Closing out their discussion of furniture industry disruptor Wayfair (NYSE:W), the Industry Focus crew covers business risks, things to consider when valuing the loss-prone retailer, and the rationale for investing in “W” shares through gradual purchases.
A full transcript follows the video.
This video was recorded on Aug. 7, 2018.
Vincent Shen: There is also a space where Wayfair occupies this unique niche. We haven’t quite seen a bigger company with a lot of resources fully push their weight into the space to compete. I’m curious if there’s anything you’re looking for that might signal a red flag for you to investors.
Asit Sharma: One of the things that investors should focus on, in terms of risks, is how Wayfair acquires its customers. It’s gone more and more heavily into marketing and TV advertising. It also spends quite a bit of money on paid search. According to a recent Forbes article, between 2016 and 2017, if you look at the total paid searches that relate to this home furnishings industry, searches resulting in Wayfair more than doubled, from 6% to 13%. Wayfair held a 13% share in all paid branded searches. But, branded searches where a user inputs the term they want to see — where Vince types in “Wayfair” so he can get to the site and maybe order another piece of furniture — that only accounts for 9% of Wayfair traffic.
If you compare that to some well-known retail competitors which have the deep pockets to further their online operations — Williams-Sonoma, Restoration Hardware are two examples. Those companies are seeing 60% to 70% brand-modified searches — 60% to 70% of their traffic is coming from customers who are extremely loyal.
Also in this is this growing customer loyalty statistic that Vince just cited, 1.8 orders in the last trailing 12