Portfolio Holding Focus: Wayfair Inc (W-US)
Wayfair Inc offers one of the world’s largest online selections of furniture, home furnishings, décor and goods, including more than 8 million products from over 10,000 suppliers. Its extensive selection is available at an affordable price with fast delivery and good customer service.
Wayfair Inc is the leading online marketplace in mass market home furnishings in the United States, targeting a niche that has historically had low levels of penetration given the complexities and exploratory nature of consumer decision making when it comes to furniture; and also difficulties on the supplier side managing large, bulky goods that are difficult to warehouse and expensive to deliver.
W-US has overcome these challenges on the consumer side by utilising market-leading innovation in its online marketplace, which has taken significant friction out of the exploratory process and greatly enhanced the consumer experience with technology like augmented reality and photo recognition. In addition, the company has a reputation for its vast selection, fast shipping, low prices, stock availability and great customer service. This depth and availability of products is hard for traditional home furnishing stores to replicate given inventory holding and lease costs, and therefore serves as a key competitive advantage for W-US. The business employs a minimal inventory model, but is still able to provide fast delivery through its warehousing network that comprises more than 8 million square feet of product storage space. Products are sourced via relationships with over 10,000 suppliers, who are able to leverage W-US’s brand, customer service, technology and cost-effective distribution channel in a way that allows them to reach a far bigger market than if they were to do it themselves – W-US has more than 10m active customers. Importantly, W-US ultimately determines the pricing to the customer and controls the customer experience.
The company’s addressable market is expected to grow substantially with the secular shift to online retail and its expansion into other markets, including Canada, the United Kingdom and Germany. Currently, only approximately 10% of the $270b home furnishing market in the United States is online, but it is growing at 15% per annum and W-US has the leading share. In addition, the company continues to attract new customers and increase the frequency of repeat orders. Although Amazon Inc has a presence in the online home furnishing market, W-US believes it is insulated due to its unbranded products, large and awkward good sizes making storage and delivery difficult, and a differentiated user experience (browsing versus search).
W-US has an experienced management team led by two co-founders who hold substantial amounts of equity, foster an innovative culture and take a long-term view of the company. This, combined with the compelling valuation propositions it offers both its customers and suppliers, as well as the substantial competitive advantage it has achieved with its capital light distribution model, vast product range, affordability and availability, build a strong case for W-US to continue to capture market share and grow earnings over the long term.