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Yesterday the collapse of fashion firm H&M’s March sales illustrated the point that not all areas of the retail sector will benefit from an enforced shift to online shopping. Then along comes online furniture retailer Wayfair to report a hefty uptick in business driven by the Coronavirus, a turnaround in fortune since the crisis began.

At the start of March, Wayfair’s revenue growth was around 20% year-on-year. A few weeks later, by the end of March that figure has more than doubled and the first few days of April have seen a continuation of that level of business.

It’s a welcome respite for the company from more downbeat news in recent times, such as cutting 350 jobs from its Boston HQ or airing concerns about the potential impact of the virus on supply chains. It also potentially lays down a marker against which or other furniture retailers may be judged in the coming months.

But will the improvement be sustainable? What’s the reason for the upturn? Look no further the working from home and the sudden demand for those who haven’t previously had need of a decent home office environment to kit themselves out with one. It’s no coincidence that Wayfair has of late been promoting a home office sale! That said, it may be a moot point about how long a home office spending spree can continue – and there will be plenty of people who decide they’ll make do with the kitchen table.

Unlike some of its competitors, the firm is an e-commerce pureplay, so there’s no baggage about having to close stores at present. The firm, which gets about 85% of revenue from the US, says in its mission statement:

Through technology and innovation, Wayfair makes it possible for shoppers to quickly and easily find exactly what they want from a selection of more than 18 million items across home furnishings, décor, home improvement, housewares and more.

In a business update yesterday, co-founder and CEO Niraj Shah claimed:

Wayfair’s e-commerce model is uniquely suited to serving customers’ very real needs at this challenging time, and we are committed to doing so while taking all necessary steps and precautions to ensure the safety of our customers, employees, and communities…We are encouraged by our increasing sales momentum, yet remain highly focused on our plan to rapidly reach profitability and positive free cash flow.

China

From a supply chain perspective, the firm does still remain exposed to sourcing from China. There will doubtless be more insight on that when the firm reports its next quarterly numbers in early May, but as of the end of February Shah said that the company had been weaning itself away on the back of President Trump’s tariff threats:

Historically China would have been closer to 60%, which is more or less the industry average in our categories…We’re started seeing suppliers proactively in a lot of categories setting up sourcing or manufacturing operations in other countries. And so, because of that…it’s come down into the low 50s.

I think that’s a trend, that’s going to continue to play out. Because I think, folks are moving not just because of the tariffs in China, but because they now sort of perceive being in China, as kind of, they don’t want to have that sole country risk, what if the tariffs went from 25% to 35%, so on, so forth. So they want to have a broader geographic base.

But having half of your product coming from China still isn’t great when Coronavirus kicks in. Shah admitted in February:

Wen you talk about the Coronavirus, there’s no question that that creates supply side disruptions. The benefit of being a big customer of our suppliers is that, we do a lot of joint inventory planning. So one of the things, we’ve been doing frankly is just, identifying what inventory do they have in country, what inventory do they not, do they have a reliable supply line still right now? Which products are going to have, kind of a multi-month disruption, in terms of quantities coming in? What we’ve been trying to do is, down at the category and class level, how are we going to make sure we have enough selections

The reality is we’re pretty advantaged, right? Because we more or less work with everyone in the industry, we have a huge amount of selection on site. So [a] given supplier having significant supply disruption generally just creates opportunities for other of our suppliers.

But there’s no question that this is going to hit the industry by and large in a meaningful way. And so I think, those who don’t have deep relations with their suppliers, and don’t have the reach to do that advanced planning, some of these things are going to hit them with surprise.

Coronavirus actions

As noted, more insight on how that theory is holding up in practice will come in May. For now, the firm has been taking actions to ‘Corona-proof’ itself as best it can. As a pure e-commerce player, the company’s operating model is utterly dependent on its back-end warehouses and fulfilment centers being up and running. As has been seen in other retail sectors, those facilities have the subject of growing concern as potential hotbeds of virus transmission.

Wayfair says that while most of its employee base has shifted to working from home, the fulfilment, logistics and transportation facilities are fully operational with safeguards introduced to protect staff, Social distancing is being practised with initiatives put in place to stagger shifts and limit the number of people permitted to occupy common space at any given time.The firm says it’s also ramped up cleaning routines, including disinfection and cleaning of equipment, more frequent hand washing requirements and provision of sanitizer. It’s also begun daily temperature checks at a number of facilities, with plans to roll this out further.

As for the delivery side of the business, the company has implemented no-contact delivery such that no signatures are currently required to take receipt of goods, while drivers and delivery personnel must maintain a distance of 6 feet from customers and sanitise hands and surfaces between deliveries.

My take

While skeptical that a short term home office boom is necessarily sustainable long term, Wayfair’s upturn on the back of the current crisis is an interesting development. Will it be replicated elsewhere in its business sector? For fashion retailers, one of the challenges of lockdowns and working from home is that people don’t want to splash out on new clothes for the occasion. Will people regard being trapped indoors as the perfect time to upgrade the home furnishings? (And does that remotely fall under the banner of ‘essential’ purchases?)

There will be close attention paid to how key retailers fare in the coming months. IKEA has closed stores around the world and in most regions is attempting to maintain a limited online service, although IKEA India has just shuttered all operations, online and offline. Meanwhile for beleaguered brands like Bed, Bath & Beyond the closure of stores is a hugely unwelcome development. For its part, Bed, Bath & Beyond has also seen its $252 million deal to  sell off its Personalzation Mall business to 1-800-Flowers thrown into question as the buyer doesn’t have the resources to close the deal right now.