Online furniture retailer Wayfair Inc. plans to lay off about 870 employees as it looks to cut back its expenses given that e-commerce growth for home furnishings hasn’t played out as robustly as executives once expected.
The planned job cuts represent roughly 5% of Wayfair’s W, -20.09% global workforce and about 10% of its corporate team, the company said in a Friday morning filing with the Securities and Exchange Commission. Wayfair also disclosed that it plans to make “substantial reductions in its third-party labor costs.”
Executives anticipate that Wayfair will incur about $30 million to $40 million in costs around severance, benefits, and other areas related to the layoffs. They expect to see “substantially all” of those expenses in the third quarter.
Shares of Wayfair are off more than 20% in Friday afternoon trading.
Chief Executive Niraj Shah said in a Friday blog post that the company grew “significantly” in the past few years to keep up with e-commerce growth seen earlier in the pandemic, but more recent trends have not matched expectations.
“This year, that growth has not materialized as we had anticipated,” he said. “Our team is too large for the environment we are now in, and unfortunately we need to adjust.”
“I take responsibility for the impact this decision will have on the nearly 900 Wayfairians who will be told today they are no longer a part of building our company’s future,” Shah added
Wayfair’s management team previously discussed plans to reduce expenses on the company’s second-quarter earnings call earlier in August, as Shah acknowledged it was “unmistakable that consumer behavior is being impacted by inflationary pressures as well as by economic and geopolitical concerns.”
He added that Wayfair’s “mass customers” were “being more deliberate about where their discretionary dollars are going,” given rising gas and grocery costs. Further, with pandemic conditions easing, some Wayfair customers have opted to shift more discretionary spending toward travel and away from “goods.”
The discussion jibed with commentary from Mastercard Inc. MA, -0.86% Chief Executive Michael Miebach, who mentioned on the payments giant’s earnings call in late July that he had broadly seen “some shift in spend towards gas and groceries from discretionary categories like home furnishings in the U.S.”
Wayfair’s Shah said on his company’s own earnings call that the retailer would be “increasing our cost efficiency focus across all facets” while “not trading off on important future growth drivers and enablers.”
“Like many of our covered companies, Wayfair is in the process of tightening spending and refocusing on higher ROI [return-on-investment] initiatives given softer e-commerce spending and plenty of macro uncertainties,” Baird analyst Colin Sebastian wrote. “For companies that are net users of cash and generating operating losses, these efforts take on greater importance in macro downturns.”
Sebastian’s analysis of third-party data indicates that spending trends in the furniture and home and garden categories are “still weak,” though he said that year-over-year comparisons for those categories should get easier.
Bernstein analyst Nikhil Devnani saw Wayfair’s latest move as more of a “follow-through” on the company’s recent talk of expense-saving moves, rather than an indicator that trends got have gotten incrementally worse since executives last faced investors.
“Layoffs don’t happen overnight, so we wouldn’t over-extrapolate this as an indication of revenue being much worse or OpEx [operating expenses] being much better than previously implied,” Devnani wrote.
As for Wayfair’s steep Friday stock plunge, he commented that it’s occurring “in a tough tape for tech” and amid “volatility in highly shorted names following the
“Wayfair defied gravity on negative revisions post-EPS, which could be catching up to it,” Devnani added.