If you stare at something long enough it needs to be fixed, altered, or replaced.
Most of us are going on two months into staying at home. I think it was maybe the third week into lockdown that I realized I should buy a rug for my living room. I’d been putting the purchase off because I found it hard to commit to a style of rug. But sitting inside all day, I now have the time to make a list of everything that I need and what needs to be fixed around my apartment.
So when Wayfair (NYSE: W) sent me an email that said it was having a rug sale, I had to look because, again, what else was I doing? I had the time to browse. I’m not the only one. Though more than 26 million have filed for unemployment in the U.S. (and that is expected to grow), many people are working from home and lucky enough to still be employed.
On April 6, Wayfair shares rose as high as 51%. Wayfair said that its “gross revenue growth rate more than doubled.”
Jefferies analyst Johnathan Matuszewski had this to say about the company:
Wayfair sees the U.S. online furniture market as a $42 billion opportunity growing at 15% compound annual rate (CAGR) through 2024 compared to 1.3% CAGR for the offline furniture retailing.
[The] pure play e-comm business model is taking share in an environment where about 80% of the category is closed for business, its largest online competitor [Amazon] is focused elsewhere and consumers are spending on their homes. Growth of slightly below 20% sits above the high-end of management’s guidance for 15% to 17%.
COVID-19 has shut down almost all physical retail stores and most of those stores don’t have the supply and distribution capabilities that Wayfair does. Wayfair is solely online, so its business is still going strong despite stay-at-home orders.
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Matuszewski explained this in a recent interview:
People are spending more on their homes. They’re working on do-it-yourself (DIY) projects. They’re buying patio and office furniture, plants, trampolines, swing sets, air hockey games, and storage for small electronic appliances.
People who rarely worked from home now need to create a work area in order to mentally check into their work mindset. So they’re ordering more desks and office chairs to recreate the typical workspace in their homes. Not only are people purchasing office furniture, they are also buying things to complete the projects they never had time for in order to stay busy and productive. Or they’re buying furniture to create an outside oasis to take them away from reality. Having the funds or access to shop online is a privilege and makes life a little easier. It’s what a person might be doing if things were back to normal — going out and spending money.
However, this might be a trend that disappears after people emerge from their homes and businesses begin opening up again. Wayfair reported a net loss every year between 2015 and 2019. It has also aggressively burned through cash. According to Morningstar, in 2019, the company reported $600 million in negative free cash flow. Before all of this, its growth was slowing down, with the company slashing its prices even lower. While the company is doing well for now, it could most definitely see a reverse. Wayfair is set to report on its first-quarter results next month.
Morningstar analysts see potential problems for Wayfair, saying, “Wayfair is competing with mass-market retailers, specialty retail, and low-cost providers, making it harder to stay front of mind perpetually.” Wayfair might be just the choice for people who are stuck inside, but once retailers start opening their doors again, we could see those consumers going back to the brands they know and love.
Until next time,