Wayfair’s growth spurs talk of a possible IPO
January 28, 2014 09:38 AM
With sales that grew by about 50% and topped $900 million in 2013, housewares and home furnishings web merchant Wayfair LLC isn’t ruling out the option of going public.
While CEO Niraj Shah says Wayfair has no definitive timeline, some Wall Street bankers project Wayfair, No. 52 in the 2013 Internet Retailer Top 500 Guide, could announce plans to go public within 18 months, and possibly as soon as the first quarter of 2015.
“I could see Wayfair timing an initial public offering for 2015 and even as soon as next March,” says one Wall Street investment banker who covers online retailing, and who asked not to be identified. “They are putting lots of pieces in place, and first quarter of next year could make sense.”
Shah says Wayfair might consider a public offering “when it makes the most sense,” and would use any proceeds from any initial public stock offering to make more acquisitions, continue to build up consumer awareness of the Wayfair brand worldwide and pay off private investors. He says Wayfair’s sales grew by about 50% in 2013 and for the first time topped $900 million, although the company won’t release final numbers for a few weeks.
Some observers see Wayfair on a fast track to going public because of the company’s hiring in October of a chief financial officer with a background in big company finance and public company accounting. Michael Fleisher had worked as vice chairman, strategy and operations, for Warner Music Group. Previously, as CEO of consultancy Gartner Inc., he led its IPO.
“Hiring a CFO who knows how to work with Wall Street is a big indicator of their plans to go public,” says the investment banker.
Whether Wayfair goes public or seeks to grow in other ways, it will be going up against Williams-Sonoma Inc., the top ranked merchant in the Top 500 housewares and home furnishings category, according to an analysis of data from Internet Retailer’s Top500Guide.com.
For the last three years Williams-Sonoma, No. 22 in the 2013 Internet Retailer Top 500 Guide, has controlled about 30% of web sales in the category. With sales that reached $1.65 billion in 2012, Williams-Sonoma accounted for 29.5% of all category sales of $5.60 billion; in 2011 its $1.41 billion in web sales represented 30.9% of online category sales of $4.56 billion; it commanded 28.8% of web sales in the category in 2010, $1.197 billion of category sales of $4.15 billion.
In comparison, Wayfair accounted for 10.7%, or $602.4 million, in Top 500 housewares and home furnishings sales in 2012, compared with 11.0%, or $500 million in 2011, and $380 million, or 9.2% in 2010, Top500Guide.com shows.
But while Williams-Sonoma is the top web merchant in the category, Wayfair.com from 2010 through 2012 grew e-commerce sales more quickly, at an annual compound rate of 31% compared with 21% for Williams-Sonoma.
The fact that Wayfair is growing e-commerce sale faster than competitors in the category also may hasten its decision go public, says the investment banker. “They want to keep up that fast pace of growth, but they are going to need the kind of resources a public offering can provide to make bigger acquisitions and keep on building the Wayfair brand,” the banker says.
Wayfair grew at a brisk pace in 2013 by adding products and brand names, growing its European e-commerce base in the United Kingdom and Germany, and through acquisitions, such as DwellStudio, a retailer specializing in home décor products. Wayfair acquired DwellStudio for an undisclosed sum in August.
“We now offer more than seven million products from 12,000 brands,” Shah says. “We spend a lot of time growing our product volume by building superior brand relationships.”
Shah sees the online housewares and home furnishings market as highly fragmented. By continuing to add more products and building up the Wayfair brand through a variety of online marketing programs, such as more personalized e-mail marketing to repeat customers, Shah sees an opportunity to build an international e-commerce destination for housewares and home furnishings.
In addition to adding more products, Wayfair also continues to enrich its e-commerce site with such new features as Inspiration Gallery, which depicts actual rooms designed by professional decorators and 2,500 home interior photos that customers can click to shop.
The company does have a business model that will appeal to investors looking for companies that continue to grow quickly, says the investment banker.
“A big advantage Wayfair has over other merchants is that most of Wayfair’s business is based on drop shipping and that allows them to scale quickly,” the investment banker says. “That’s a business model Wayfair knows how to build.”
For the near term Shah says Wayfair is concentrating on quickly growing pass $1 billion in annual web sales, though he declined to make any projections for 2014. “We will continue to get our name out there,” he says.