Wayfair File Power

Layoffs ... they happen to many companies (click here). Sometimes they happen because the business is struggling. Sometimes they happen because the bottom portion of the employee base (i.e. the least valuable ones or the least productive employees) needs to be trimmed. You never truly know why layoffs are happening. I was once asked to downsize my team and was then paid an unexpected "retention bonus" weeks later.

Here's what we do know:

• Through nine fiscal months, gross margin was 23.8% vs. 23.1% the year prior.
• Through nine fiscal months, advertising was 11.9% of sales vs. 11.4% the year prior.
• Through nine fiscal months, selling/general/administrative expense was 17.5% vs. 15.1% the year prior
• Through nine fiscal months, loss before taxes was -9.9% vs. -7.5% the year prior.
• Through nine fiscal months, Wayfair lost $652,860,000 on sales of $6,593,967,000.
• In the past year, Wayfair stock is down 50%, shaving off about seven billion in shareholder value at a time when the stock market has gone bonkers.

Do you understand how woefully awful that level of performance is? It takes a special amount of "something" to lose that kind of money.

It wasn't long ago when the catalog industry praised Wayfair for adding catalogs to the marketing mix ... suggesting this was a company that "gets it". Catalog industry conferences invited Wayfair to speak about catalogs. Over a glass of wine, catalog professionals winked at each other ... knowing about the power of catalog marketing.

What nobody seems to understand is that File Power is far, FAR more important!!

When you acquire 100 customers, you have to generate sufficient downstream value to offset what you lose when you acquire a customer. If gross margins are low, you need even more file power to make up for low gross margins. If advertising expenses are high, you need even more file power to make up for low gross margins. If SG&A are high, you need even more file power to make up for low gross margins.

Can this story be changed?

Absolutely!

Will this story change?

The numbers don't look good.

When your paper rep or industry vendor tells you that Wayfair is smart to add catalogs to an integrated marketing approach, share the p&l figures above, and ask the pundit to defend the company as a whole. It's clear that, at this time, Wayfair does not generate enough file power from downstream customer response to make the p&l work. That's a shame, because it is obvious that customers like the brand, or the brand wouldn't generate nearly ten billion a year in annual net sales.