Wayfair to Launch Its First Big Store as Physical Retail Gains Ground

• Niraj Shah, CEO of Wayfair, stated that the company is opening its first large-format store because the physical shopping experience can be superior to online shopping for customers, according to CNBC.
• Warby Parker, Figs, Glossier, and Everlane are among the digitally native companies that have opened physical stores, followed by an online home goods retailer.
• For the first time in five years, new retail store openings have outpaced store closures in 2022, and this trend has continued in 2023 and 2024.

What retail apocalypse?

A digitally native online home goods retailer is opening its first namesake store near Chicago, following the growth strategy of other companies in the industry.

Despite its success in selling furniture online, Wayfair is now focusing on the fundamental aspects of retail by offering in-store mattress testing.

Niraj Shah, Wayfair CEO and co-founder, stated to CNBC that the categories we typically consider are visual or tactile, and are often considered purchases because they are reasonably expensive and require careful selection.

"Someone may prefer the in-store experience and working with an associate when making a purchase, or they may require financing or design assistance, which we can offer. While we provide these experiences online as well, in-store can be more pleasurable or effective."

The 150,000-square-foot megastore in Wilmette, Illinois, will open on May 23, following the footsteps of other direct-to-consumer brands such as Warby Parker, Allbirds, Casper, Glossier, and Everlane.

Online-only companies, including Wayfair, are facing challenges in their growth plans as the e-commerce landscape has changed since their inception, making it increasingly difficult to maintain profitability.

Marketers face challenges in targeting customers on privacy-focused platforms like and iOS, while also facing competition from Chinese-linked startups such as Shein and Temu.

The constant cycle of returns and the fraudulent activities that accompany them is a never-ending, money-losing game. The rise of online marketplaces such as Amazon and eBay has made it easy for anyone to become a retailer, and for brands to compete against their own manufacturers.

Department stores and big-box retailers now carry products from many companies that initially sold directly to consumers. However, this shift can present challenges for brands that built their competitive advantage through extensive customer data collection. They may lose visibility and profitability when working with wholesalers.

If a brand has its own stores in addition to its website, it has more control over mitigating risks associated with sales falling or being taken off the shelves without notice.

Despite the torrid e-commerce growth during the Covid-19 pandemic, U.S. Census data shows that the growth has moderated and fallen below its pre-pandemic low. Despite the seemingly inextricable role online shopping plays in most Americans' lives, the vast majority of retail sales — about 85% in 2023 — still happen offline, according to Census data.

"According to Larry Cheng, a founding partner at Volition Capital, some of his companies have found that [stores] can be the most effective channel from an economic standpoint, especially if they have a strong brand. He emphasized that this approach is not only sustainable but also adds value to online sales and customer acquisition."

What to expect at Wayfair's store

Ikea-like in size and restaurant, Wayfair's new location will offer diverse home styles to become a one-stop shop.

Liza Lefkowski, Wayfair's vice president of merchandising and stores, stated that the marketplace includes decor-centric furniture, home improvement with large appliances, kitchen cabinetry, tile, doors, hardware, housewares, small electric, storage, and organization.

She mentioned that there are several essential categories for your home, which are not related to furniture.

Wayfair is launching a single large-format store in addition to its existing smaller shops under the brands All Modern and Joss & Main.

In the future, Shah plans to establish a "nationwide network of large-format stores."

Brick-and-mortar is back

Wayfair's physical store ambitions reflect a bigger wave of brick-and-mortar openings.

Since 2017, the number of retail store closures has surpassed the number of new openings. According to Coresight Research's U.S. and U.K. Store Tracker Databank, about 8,000 storefronts were shuttered in 2017, while only around 5,000 new ones opened that year.

The increase in store closures led to news about the retail apocalypse and predictions that stores would decline due to the rise of online shopping.

Since 2022, the trend of store closures outpacing openings has reversed. In 2023, there were 307 net new openings, and as of May 10, 2024, there have already been 521 net new openings.

Direct-to-consumer retailers are also contributing to the growth, said John Mercer, Coresight's head of global research and managing director of data-driven research. Discount retailers such as , , and have also played a significant role in this growth.

The glasses company that kickstarted the direct-to-consumer movement is planning to open more than 900 stores in the U.S. in 2024. In 2023, the retailer opened about 40 stores and saw a 12% increase in revenue compared to the previous year.

The company, which specializes in selling scrubs and other products for healthcare professionals, initially sold its products exclusively online until it opened its first store in Los Angeles in November. It has another store planned in Philadelphia for this summer. During the company's first-quarter earnings call on May 9, CEO Trina Spear informed analysts that 40% of the customers shopping in the Los Angeles store were new.

""Our Century City store is our most penetrated market in Los Angeles, and it's encouraging to see that health-care professionals engage with brands both online and offline, just like everyone else," Spears said."

Likewise, other privately held direct-to-consumer brands have expanded into retail stores, including Brooklinen, Burrow, Everlane, and Untuckit.

Rebecca Fitts, who previously served on Warby Parker's in-house real estate team and is now the senior vice president of business strategy at real estate advisory firm Alvarez & Marsal Property Solutions, stated that pure plays on e-commerce are saying, "We're getting to a certain number, we're doing fantastic on e-commerce, but we won't be able to hurdle this number no matter what ... if we don't turn on another channel."

She stated that not all brands will achieve a store count like Warby, but they are taking note of its lessons, which is a positive sign.

High cost of entry

If online disruptors could easily transition to brick-and-mortar retail and increase sales and profits, they would all do it. However, retail fundamentals present a significant challenge for companies that started as direct-to-consumer brands.

Expanding into physical retail is challenging and expensive.

To successfully open a store, companies must consider various factors such as selecting a physical location, acquiring furnishings and supplies, managing logistics, transporting inventory, and driving foot traffic, as stated by Amish Tolia, co-founder and CEO of Leap.

Tolia stated that setting up a fully branded retail environment requires time, energy, budget, and resources. For as long as we can remember, the barriers to entry for this have been incredibly high, and the only option besides a multi-brand department store has been to set up a retail environment.

Brands that expanded too quickly have experienced a decline in demand and faced financial consequences.

The shoe and apparel seller, whose market cap has decreased from $4.1 billion to $114 million, plans to close 10 to 15 "underperforming" locations in the U.S. in 2024 to focus on "maximizing the productivity of our remaining stores," executives said during the company's first-quarter earnings call on May 8.

The mattress brand has opened approximately 60 stores, but during the ICR consumer investor conference in January, it stated that its showrooms are currently the most challenging aspect of its business model because about one-third of its locations are problematic for various reasons.

"In the upcoming year, we will slow down the number of store openings and focus on ensuring their profitability, as stated by Purple CEO Rob DeMartini. These stores serve as valuable brand beacons, but they must generate revenue to be successful."

Wayfair, which hasn't made an annual profit since 2020, will face the same challenges as it expands its retail business.

In 2023, the company invested approximately $348 million in capital expenditures but also reduced expenses to save hundreds of millions of dollars and improve its financial stability.

Wayfair intends to proceed cautiously with its store rollout, evaluating the effectiveness of each store before making further investments.

Upfront capital expenditure is the challenge with it, as stated by Cheng from Volition Capital.

"However, none of these brands are like a single channel that is the ultimate solution," he stated. "The effective brands operate across all of them."