Inside Wayfair’s Identity Crisis

Can one of Boston’s most important companies keep the bottom from dropping out?

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There’s a series of walkways and escalators that carry commuters from the patinaed bowels of Back Bay Station to the gleaming, sun-drenched Sky Lobby of Copley Place, where every weekday at 8:30 a.m. the passengerial artery starts to clog with human cargo. Most of the commuters waiting are twenty- and thirtysomethings toting iced coffees and firing off Slack messages, all on their way to the very same place: Wayfair. The giant online furniture retailer has grown in recent years into one of Boston’s largest and most influential companies—it now employs 14,500 people, nearly half of whom are spread across its Back Bay headquarters—and is expanding at breakneck speed, cementing itself as a company that touches the lives of countless Bostonians. So it’s not surprising that the congestion of bodies entering Copley Place in the morning can get so bad some days that escalator lines stretch dozens of people deep.

One Wednesday afternoon this June, however, the human traffic jam suddenly began flowing the opposite way. At 1:30 p.m., hordes of Wayfair employees stood up from their desks and poured out of the building to protest the company’s decision to sell $200,000 worth of bedroom supplies to a government contractor that operates migrant-detention facilities along the U.S.-Mexico border. Sporting summery dresses, shorts, and baseball caps, they carried handmade signs that declared, “A prison with a bed is still a prison” and “A cage is not a home.”

Workers marched down the street and into Copley Square, where hundreds of strangers packed into the plaza to root them on. “This is the first time I felt like I needed to hit the streets to make sure that I was proud of my company,” Madeline Howard, who’s worked for Wayfair for nearly seven years and helped organize the walkout, shouted into a megaphone. “To make sure that we’re all adhering to those Wayfair values, like everyone deserves a home that they love.” When she said the last part of the sentence—a not-so-subtle dig at one of the company’s slogans—the crowd erupted in emphatic cheers and giddy laughter that filled the plaza. If executives heard it, they definitely didn’t listen, and the sales to the border facility went forward as planned.

Since its founding in 2007, Wayfair has marketed itself to its young workforce as a fun and forward-thinking company where employees are encouraged to speak up and help shape the corporate vision. So it’s not surprising that in the wake of the protest and Wayfair’s lackluster response, many employees and observers were left wondering what the business’s true character really is.

It’s a question financial analysts, academics, and investors have been pondering, too, and not because of the protest. It’s because five years since it went public with whispers of becoming the Amazon of home goods, Wayfair finds itself at a critical moment in its meteoric and somewhat bewildering rise. It is having what can only be described as an identity crisis.

From nearly every angle you look at Wayfair, the company is riddled with contradictions. Its stock has performed phenomenally well, with Wall Street traders betting it will succeed again and again; at the same time, large numbers of traders keep betting it will fail in the near term. The company’s sales seem boundless, but so do its expenditures in marketing, keeping it from making a profit. It is known for hiring truckloads of young Bostonians and sucking up top tech talent from all over the country, yet it has a reputation for churning through employees like they’re shipping labels. It is positioning itself as a global giant ushering in a new way of doing business, but its leaders’ handling of the border affair seems to indicate they lack the kind of change-the-world vision that we have come to expect from corporations of the caliber to which Wayfair aspires.

The real burning question about Wayfair’s identity, however, is whether it’s a tech company that’s about to turn the corner to profitability and morph into an Amazon-esque moneymaking machine, or simply an outsized and overvalued website facing an inevitable day of reckoning.

Since day one, Wayfair has wrestled with its identity. The company’s very name, a detail so central to any brand, is the original sin. Wayfair was not born of a story or an aspiration. It is not, actually, even a word. It is a combination of two words that a marketing agency hired by company cofounders Steve Conine and Niraj Shah paired together. It tested well, and that was that.

Then there’s the uninspired creation story: Conine and Shah met as high school students during a summer program at Cornell and later attended the university as undergrads. In 2002, they launched RacksandStands.com, a one-stop digital shop that offered every style of stereo stand imaginable—arguably the least sexy product one could sell. They weren’t designing a new kind of stand, but were merely a digital go-between for people clicking around looking for the perfect stereo rack. However, they were sharp and, at least in some ways, ahead of their time. Working out of Conine’s house in the South End, they mastered search-engine optimization and keyword marketing at a time when many major retailers were still fumbling around with HTML and Photoshop. It was a plug-and-play model that spawned other websites such as Luggage.com, AllBarsStools.com, EveryMirror.com, and even the hyper-niche JustSouthwesternRugs.com. By 2010, they had more than 250 websites, hundreds of employees, nearly $400 million in sales, and offices in the Back Bay doing business as CSN Stores—a mix of Conine’s and Shah’s initials.

As shoppers shifted online and became more search-savvy and brand-centric, though, business started to cool off. That’s when Conine and Shah decided to consolidate the sundry websites onto a single platform that would be called Wayfair.

From the start, people have been wondering what kind of business Wayfair really is. The answer depends on whom you ask. To consumers, it’s a furniture and home-goods giant. To the computer engineers who write code and develop endless algorithms, it wants to portray itself as the greatest tech company Boston has ever seen. To investors, it bills itself as an e-commerce giant and disruptor of all things furniture.

So what is Wayfair, really? At the most basic level, it’s a digital platform that doesn’t produce anything, but provides 11,000 different suppliers a marketplace to sell some 14 million items. They provide the products; Wayfair provides the e-commerce tools, the marketing firepower, and the supply-chain muscle needed to move large, bulky furniture around the world. It competes with Ikea and Williams-Sonoma for customers, it competes with Facebook and Google for talent, and it competes with Amazon for having incredibly lucky early investors.

When it comes to Wayfair’s impact, there’s also some debate. It seems clear that it has genuinely upended the entire process of how people buy furniture. “Before Wayfair, there was no Amazon of furniture or Walmart of furniture,” says Thales Teixeira, a marketing consultant and former Harvard Business School professor who wrote the first case study on the company. “Wayfair banked on the idea that people would buy a sofa without sitting on it or a dining room set without actually seeing the product.” Its purple-and-yellow color scheme, windmill logo, and insanely catchy jingles are now synonymous with the idea that it’s possible to purchase a new sofa from the comfort of your old one.

If Wayfair has orchestrated a major disruption in consumer behavior, though, it still has yet to prove it can create a profitable or sustainable business by offering shoppers endless online furniture options and free shipping on everything. One of the big problems is that many of the bulky items Wayfair sells are prone to damage, and it’s not uncommon for them to get nicked, dinged, or scratched en route to their final destination. When that happens, it’s not as if customers can put an armoire in an envelope and drop it in the nearest mailbox on the way to work. How can they return it? The answer, at least fairly often, appears to be that they don’t have to.

When I mentioned I was writing a story about Wayfair to my father, he recalled ordering drapes from the website and receiving a pair that was too long. When he called Wayfair to complain, the customer service rep told him they’d send new drapes right away. As for the ones that were too long? Keep ’em, the agent said. He was free to toss them in the trash or find another room where they’d fit. In fact, the company’s return policy is such a well-known flaw in its business model that Reader’s Digest recently ran an article suggesting that receiving damaged goods from Wayfair could save shoppers big bucks when furnishing a house, especially “if you can fix the damaged furniture yourself.” The tongue-in-cheek piece even suggested that you could order only one nightstand, bank on it arriving damaged and another one being dispatched, and then end up with the pair you need.

Time is short for Wayfair to work out the kinks in its shipping game. “Wayfair hasn’t nailed logistics,” a former employee told me, “which is a hard place to fail because you’re competing with Amazon.” And that right there is another big problem. Amazon, which wasn’t doing much business in furniture when Wayfair set up shop, is now breathing down its neck. The company has been unusually vocal lately about its push into furniture and home goods, investing heavily in massive warehouses for bulky items. Everyone, including people I spoke to at Wayfair, is fully aware that in the world of e-commerce, it’s winner take all. So there is no way around the fact that Wayfair will have to outrun Amazon before the giant swallows its business whole.

On a Thursday afternoon in late August, I sat down with CEO Niraj Shah in a small Wayfair conference room with purple walls. Sporting light-gray slacks, an untucked button-up blue shirt, and a well-groomed 5 o’clock shadow, he quickly got down to business, walking me through his vision of the company and its future. To spend time with Shah is to see Wayfair through yellow-and-purple-hued glasses. Through this filter, eventually everything will fall into place and the company will go from losing money to making it rain. The way he sees it, when Wayfair’s global supply chain and distribution infrastructure is ultimately built out and optimized, the company will not have to invest so heavily in it. Ditto for the hugely expensive marketing blitzes ($700 million in 2018 alone), which will work their magic, reinforcing brand awareness and driving hordes of new and repeat customers to the website. Expenses will drop, sales in the United States will continue their steady ascent, and Europe will soon follow.

There is some good reason for Shah’s optimism. Wayfair, after all, has experienced dramatic sales growth: Its most recent earnings report showed an impressive 42 percent jump, to $2.3 billion, compared to the same time frame last year. There’s no reason to think the future won’t be as bright, Shah says, considering that the U.S. furniture market is worth $70 billion and Wayfair has cornered only a small slice of it so far. “There’s a huge amount of runway,” Shah assures me.

Plenty of investors agree, including giants such as Fidelity, Prescott Group, and Baillie Gifford. When Wayfair went public in 2014, it was listed at $29 a share and the total value of its shares was $3 billion. This year, its stock has climbed as high as $171 a share and its total value is north of $10 billion.

Shah even has a different take on the fact that Wayfair is not yet profitable. It’s just the way you look at it, he tells me. If you review the company’s earnings before interest, tax, depreciation, and amortization, referred to as EBITDA, he says, and you only consider North America, Wayfair has been profitable in seven of the past 11 quarters. (In Europe, the company is hemorrhaging money as it fights for a toehold in the United Kingdom and Germany, the first steps in its plans for European domination.) “Our profit trajectory keeps getting better and better. People say to me all the time, ‘You could become profitable overnight,’ which is true,” Shah says, alluding to the fact that cutting costs could improve the bottom line. “But that gets us a worse outcome in three to five years, because by under-investing we’d be missing all these great opportunities.”

I left Wayfair’s offices feeling utterly convinced of at least one thing: It’s not just the company’s astonishing top-line growth that has made it a Wall Street darling. It’s Shah’s salesmanship and clear-eyed vision for the future. Shah is so infectiously upbeat and good at getting people to be patient that it occurred to me he may have missed his calling as a nursery school teacher.

As is often the case with Wayfair, however, there is another, very different take on the company’s financial future. Many traders have long been convinced that Wayfair is highly overvalued. It’s not just that it has never made a profit, they say—it’s also short on cash and taking on debt. So while Wayfair’s top-line growth is impressive, critics say, that growth has come at a very large cost to the company. Last quarter, for instance, it lost $181.9 million, and there are no signs the bleeding will stop anytime soon.

One of the most troubling indicators of pending doom, says Daniel McCarthy, an assistant professor of marketing at Emory University’s business school, is that the company pays more in marketing to acquire new customers than those customers end up spending in the long term. In a 2017 paper he authored with Peter Fader from the University of Pennsylvania’s Wharton business school, they found that Wayfair was spending $69 to gain each new customer, but those customers were spending an average of $59 during their time as Wayfair customers. (Wayfair dismisses McCarthy and Fader’s methods and numbers, but the professors stand by them.)

After the paper was released, Wayfair’s stock spiraled. Financial madman Jim Cramer went on CNBC and yelled about the study, and for several days it looked like two wonky academics had sunk one of the hottest stocks to come out of Boston in the past 20 years. Soon, though, traders moved on to the next news story, Wayfair bounced back, and the company’s stock chugged higher and higher.

It’s a pattern that Fader says plays out often in Wayfair’s world. When the company announces its quarterly earnings, Fader says, the results are “abysmal and completely in line with everything we’ve been saying,” Wall Street gets panicky, and the stock price goes down for a few days. “Then the company puts out some PR announcement about a new marketing campaign that has no real substance, and the stock zooms,” he says. “I’m convinced that Niraj Shah has fairy dust.”

Still, McCarthy and Fader fully believe that Wayfair’s reckoning will come. After all, they argue, things haven’t gotten any better for the company since they published their paper. A year after their report came out, they say, Wayfair was losing $19 for every new customer it acquired. “We don’t believe there is a clear path of profitability for Wayfair,” McCarthy says. As long as the company can keep raising capital through debt and other means, he says, it’ll keep growing sales and looking good. Eventually, though, he believes investors are going to wake up and realize that Wayfair is still many years away from becoming profitable.

In addition, there are countless investors who think the company is nothing more than a throwback to the first dot-com meltdown and say it is only a matter of time until it crashes. About a year after it went public, Wayfair earned the dubious distinction of being one of the most shorted stocks on Wall Street—meaning that investors were betting its value would drop, not rise. At times, more than one-third of all of its shares were short positions, or bets against Wayfair. Today that number has dropped to about 22 percent, but that is still unusually high, and the attacks haven’t let up. “Five years ago, I said they’d never make a profit, and they still haven’t,” says Andrew Left, the most well-known and vocal of the investors shorting Wayfair. “The big question is, Is this a $12 billion company? And the answer is, No chance in hell.”

Short-traders aren’t the only ones concerned about Wayfair’s financial management. A class-action lawsuit filed this July in Massachusetts federal court alleges that Conine, Shah, and Michael Fleisher, Wayfair’s chief financial officer, repeatedly misled investors between August and October 2018 about the company’s advertising costs—which they say topped $700 million in 2018, quadruple the amount spent just four years earlier. Meanwhile, the lawsuit points out that during that period, Shah and Conine—who knew how costly Wayfair’s advertising had really become—cashed out a combined $69 million worth of personal stock before the numbers were revealed and the stock price fell. Wayfair has denied the allegations, claiming the sales of stock were prescheduled months in advance and that it made no effort to hide its advertising costs. In August it filed a motion to dismiss the lawsuit.

Left hardly thinks the lawsuit will bring Wayfair to its knees, but he agrees the company is not on solid ground. “Steve Conine and Niraj Shah have become extremely wealthy men off creating a business that probably will never be profitable,” he says, adding that, “in a world of unique IPOs, people are talking about biosciences and great business models in a town like Boston, arguably the brains of the U.S. And Wayfair is selling middling furniture online. There is nothing amazing or unique about it. If Wayfair went away tomorrow, no one would really give a shit.”

Of course, many in Boston would definitely notice if Wayfair went away tomorrow—and not because they would miss its furniture or its blowout sales. Wayfair’s footprint in Boston—and across Massachusetts—is massive and only growing. It now employs 6,000 workers in the city, including legions of highly skilled, highly educated engineers and data scientists, making it one of Boston’s largest employers. On top of that, it is building a customer service center that will employ 300 people in Pittsfield, Shah’s struggling hometown in the Berkshires.

But even inside the organization, it’s not clear whether Wayfair’s identity is that of a job creator or merely a way station for workers. Wayfair has proven adept at luring thousands of young people, but it hasn’t done a great job of retaining them. Some are fired. Some are poached. Many quit. It’s not surprising that a company that grew to 14,500 employees in a few short years would experience turnover. Not everyone is going to be a good fit, and educated young workers are more transient than ever. Still, Wayfair seems to be changing the definition of job longevity. “We like to say that after one year here you’re a Wayfair veteran,” says one current employee on the creative team who requested anonymity. “I got that talk. At my one-year review, my manager sat me down, handed me a little flask of tequila, and was like, ‘Congratulations, you’re a veteran.’”

The stories of day-to-day life in a company that’s constantly in upheaval are Kafkaesque. “I had 12 managers in less than three years,” another person, who recently left Wayfair’s supply-chain team, tells me. Others talk about getting blindsided by departmental reorganizations every few months that upend projects and leave a million balls in the air. Despite the rapid-fire turnover and downright chaos, though, one constant at Wayfair has been that it is a company that’s worked hard to promote itself as a premier destination for fresh-faced college grads who have loads of ambition but not much in the way of experience.

Not surprisingly, as one employee told me, Wayfair has essentially become “college extended.” And not just because of the age of the workers. Shah and Conine stock the office with kegs, snacks, and Ping-Pong tables and throw lavish company parties where things can sometimes get wild. “It was a drinking atmosphere and I was 21 and I thought it was the coolest thing,” says one former employee who asked to remain anonymous. Occasionally things got out of hand, she says, recalling the time one of the women on her team got fired for punching a bouncer in the face at a company Halloween party at the House of Blues.

Aside from the work-hard, party-hard atmosphere, one of the reasons the company has attracted so many young people is because it hasn’t cared much about specialization: Instead, it’s focused on recruiting smart folks and letting them explore their talents and find their place in the company.

These days, however, even that has been changing. The response to the walkout and its demands calls into question how large a role young, idealistic employees can have when it comes to issues of company image and mission. What’s more, the makeup of the Wayfair workforce is starting to shift. Just about everyone I spoke with pointed to an influx in recent years of upper-management types whose previous lives were spent as consultants at places such as McKinsey, Boston Consulting Group, Accenture, and Bain. It is understandable that a company that wants to stay on top of its game in the cutthroat world of e-commerce would look to bring in some suits to impose order. It makes business sense. But the presence of a new class of workers has produced a sort of corporate culture shock for the younger “college extended” crowd, and it is breeding resentment. “We brought on somebody at a fairly high level who was a consultant…and that basically turned into hiring a whole shitload of consultants who didn’t know their ass from a hole in the ground,” a former employee says.

Also troubling to the younger workers is how much this middle-management-level consultant bloat is costing the company, when it’s not clear what the return on this investment actually is. I heard a shade of schadenfreude when one old-guard employee told me that if Wayfair ever needs to cut costs, it will be the fatty midsection of consultant types that will get trimmed. He may be right, but I wonder what will happen to all the techies and everyone else if Wayfair doesn’t make it, if investor patience is shorter than the path to profitability.

I posed this question to Shah when we spoke, asking him if, as Bostonians, we should be worried that an unprofitable company has so many people on its payroll. Could there be a day when there’s a ton of formerly high-salaried unemployed Wayfair workers roaming our streets? Shah laughed, telling me no former Wayfair employee wants for work. In fact, he says it’s hard for him to keep his flock safe from the headhunters looking to poach them.

Shah’s optimism seems to know no bounds. With a quick laugh, a confident retort, and maybe a bit of that fairy dust, he can turn even a worst-case scenario into a nonissue.

A few hours after meeting with Shah this August, I got in the car to get a glimpse of Wayfair’s newest identity. For years, the company had insisted it was a pure-play e-commerce business that wouldn’t open stores. And yet here I was on a Thursday afternoon at the Natick Mall, watching a few shoppers peruse throw pillows, dog beds, and ice cream makers to the tune of Abba’s “Dancing Queen” at Wayfair’s first permanent brick-and-mortar store.

Volumes have been written lately on how physical storefronts are the natural next frontier of e-commerce giants. The so-called “clicks to bricks” model is seen as vital to building brand awareness and staying in front of consumers at every turn. Teixeira tells me it could help Wayfair attract new customers by demonstrating it’s a legit outfit worth a try. To him, it’s the next phase on the path to profitability. To me, it feels like another contradiction in a company that is still trying to find itself.

Before parting with Shah earlier that day, I asked about his vision for how the company will shape the future of our city. If Boston is going to be a Wayfair town, what does that mean? In response, he spoke passionately about how the city lost out to Silicon Valley the first time around, and how he thinks Wayfair can help remedy that. In his eyes, Wayfair is an engine of innovation that can jump-start the next great wave of tech startups and tether them to Boston. It hires some of the best, brightest, and youngest software engineers and gives them the tools and leeway to innovate—and a good salary and equity to boot. He hopes the entrepreneurial spirit that inspired him and Conine trickles down to his employees, who might move on to start their own companies that push the boundaries in all types of emerging fields, whether it’s data science or virtual reality. “Over time, not only can Wayfair become quite large in Boston, which will help the economy and help us draw in people from all over the country to make Massachusetts a net winner,” he says, “but frankly I think it’ll help the ecosystem in indirect ways, like people going on to start their own companies.”

I find myself wanting to believe Shah’s take on the future. Don’t we all? There is no doubt Boston is rooting for Wayfair. But the company that wants to furnish our homes needs to get its own house in order first.