{"id":5425,"date":"2015-12-09T18:39:19","date_gmt":"2015-12-09T23:39:19","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/transforming-from-csn-stores-to-wayfair\/"},"modified":"2015-12-09T21:48:06","modified_gmt":"2015-12-10T02:48:06","slug":"transforming-from-csn-stores-to-wayfair","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/transforming-from-csn-stores-to-wayfair\/","title":{"rendered":"Transforming from CSN Stores to Wayfair"},"content":{"rendered":"

Wayfair started its life as CSN Stores in 2002. It grew from one website \u2013 RacksAndStands.com \u2013 to almost 300 standalone sites that offered huge variety for different niche markets.[1]<\/a> In 2011, co-founders Niraj Shah and\u00a0Steve Conine realized that to maintain their competitive edge and continue to grow, they needed to build a consolidated brand. Says Shah:<\/p>\n

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“We had the selection, the price was compelling, we had a 1-800 number to answer any questions. And after all that, the person would say, ‘I love you guys, and the next time I need a bunk bed, I’ll come back.’ Well, they’re probably not going to need a bunk bed for a while.”[2]<\/a><\/em><\/p>\n

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As a result they created an umbrella brand \u2013 Wayfair \u2013 and set about trying to establish the company as a household name. In doing so, they shifted their business model \u2013 and yet, despite the consolidation being completed in 2011, have not quite mastered the shift in their operational model. As a result, there is significant debate among analysts over the future of Wayfair, with some prominent voices arguing to short the stock[3]<\/a> [4]<\/a> while others argue this is a short sighted position.[5]<\/a> [6]<\/a><\/p>\n

So \u2013 how has Wayfair\u2019s business model changed, and what elements of its operational model are lagging behind?<\/p>\n

Business Model \u2013 a zillion options<\/strong><\/p>\n

CSN<\/strong> had a simple business model: to offer a huge variety of a very specific type of good. These were sold through totally separate websites, such as Cookware.com and EveryGrandfatherClock.com.[7]<\/a><\/p>\n

However the shift to Wayfair<\/strong> required a corresponding shift in business model. Instead of disparate experiences, Shah and Conine were hoping to create a one-stop shop for all things home. Their new business model built on the CSN model of variety, providing customers with choices across products, styles, and pricepoints. Their motto of \u201ca zillion things home\u201d illustrates how they are differentiating themselves from brick & mortar retailers, by providing many more options than one could have under a single roof. This has resulted in their mission:\u00a0To transform the way people shop for their homes[8]<\/a><\/strong><\/em><\/p>\n

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Operating model<\/strong><\/p>\n

Wayfair is, of course, not the only ecommerce website offering many more SKUs than your average store. However, they have a number of distinct advantages in their operating model that have made them winners in this intensely competitive environment.<\/p>\n

性视界 Engine Optimisation<\/em><\/p>\n

Providing your customers with options is all well and good, but is useless if the customer is unable to navigate with ease through the many choices. As a result, Wayfair has focused on search engine optimization (SEO) \u2013 a legacy from when it was CSN brands, and relied on SEO to drive consumers to very targeted individual websites.<\/p>\n

Drop Shipping<\/em><\/p>\n

Wayfair keeps its inventory minimal by sending orders straight to vendors \u2013 cutting themselves out of the logistics. This allows them to use their capital to improve their SEO and website experience, and also allows them to offer even more variety to customers, as they don\u2019t need to store the added choices.[9]<\/a> This method of shipping has helped them scale their business rapidly, without having to slow down to build the infrastructure to support new growth.<\/p>\n

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Wayfair distribution model<\/p>\n

http:\/\/www.sec.gov\/Archives\/edgar\/data\/1616707\/000104746914007027\/a2220999zs-1.htm<\/a><\/p>\n

\"Screenshot<\/a><\/p>\n

\u00a0<\/em><\/p>\n

New challenges as Wayfair \u2013 and additions to the operating model <\/strong><\/p>\n

Brand building<\/em><\/p>\n

One of the main incentives of moving from CSN Stores to a single brand was to maximize on the economies of scale that had been achieved operationally, and start to build a brand name nationally. Wayfair is spending a huge amount of money in order to do so, with advertising spend making up 42% of operating costs and 14.5% of revenue in 2014, and adverts such as below running constantly on TV.[11]<\/a><\/p>\n