Wayfair and the Future of E-Retail: CEO Niraj Shah Talks Transition Strategy
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We’re about to undertake launching a new brand. That could use some capital, and we also don’t know how rocky the transition will be.” (Make a mental note of that.) “We have all these sites with all this traffic, and when you close those sites and redirect them [to Wayfair.com], you know you’re going to create havoc on your traffic. You don’t know quite how much, and if you’re running it out of cash flow, you might have to be more conservative, move slower, make short-term decisions. Whereas if you have a stronger balance sheet, you can say, ‘We know what the long-term vision is.’”
In other words, it was time to take a risk and go really big. Wayfair’s VCs also brought a lot of knowledge about private sales, social media, global businesses, and taking companies public. It didn’t hurt to “offer some folks liquidity” within the company as well, Shah says.
At the time of the investment, Battery Ventures’ Neeraj Agrawal said he had his eye on the company from its beginning, and that its focus on customer experience got his attention. (Sounds a bit like Amazon.) Meanwhile, Alex Finkelstein from Spark Capital said he thought the firm was “unique in its ability to deliver this valuable customer experience across a wide selection of products.”
That’s not just VCs blowing smoke about their latest bet. In fact, their thoughts are echoed in the e-commerce and retail community. Mike Salguero, the CEO of CustomMade, says Wayfair’s Shah and his colleagues “have been quite helpful in the area of concierge or customer service for consumers.” He adds, “We have deep respect for the company that Niraj has built. Everyone we have met who has worked with Wayfair has been exceptional; they clearly spend a lot of time hiring right.”
OK, so let’s talk about that transition from 200-plus individual shopping sites to one site, Wayfair.com. Shah says his team broke up the old sites into five batches and staggered the redirects to spread out the impact. But there was no getting around the fact that search-engine algorithms are wary of traffic redirects, and they make you earn back your rank if you rebrand. (And on the paid search side, you have to pay more to advertise Wayfair.com than AllBarStools.com when someone searches for bar stools.)
“In the short term, everything’s going to get crushed. Our revenue is basically traffic times conversion rate times average ticket. If you take traffic and drop it a lot, in the near term, you’re not going to be able to make that back up,” Shah says. “So, having a strong balance sheet is a good idea because we’re not entirely sure what’s going to happen, and we’re pretty sure we know it’s bad. Rarely in business do you do bad things on purpose. But here, it’s sort of like you have to jump over this cliff to get to the other side. The only way to go there is through this valley.”
So how bad was it? The transition occurred from late 2011 through mid-2012, and the casual observer would hardly notice much of a revenue blip, although growth may have slowed. Shah says Wayfair.com saw between a 50 and 75 percent loss in traffic at the low points. “The transition was definitely painful,” he says.
But it’s over now. To me, this risky move makes Wayfair even more compelling. The company wasn’t satisfied with being the biggest network of home-goods shopping sites. It wants to be the one-stop shop for the home that everybody knows. And yes, it still has a lot of work to do on that front. “Our big goal right now is to grow the business and take care of our customers and build the brand,” Shah says.
As for Wayfair’s five-year exit horizon, Shah says the “most likely outcome is to take it public,” versus getting acquired. … Next Page »