Wayfair thrived during the pandemic, scaling to over 30 million products and rising to #217 on the Fortune 500. But after a post-COVID slump, it’s rethinking its strategy. In 2024, the company opened its first large-format retail store and rolled out new AI tools to reimagine how people shop for their homes. Here’s how Wayfair is betting on technology and in-person retail to power its next chapter in a crowded home-goods market.
00:00Wayfair built its multi-billion dollar business by selling home goods online,
00:04eventually scaling to more than 30 million products.
00:07Today, it's the largest online home goods retailer in the United States.
00:11But after a pandemic boom in sales, growth slumped.
00:14And so did the company's stock price.
00:16Now, Wayfair is pivoting.
00:18In 2024, it stepped into physical retail with its first large format store.
00:23At the same time, it's betting on AI to streamline operations
00:27and reimagine how shoppers discover furniture.
00:30So we've been using the sort of text-to-image generation capability to generate AI
00:35to be able to showcase a whole bunch of different images
00:38that our customers can then react to and say, oh, I like this.
00:41Here's how Wayfair built a $12 billion home goods empire,
00:45and how it's using AI and big-box retail to fuel its next chapter.
00:53Founded in 2002 as a network of niche furniture sites,
00:56Wayfair evolved into a sprawling online marketplace.
00:59It now offers over 30 million products from around 20,000 suppliers.
01:04It also runs a lineup of lifestyle and luxury brands.
01:07The main basic difference between Wayfair and some of its other home furnishing
01:11competitors is that it is a marketplace platform,
01:14so they don't own any of their inventory.
01:17Everything is just forward position on their site so that consumers can use it
01:22from the many vendors that they work with.
01:25Unlike many of its competitors, Wayfair doesn't manufacture or own its inventory.
01:30Instead, it connects shoppers with third-party suppliers.
01:33This dropship business model allowed Wayfair to scale quickly,
01:37offering an enormous product catalog while keeping fixed costs low.
01:40Having these relationships with some of these smaller vendors is really unique
01:45in that it's a much more visible way for the vendors to reach a much broader
01:50total addressable market.
01:51It helps elevate the business of small vendors,
01:54while it also helps provide more choices to consumers for Wayfair.
01:59During the pandemic, that model helped the company thrive.
02:02Sales surged by 45% in 2020, as consumers redecorated during lockdowns.
02:08The next year, Wayfair shot at the Fortune 500 rankings,
02:12climbing more than 130 spots to land at number 217.
02:17When we look back at COVID, that clearly accelerated e-commerce adoption
02:21across a number of categories, things like grocery and furniture.
02:24We saw the share price really rise to around $350 a share.
02:29But post-pandemic, demand cooled.
02:32As interest rates climbed and inflation-pinched household budgets,
02:36spending on big-ticket furniture slowed.
02:38Wayfair's stock lost over 80% of its value between 2021 and early 2023.
02:44Investors realized things are going to reopen.
02:47People are traveling.
02:48They're eating at restaurants again.
02:50And it wasn't idiosyncratic to Wayfair.
02:53It was across the industry, right?
02:55All of the peers really saw that phenomenon.
02:58Major home retailers like Bed Bath & Beyond filed for bankruptcy in 2023,
03:03shuttering hundreds of stores around the country.
03:05Despite declining sales post-pandemic,
03:08Wayfair was able to weather the market volatility.
03:10You know, if you look at somebody like Bed Bath & Beyond,
03:13there were liquidity issues.
03:15Interestingly, despite the fact that really,
03:18Wayfair isn't generating a whole lot of profitability,
03:21the way that the capital structure works
03:23is that they don't really need that same sort of liquidity.
03:26But as the online home retail market has become more crowded,
03:30Wayfair is looking for ways to improve its e-commerce model
03:33and its customer experience.
03:35So we've been applying AI for quite some time,
03:38probably over a decade.
03:39The more recent advancements are allowing us to take that to yet another level.
03:43Fiona Tan is Wayfair's chief technology officer.
03:46Over the last few years, she has helped lead the company's investments in AI.
03:51It's a category where it's hard for our customers sometimes
03:53to describe what they're looking for.
03:55And then sometimes they don't really even know what they're looking for.
03:58So we've been using the sort of text-to-image generation capability
04:02to generative AI to be able to showcase, you know,
04:05a whole bunch of different images that our customers can then react to
04:08and say, oh, I like this.
04:09I don't know what it's called, but it speaks to me.
04:12In 2025, Wayfair debuted a generative AI platform called Muse.
04:17The tool allows shoppers to curate AI-generated home designs in certain styles.
04:22From there, the platform will recommend Wayfair products that fit the look.
04:26And then you can even tailor it a little bit more and just say,
04:29okay, well, I like this, but I prefer green chairs instead of beige.
04:32And as you interact with Muse, it'll generate you another image
04:37based on what you're saying.
04:38As the customers are inspired and engage more with us,
04:41we're able to discern better what their intent and what their style preferences are,
04:46maybe what the budget preferences are.
04:47And then it allows us to then recommend products for them.
04:50Wayfair says that level of personalization may help reduce return rates
04:55by giving customers more confidence in their purchases.
04:58Because the customers are more confident of the products that they buy
05:02or they've been able to get more information about it.
05:05Ideally, what you also see is there are fewer returns, right?
05:07Because you're able to help them make more informed decisions.
05:12Behind the scenes, Wayfair's legal, HR, and finance teams
05:16are also using AI to process data faster and streamline operations.
05:21For example, our legal teams using it to be able to look at user reviews,
05:26to look for items that maybe have caused any kind of injury.
05:30And then you'll have examples in the technology department.
05:32Our accounting and finance team is also leveraging it.
05:35So it's really across the enterprise.
05:37While AI is helping to streamline Wayfair's digital operations,
05:41the company is also testing a more traditional strategy, opening physical stores.
05:46In May 2024, Wayfair opened its first large-format retail store
05:51in Wilma, Illinois, just outside of Chicago.
05:54The 150,000-square-foot store features showrooms,
05:58interior design services, and a cafe.
06:01Instead of spending marketing dollars on digital spend,
06:05you're spending your marketing dollars on physical spend.
06:08While competitors like Williams-Sonoma benefit from built-in visibility
06:12through their retail locations,
06:14Wayfair has had to rely more heavily on advertising.
06:17Wayfair, every style, every home.
06:19In 2024, they spent about 12% of their net revenue on advertising.
06:24While competitors like Williams-Sonoma spent about 7%,
06:28and Restoration Hardware only spent 4%.
06:31Wayfair leans into advertising a little bit more
06:34because it's hard to remain visible when you're in e-commerce only.
06:37And so, you know, reminding consumers that you exist isn't free.
06:43Wayfair's new store location sits strategically along a major commuter highway.
06:48Since the opening of the store,
06:50Wayfair says sales in Illinois have jumped around 15%.
06:53Based on early results,
06:55Wayfair plans to open two more large-format stores,
06:58one in Atlanta, Georgia, and another in Yonkers, New York.
07:02Still, when it comes to home goods,
07:04Wayfair operates in a competitive and fragmented landscape.
07:08While the company holds the top spot for largest online home goods retailer in the U.S.,
07:13it's only by a small margin.
07:15Very fragmented, very hard to have a competitive advantage.
07:18We think Wayfair is one of a number of competitors that are really struggling to avoid discounting and reinvent themselves in different ways to remain relevant to consumers.
07:30Big-box retailers like Walmart, Target, and IKEA all sell home goods with the added advantage of physical stores, tight logistics, and brand familiarity.
07:40Other high-end home goods companies like RH and Pottery Barn offer in-person shopping that build a more luxury customer experience.
07:48It's a lot easier to be top of mind when you are a pottery barn in a mall or a RH that has a freestanding store and a restaurant and it's an experience.
08:01But Wayfair's moves into brick-and-mortar stores and AI are helping to close that gap.
08:06So one of the capabilities, again, of AI and also generative AI is our ability to understand, have a deeper understanding of the products that we sell,
08:14discerning the color, the size, dimensions.
08:17Some of it's in the product details.
08:19Sometimes there may be errors and it can also augment and enrich the information that we get from our suppliers.
08:24So we're doing a lot in the customer experience.
08:26I do think AI will help young people sort of get their head around how they want to plan their smaller spaces,
08:33but also the accessible price points that Wayfair offers also helps bring those consumers in.
08:41And I think a lot of that is their main consumer.
