Wayfair to exit Germany, cut 730 jobs as it shifts focus to physical retail.

• Wayfair is planning to lay off up to 730 employees, which represents 3% of its global workforce, in Germany.
• Kate Gulliver, the finance chief of an online home goods company, informed CNBC that the company plans to shift its investments from e-commerce to physical retail, as it believes it will generate a better return on investment.
• Niraj Shah, founder and CEO, stated in an employee memo shared with CNBC that expanding our presence and enhancing our profitability in the German market has been difficult.

The company is exiting the German market and plans to cut up to 730 jobs, or about 3% of its global workforce, to focus on new growth drivers such as physical retail, the company announced on Friday.

Kate Gulliver, Wayfair's finance chief, informed CNBC that approximately half of the affected employees will have the opportunity to remain with the company if they accept relocation to London, Boston, or other locations where Wayfair has a presence. The affected roles encompass corporate positions as well as those on Wayfair's customer service and warehouse teams.

Niraj Shah, founder and CEO of Wayfair, stated in a memo to employees that expanding the company's business in Germany would require too much time and money, and the funds would be better utilized for other growth initiatives.

Shah wrote that expanding our presence and enhancing our profitability in the German market has been difficult due to several factors, including the unfavorable macroeconomic climate for our product category in Germany, the lower level of maturity of our product, our low brand recognition, and our limited scale.

Our recent assessment showed that growing in the German market is a challenging and expensive task, and it is not providing the same return as other areas. To maximize our resources, we have decided to redirect our efforts to areas with high long-term potential, where we are seeing significant progress.

Shares rose about 5% in premarket trading Friday.

Wayfair has been operating in Germany for 15 years, but it accounts for only a "low single digit percentage" of the company's revenue, customers, and orders, according to Gulliver. The restructuring of Wayfair's operations in Germany is expected to cost between $102 million and $111 million, which includes $40 million to $44 million in employee-related costs like severance, benefits, relocation, and transition costs and around $62 million to $67 million in non-cash charges related to facility closures and other wind-down activities, Wayfair said in a securities filing.

The company anticipates making those payments over the next 12 months, with the expenses expected to be incurred during the fourth quarter of 2024 and the first quarter of 2025, which spans a six-month period ending in March.

Wayfair intends to allocate any savings from restructuring primarily towards other core initiatives, including its physical retail plans and international markets, according to a securities filing. Gulliver stated that the company's guidance remains unchanged.

Gulliver stated that Wayfair's Friday layoffs are the fourth since summer 2022, but the move is more about redirecting resources to profitable initiatives rather than cost savings.

"Gulliver stated, "We're not doing this because we're saying that we need some cost efficiency play, and so therefore we had to look for more costs and we identified Germany." Instead, we see better ROI initiatives that we are already further along on, and we are going after areas like the U.K., Canada, etc. where we see a really exciting opportunity. This is an investment prioritization."

Wayfair has started selling physical goods through its own retail stores, with its first store opening in May outside Chicago. This has led to an increase in online sales from customers living near the store. The company plans to open more stores in the US and expand to international markets such as Canada and the UK.

"Gulliver stated, "Clearly, our primary objective is to succeed in the U.S. initially. However, we are thrilled about the prospects for the future.""

Since 2020, Wayfair has not generated an annual net profit, and operating a physical retail store can be a significant financial investment.

Wayfair aims to increase revenue in a slow housing market by making a decision, despite a 2% decline in sales to $2.9 billion in the three months ended Sept. 30.

"Making a decision that affects humans is always challenging," she stated. "We value the team's contributions and appreciate their efforts, but we believe this step is necessary for the business to prioritize higher ROI initiatives."