E-commerce innovator Niraj Shah: Bet on success
July 29, 2016 03:14 PM
Niraj Shah doesn’t follow the crowd.
When investors fled e-commerce in 2002 as internet stocks plunged, Shah and partner Steve Conine launched an online retail business. Nine years later, after building it into a large and profitable operation, they radically revamped it.
It all seems to have worked out. The company, called Wayfair Inc., raised $319 million in an October 2014 IPO, increased its sales by more than 70% to $2.25 billion in 2015, and was recently named Internet Retailer of the Year by the editors of Internet Retailer magazine.
Success came early to Shah, 42, and Conine, 43, who met during the summer of 1990 at a Cornell University summer program, just before their senior year in high school. By chance, they wound up living three doors apart in a freshman dorm at Cornell a year later. When they were college seniors they turned a class project into a business building websites, ultimately completing work for the New York Times, Merrill Lynch and Chase Manhattan Bank.
They sold that business, Spinners, in 1998 to information technology consulting firm iXL, then created another less-successful company called Simplify Mobile in 2001. By 2002, they were ready to move on, and came up with the idea of selling products not widely available on the web, such as stands for TVs and stereo speakers.
Their first e-commerce site, RacksandStands.com, quickly took off. The site took orders that suppliers fulfilled, so the fledgling company did not have to hold inventory, a model the company retains. Shah says suppliers encouraged them to sell other products, and in the next three years the startup, then called CSN Stores, added niche websites selling desks, beds and other products. “We learned from suppliers where the opportunities were,” Shah says.
But the problem, he says, was that a consumer who bought a rug from one CSN site, didn’t necessarily know the retailer had another site that sold lamps. “To build repeat business we needed to build a brand,” he says. That led Shah and Conine in 2011 to consolidate the 250 e-commerce sites they had built under the new name Wayfair.
The partners raised $200 million in capital to promote Wayfair, and another $157 million nine months before its IPO. Its spending on advertising, marketing and merchandising more than quadrupled to $384.4 million in 2015 from $87.6 million in 2012. By the end of 2015 the e-retailer boasted 5.4 million active customers, up from 3.2 million a year earlier. And many of them were coming back: Repeat customers placed 5.0 million orders in 2015, up 92.3% from 2014.
The marketing blitz pushed the company into the red, as it reported a loss of $77.4 million in 2015, down from a loss of $148.1 million a year earlier. That’s after being profitable from 2002 to 2011, Shah says. But Shah, Wayfair’s CEO, has no intention of cutting back. “You don’t often get companies that grow the way we are on an organic basis that are as close to breaking even as we are,” he says. “We’re seeing an incredible return on capital, and it doesn’t make sense to cut back on those very productive investments.”
Key to retaining customers is great service and selection, and Shah says that requires employees that are “intelligent, hardworking and team-oriented, traits we filter for when we’re recruiting.” To encourage collaboration, Wayfair has no private offices.
And Shah is in the midst of that collaboration, says investment banker Eric Roth, head of the consumer and retail group at Lazard Middle Market, who knows Shah but has not worked for Wayfair. “A lot of executives sit in their office with the door closed and look at data,” Roth says. “He’s the rare executive who combines tremendous data analytics capabilities with walking the building so he feels and sees how the data is interacting with the business in real time.”
Shah likes the energy at Wayfair. “A lot of corporate offices are quiet, but our office is not quiet,” he says. “People are talking to each other, asking questions. It’s more fun to work someplace that has energy, just like it’s nicer on a sunny day than a cloudy day.”
Internet Retailer staffers profiled six e-commerce innovators for the July edition of Internet Retailer magazine. For more information on how you can get your free monthly subscription to Internet Retailer magazine, click here.