Wayfair Learning E-Commerce Lessons From Amazon, Zulily

With a couple of online retail giants making headlines this week—and not in a good way—it’s time to check in on a local e-commerce star, Wayfair.

The Boston home-goods seller (NYSE: W) has surged on the stock market the past few days, following its announcement of better-than-expected financials in the second quarter. Wayfair reported $491.8 million in quarterly revenue—well above projected, and up 66.4 percent from the same period in 2014.

The news sent Wayfair’s share price up to a high of $56.84 on Aug. 13—an increase of 48 percent over its closing price on Aug. 11—before coming down to around $50 today (still up about 30 percent). The company’s market cap is currently at $4.2 billion.

In a statement, Wayfair CEO and co-founder Niraj Shah noted a “strategic shift in our advertising plan that allows us to attract higher value customers with a propensity for repeat purchases.” Interestingly, a little over a third of the company’s direct-retail business in the quarter (34.1 percent) came from orders placed on mobile devices—a key area of growth for the industry.

But Wayfair would do well to avoid the post-IPO fate of Zulily, the Seattle-based flash sales company focused on moms-and-kids products. A year ago, when Wayfair filed to go public, it had grossly similar revenues as Zulily but greater net losses—so Zulily seemed like a reasonable model for how Wayfair might do in the public markets. Today they are companies going in opposite directions.

Zulily (NASDAQ: ZU) got started in 2009, rocketed to an IPO in 2013, and then saw its stock decline over the past two years. The company was acquired Monday by retailer QVC for $2.4 billion in cash and stock—less than its valuation at the time of its IPO. This seems like a classic case of a company being great for venture investors, but not so great for building an enduring independent brand. (Perhaps not so great for tech IPOs, either.)

Meanwhile, Wayfair has been around since 2002 and was profitable before it raised huge growth rounds and went public. The company posted a net loss of $19.3 million for the second quarter of 2015.

Then again, who needs to turn a profit when Amazon is the role model for the industry? Back in 2011, Wayfair’s Shah told me his goal was to turn his company, then called CSN Stores, into “Amazon for the home.” He was talking about a relentless focus on customer service and user interfaces. He was also talking about name recognition and growth.

What he wasn’t talking about is Amazon’s work environment, at least as depicted by a scathing New York Times report this weekend. The article, based mostly on interviews with former Amazon employees, documents the cutthroat nature of working at the Seattle e-commerce giant. (Most of the report rings true to anyone who knows Amazon’s culture—not much surprising in there—but it’s interesting to see the company on the PR defensive.)

Like most Internet companies, Wayfair deals with a lot of employee turnover. But over the years, the firm seems to have solidified its place as an anchor for talent in the Boston area. As of 2013, it had 1,200 employees. And since its IPO last October, Shah has been juggling the demands of leading a public company with trying to advance Wayfair as a model for the future of e-commerce—where shopping online could be as good as, or better than, shopping in a store.

For years, observers have wondered whether Wayfair would stay independent or get acquired by a large retailer—perhaps even Amazon. Based on Wayfair’s currently high valuation, it seems likely to stay independent for a while. But keep an eye on that if its stock ever starts to slide.

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