Wayfair, the Boston-based online furniture retailer, announced plans on January 19th to lay off 13% of its global workforce. This amounts to approximately 1,650 jobs being cut as the company looks to reduce costs in response to waning demand.
Surging Growth During the Pandemic
Founded in 2002, Wayfair experienced exponential growth during the COVID-19 pandemic as consumers shifted their spending online and invested heavily in their homes.
Revenue skyrocketed from $9.1 billion in 2019 to $14.1 billion in 2021. Wayfair went on a hiring spree to meet demand, boosting its corporate headcount from 7,500 employees at the end of 2019 to 17,000 by March 2022.
The company also invested heavily in expanding its logistics network and supply chains to enable rapid delivery across the U.S.
Key Figures
| Year | Revenue | Net Income |
|---|---|---|
| 2019 | $9.1 billion | $271 million |
| 2020 | $14.1 billion | $185 million |
| 2021 | $13.7 billion | -$131 million |
This growth allowed Wayfair to gain market share against traditional brick-and-mortar furniture stores and chains. However, the good times would not last as high inflation and economic uncertainty brought the housing boom to an abrupt halt in 2022.
Declining Sales and Mounting Losses
In mid-2022, Wayfair began seeing signs of a slowdown. Consumers started reigning in discretionary purchases, while rising interest rates sidelined prospective home buyers.
Wayfair revenue decreased 15% year-over-year in Q3 2022. The company swung to a net loss of $283 million after posting a $23 million profit the prior year.
The mounting losses and unclear outlook prompted management to cut over 1,750 jobs in August 2022. In a memo to staff in late December, CEO Niraj Shah implored employees to work harder and get “Back to Basics” amidst the deteriorating climate.
The rallying cry appears to have been too little too late. On January 19th, Wayfair announced it would cut another 1,650 jobs – approximately 13% of positions globally.
Restructuring Aimed at Boosting Profitability
In a letter to staff, Niraj Shah stated the job cuts were meant to “return to comfortably profitable growth.” Wayfair expects to incur about $30 million in costs related to employee severance and benefits.
The restructuring is anticipated generate annual cost savings of over $280 million. Management says this will allow Wayfair to achieve over $600 million in adjusted EBITDA in 2025.
Along with the layoffs, Wayfair plans to optimize its logistics network and supply chain infrastructure. This includes exiting certain leased properties to align warehousing capacity with current demand trends.
These measures demonstrate that management is keenly focused on boosting profitability – even at the expense of top line revenue growth in the near term.
Shares Surge on Restructuring Announcement
Despite the heavy job losses, investors welcomed the restructuring plans. Wayfair shares jumped 15% on January 19th after the layoffs were revealed.
Analysts viewed the moves as necessary steps to right-size Wayfair’s operations to weather uncertain market conditions this year. The $280 million in expected savings will enhance the balance sheet and stem losses.
Cowen analyst John Blackledge believes Wayfair can achieve 10% or higher revenue growth over the next 3 years. This indicates investors anticipate consumer demand recovering once inflation eases and the housing market rebounds.
However, the coming months could still be rocky for Wayfair. Further layoffs may happen if the macro outlook deteriorates. But the company is hoping its swift actions now will pay dividends down the road.
A Challenging Road Ahead
The next year is likely to remain turbulent for Wayfair as the economy copes with the aftermath of massive interest rate hikes. Consumer spending and housing activity may take years to normalize, weighing on demand for furniture and home goods.
Competing against the likes of Amazon and big box players like Walmart will only get tougher if budget-conscious shoppers pull back even further. Wayfair CEO Niraj Shah has his work cut out, trying to return the company its former growth trajectory.
But for over 16,000 of Wayfair’s remaining employees, the foremost concern is whether their jobs remain secure. More rounds of cuts could happen if the company fails to stop its financial losses.
Mr. Shah offered reassuring words in his memo, stating “We remain fiercely committed to Wayfair’s future.” But that future depends on forces far beyond management’s control. Buckling up for a rough road ahead, Wayfair has made its next move. Only time will tell if it was the right one.
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