want to discuss financing or want design help, and we can provide all of those experiences. We provide them online as well, but sometimes, in-store can be either more pleasurable or more effective.\u201d\u00a0<\/p>\n
The 150,000-square-foot megastore in Wilmette, Illinois, is set to open May 23. Wayfair follows other direct-to-consumer brands that have opened stores, including\u00a0Warby Parker,\u00a0Figs, Casper, Glossier and Everlane.<\/p>\n
Wayfair\u2019s retail ambitions come as online-only companies look to plot their next phases of growth in a landscape that has evolved since their companies were founded, making it harder than ever to run a profitable e-commerce business.<\/p>\n
Privacy changes on\u00a0Meta\u00a0and\u00a0Apple\u00a0iOS have made it more difficult for marketers to target customers in advertising campaigns. Companies also face more competition from Chinese-linked upstarts such as Shein and Temu.<\/p>\n
Returns and the\u00a0scams that come along with them\u00a0are a never-ending, money-losing game. With the proliferation of online marketplaces on\u00a0Amazon,\u00a0Walmart\u00a0and\u00a0Target, just about anyone can be a retailer \u2014 and brands can find themselves competing against their own manufacturers.\u00a0<\/p>\n
Many companies that started by selling directly to consumers now offer their wares in department stores and big-box retailers, but even that\u00a0brings pitfalls. Brands that earned their competitive edge by gathering enormous amounts of data on their customers don\u2019t have as much visibility when they\u2019re working with wholesalers, nor do they make as much money.<\/p>\n
They\u2019re also subject to the whims of their partners and could be taken off the shelves with little notice or risk losing a primary revenue source if that wholesaler suddenly goes under or sees sales fall. When brands have their own stores in addition to websites, they have a lot more control over mitigating those risks.<\/p>\n
Plus, torrid e-commerce growth during the Covid-19 pandemic has moderated and fallen to below its pre-pandemic low, U.S. Census data shows. Given the seemingly inextricable role online shopping plays in most Americans\u2019 lives, some may be surprised to learn that the vast majority of retail sales \u2014 about 85% in 2023 \u2014 still happen offline, according to Census data.\u00a0<\/p>\n
\u201cFor some of my companies in our various experiences, [stores] can be your very best channel from an economics perspective \u2014 if you have a really good brand,\u201d said Larry Cheng, a founding partner at Volition Capital, a technology growth equity fund that invests in software, internet and consumer companies. \u201cIt\u2019s not going anywhere, it\u2019s additive to online sales, it\u2019s additive to attracting new customers, the economics can be great.\u201d\u00a0<\/p>\n
Wayfair\u2019s new location will look somewhat like an Ikea in its size and on-site restaurant, but its assortment will offer a range of diverse styles as it works to become a one-stop shop for all things home.<\/p>\n
\u201cYou\u2019ll see furniture, you\u2019ll see the marketplace, which is very decor centric, but we have home improvement, which includes large appliances, kitchen cabinetry, tile, doors, hardware, you\u2019ll also see housewares, small electric, there\u2019ll be storage and organization,\u201d Liza Lefkowski, Wayfair\u2019s vice president of merchandising and stores, told CNBC.\u00a0<\/p>\n
\u201cYou\u2019ll see a number of categories outside of furniture, but that are very core to your home,\u201d she said.<\/p>\n
ng just one large-format store to complement a handful of smaller shops it opened under its specialty retail brands All Modern and Joss & Main.<\/p>\n
In the future, Shah is envisioning a \u201cwhole portfolio of large-format stores\u201d with a nationwide footprint.\u00a0<\/p>\n
Wayfair\u2019s physical store ambitions reflect a bigger wave of brick-and-mortar openings.<\/p>\n
In the early 2010s, new store openings largely outpaced closures, until the tide turned in 2017. Nearly 8,000 retail storefronts were shuttered and only about 5,000 new ones opened that year, according to Coresight Research\u2019s\u00a0U.S. and U.K. Store Tracker Databank.\u00a0<\/p>\n
The spike in store closures sparked headlines about the so-called retail apocalypse and warnings that stores would die off as shopping moved online.\u00a0<\/p>\n
For a while, that seemed to be true. New store closures outpaced openings until the trend changed in 2022. For the first time in five years, more storefronts opened than closed, resulting in 1,575 net new openings. There were 307 net new openings in 2023, and there have already been 521 net new openings in 2024, as of May 10.\u00a0<\/p>\n
Discount retailers such as\u00a0Dollar General,\u00a0Five Below,\u00a0Burlington\u00a0and\u00a0TJX Companies\u00a0have fueled a lot of that growth, said John Mercer, Coresight\u2019s head of global research and managing\u00a0director of data-driven research. But direct-to-consumer retailers are playing their part, as well.\u00a0<\/p>\n
Take\u00a0Warby Parker, the glasses company credited with starting the direct-to-consumer movement. In May 2023, the retailer said it believed it could open more than 900 stores in the U.S. It opened about 40 in 2023, and has 40 more planned in 2024. The new store openings contributed to a 12% jump in revenue in 2023 compared with 2022.\u00a0<\/p>\n
Figs, which sells scrubs and other products for health-care professionals, sold its products exclusively online until it opened its first store in Los Angeles in November. It has another planned in Philadelphia for this summer. CEO Trina Spear told analysts during the company\u2019s first-quarter earnings call May 9 that 40% of the people shopping in the Los Angeles store are new customers.\u00a0<\/p>\n
\u201cAnd this is in our most penetrated market of Los Angeles. So, that\u2019s great to see,\u201d Spears said. \u201cHealth-care professionals are like everybody else, right? They want to engage with brands both online and off, and we\u2019re seeing that in our Century City store.\u201d<\/p>\n
Other privately held direct-to-consumer brands have also expanded into retail stores, including bedding company Brooklinen, furniture store Burrow and apparel brands Everlane and Untuckit.\u00a0<\/p>\n
\u201cPure plays on [e-commerce] are saying, \u2018We\u2019re getting to a certain number, we\u2019re doing fantastic on [e-commerce], but we won\u2019t be able to hurdle this number no matter what \u2026 if we don\u2019t turn on another channel,\u2019\u201d said Rebecca Fitts, who previously served on Warby Parker\u2019s in-house real estate team and is now the senior vice president of business strategy at real estate advisory firm\u00a0Alvarez & Marsal Property Solutions.<\/p>\n
\u201cI don\u2019t think every brand is going to get to a store count of a Warby, but they\u2019re certainly looking at those lessons, and it bodes well,\u201d she said.<\/p>\n
If direct-to-consumer brands could all open stores and suddenly boost sales and profitability, they\u2019d all be doing it. But retail fundamentals can bring a steep learning curve for companies that started out as online disruptors.\u00a0<\/p>\n
Expanding into physical retail is challenging and expensive.<\/p>\n
Companies looking to open stores need to figure out a physical location, along with furnishings and supplies, and the logistics, such as transporting inventory, said Amish Tolia, the co-founder and CEO of Leap, a start-up that helps brands open retail stores. They also need to determine how to drive foot traffic and operate a store, he said.<\/p>\n
All those components require \u201ctime, energy, budget and resources, right? And so for as long as we can remember, besides a multi-brand department store, if you want to go set up your own fully branded retail environment, the barriers to entry have always been incredibly high,\u201d Tolia said.<\/p>\n
Some direct-to-consumer brands have already been burned after they expanded too quickly and demand fell.\u00a0<\/p>\n
Allbirds, whose market cap has gone from $4.1 billion following its initial public offering to about $114 million, rapidly opened dozens of stores over the last few years, bringing its total count to about 60, as of the end of March. But the shoe and apparel seller now plans to close 10 to 15 \u201cunderperforming\u201d locations in the U.S. in 2024 so it can focus on \u201cmaximizing the productivity of our remaining stores,\u201d executives said during the company\u2019s first-quarter earnings call May 8.\u00a0<\/p>\n
Mattress brand\u00a0Purple\u00a0has also opened about 60 stores, but it said during the ICR consumer investor conference in January that its showrooms are perhaps \u201cthe toughest part of our model right now\u201d because about a third of its locations \u201care problematic for one reason or another.\u201d\u00a0<\/p>\n
\u201cSo, we\u2019re going to slow [store openings] down a little bit in the coming year and try to figure out, how do we make sure that we get them to where they need to be so they\u2019re profitable,\u201d said Purple CEO Rob DeMartini. \u201cThey\u2019re great brand beacons. But they\u2019ve got to make some money.\u201d<\/p>\n
Wayfair, which hasn\u2019t turned an annual profit since 2020, will face the same challenges as it embarks on its retail expansion.\u00a0<\/p>\n
The company spent about $348 million on capital expenditures in 2023 but has also\u00a0slashed costs\u00a0to save hundreds of millions of dollars and strengthen its cash position.\u00a0<\/p>\n
Wayfair said it\u2019s starting slow and plans to roll out stores carefully, taking time to see what\u2019s working and what isn\u2019t before making future investments.\u00a0<\/p>\n
\u201cThe challenge with it is the capital expenditure upfront,\u201d said Cheng, from Volition Capital.<\/p>\n
\u201cBut ultimately, all of these brands, there\u2019s not like this one channel that is the silver bullet,\u201d he said. \u201cThe good brands, they work across all of them.\u201d<\/p>\n<\/p>\n
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