by Customer loyalty is a strong suit and one that the company can nurture moving forward
BOSTON — A key message in Wayfair’s latest earnings report for the third quarter ended Sept. 30 was that it has built an extremely loyal following among its customer base.
It’s one of the factors that is driving not only the company’s revenues — which increased 3.7% during the quarter — but is also contributing to its improving bottom line with EBITA of $100 million, compared to a negative $124 million the same period last year. While also reporting a net loss of $163 million, this also improved from the loss of $283 million the same period last year.
As we reported earlier this week with the release of its Q3 results, repeat customers placed nearly 80% of the orders delivered during the quarter, compared to 77.8% in the same period last year. They also placed 7.9 million orders during the quarter, up 16.2% year over year. Overall, it delivered nearly 10 million orders during the quarter, up 13.8% compared to last year.
Where the numbers balance out in terms of overall revenue growth is in the average order value, which fell to $297, compared to $325 during the same period last year, an 8.6% drop. LTM — or last 12 month — revenues also were $538 per active customer, down 1.6% year over year.
Such decreases are clearly signs of a consumer that’s likely more strapped for cash considering what they’ve spent on travel, entertainment and dining out this year — not to mention higher interest rates that are making moving to a new home more challenging for most people.
But during the company’s latest earnings call, CEO, co-chairman and founder Niraj Shah offered some insights that give the investment community a sense of how Wayfair will navigate these challenges and continue its upward momentum over time. Of the housing market, he said, it’s an issue that he’s asked about often, namely how the company can succeed “in an environment where people are staying put in their homes for longer.”
The answer to that question, he said, is quite straightforward. “While we do have customers that will come to Wayfair for purchases around a move, this is far from our most common customer use case,” he said, noting that the trend can be seen in data on orders and revenue per customer, which again gets back to its increasingly loyal following.
For example, he said, the average Wayfair customer places about two orders a year totaling $540. The order, he added, isn’t coming from someone that is typically retrofitting an entire room or a house. “This is a shopper that is going through their home item-by-item, project-by-project making small updates on a much more frequent cadence. If our customers stay in their homes for longer, we’re well positioned to be their retailer of choice the next time they decide that they’d like a new lamp, for the living room, or want a new set of dining chairs for their dining table.”
The lower average order value speaks to the level of promotional activity happening not just at Wayfair but likely at most retailers around the country. But Shah pointed out that the company is leveraging “promotion as a tool for engagement.”
For example, he noted that less than a third of its gross revenue during promotional events is driven by featured items.
“Shoppers are staying on the sidelines longer. But once they’re in the door, they’re proving happy to shop around.”
One category that’s catching their eye that may come as a surprise to readers is pet furniture, which Shah said represents “several billion dollars in our TAM (total addressable market), and we’ve seen strong double-digit growth here over the past two quarters, well outpacing the peer set. Our place in the field is unique as we tap into the emotional investment of the home, multiplied by the emotional connection our shoppers have to their pets.”
He added that interest in the bedroom category is also creating interest in the bedding segment.
“Our customers can pick out their next mattress, sheet set and bed pillows at the same time,” he said, adding that the company has seen its share “in the mattress class outperform meaningfully over the past couple of quarters with positive unit growth in the low double-digit range year over year, while market volumes have been down by a commensurate amount in the same time frame.”
He noted the company also addresses many segments of the market with a good, better, best assortment that helps consumers find the “highest value at any budget level.”
Thus Wayfair appears to have tapped into several categories where it is seeing success in a competitive marketplace. But customer loyalty appears to be a major ingredient in its success too and an area of the business worth watching in its efforts not only to improve profitability, but also increase market share.
