Over the last 10 years, Amazon has conquered many categories and ensured that they’ve become the dominant platform that sells products to customers. There are two categories, however, that Amazon has struggled to conquer: apparel and furniture. In 2017, Amazon made it clear that they are trying to capture the latter category and place pressure on market leaders Wayfair and Williams–Sonoma.
According to an article in Fortune that quotes a report from the Wall Street Journal, Amazon “appears to be doubling down on furniture as it eyes taking a bigger piece of the $150 billion market.” The company is opening a number of new warehouses to store and ship furniture as well as expanding its inventory of furniture and home goods.
We’ll explore the challenges facing Wayfair, and how Amazon is positioned to
The furniture challenge
Let’s be clear about the challenge that furniture provides e-commerce businesses:
- Furniture place demands on logistics and shipping due to the larger size compared to normal products. In most cases, the products have measurements that make it challenging to find boxes or packaging to adequately protect the item in transit.
- Furniture products are more costly than CPG or general merchandise, which can may customers more wary about purchasing these items.
- The “last mile” for furniture products requires people to carry purchased items into homes, which may require set-up by skilled staff to ensure that the product performs as described. Suddenly, the additional costs that are required by logistics businesses are more expensive than what is seen with normal product purchases.
Wayfair is predominantly focused on furniture products, and has thus invested significantly in a furniture shopping experience that’s more seamless than what is currently seen with Amazon. This factor, however, does not automatically make Wayfair safe from Amazon and its formidable business prowess.
At the same time, as furniture is not a commodity and involves a fair amount of customization, becoming a competitor to Wayfair will require significant investment on Amazon’s part.
Wayfair CEO Niraj Shah, speaking to CNBC, said he believes the online furniture category is different from other specialized online categories that face pressure from Amazon.
“Furniture, decor, these types of items, these are non-branded items where people … want to own unique items, so they don’t want to own the same exact items as everyone else. So, the way you shop for them, it’s very visual in nature,” said Niraj.
Wayfair has used technology as a defense against competition through initiatives like visual search and deep learning, which provides customers with similar products based on an image search. But Wayfair also faces challenges here, some of which were highlighted by Quartz in September 2017. After analyzing a random set of items on the site, Quartz found “that the company often lists what appear to be identical products with different prices across its sister sites, often with completely different names. To make matters more confusing, those same pieces of furniture can often be found on completely different websites, like Amazon, or department store sites like Walmart or Sears, with different names again, and different prices.”
How logistics could give Amazon an opportunity
One of Wayfair’s biggest challenges is logistics—getting large items to customers’ homes safely. The problem is that Wayfair is reliant on drop-shippers to ship items to their warehouses, where the items are then shipped to customers. These drop-shippers introduce challenges such as cancellations due to products not being in stock, the incorrect color or size being shipped, and products damaged due to poor packaging. As a result of not owning the merchandise they sell to customers, Wayfair’s customer loyalty becomes jeopardized. Compounding the problem is the fact that the capital required to fix it would lead to potential bankruptcy.
What’s more, oversized items (over 100 pounds) have to go via less-than-truckload (LTL) or van lines. LTL is the most disjointed, archaic industry in the supply chain ecosystem, one that leads to additional cost. LTL uses “curbside” delivery—where the item is left on the curb, and paying for an extra person to take items off the truck and to the “first dry area” is expensive. Meanwhile, van Lines can get heavy items delivered in one piece, but delivery usually takes three to four weeks. And the longer a delivery takes, the greater the opportunity for damage and item loss.
In fact, large item freight leads to damage at almost twice the rate as what is seen with smaller packages. Large items get lost and as they are moved multiple times via forklifts, making the opportunity for damage prior to delivery high.
Most LTL carriers also require a delivery appointment within a two- to four-hour window, so customers often have to take off work to “receive” their items, much like waiting for a service provider, a system that’s highly inefficient. Wayfair also requires signature delivery, which means additional time; on average, signature deliveries take three to five days longer to deliver, especially when customers don’t respond to appointment set-up emails and calls.
All these factors give Amazon an opening to come in and gain the upper hand. If Amazon were to strategically place less-than-truckload (LTL) warehouses across the US, they would be able to deliver large items in two days nationwide. Faster shipping would simply place Wayfair in an almost impossible position to compete with Amazon.
Amazon’s intentions are clear
So how is Amazon making its foray into the furniture space to potentially upend Wayfair?
In 2017, Amazon launched two private labels that focus on the furniture category: Rivet, a midcentury modern line aimed at millennials, and Stone & Beam, a pricier country-modern brand targeting families. According to Curbed, both brands “focus on living room furniture and decor, featuring hundreds of pieces—including sofas, chairs, loveseats, side tables, lamps, and wall art—sold with free shipping under Amazon Prime.”
In April 2017, Furniture Today provided details of a new program Amazon was pitching furniture sellers to make the company more competitive in the bulky furniture category: eliminating the national delivery requirement for these sellers.
Under the plan, furniture sellers won’t be required to sell nationwide, but will set their own pricing based on the services an Amazon customer chooses. White glove delivery (to a dry room) is the minimum service requirement, and retailers can offer additional services, such as delivery to a customers’ “room of choice,” setup, and haul away. The cost to sellers is $39.99 monthly for an unlimited number of listings, plus 15% on the product sale and 20% on the services. The impact of this announcement was a concern from investors about Wayfair’s stock price, which fell 5% based on the news.
Amazon is also open to letting sellers take advantage of their own financing options in the future, as well as making the Amazon Prime designation available to sellers if they can show they’re capable of handling two-day deliveries or ship products to an Amazon fulfillment center.
And according to the New York Times, in 2017 Amazon was even “exploring the idea of creating stores to sell furniture and home appliances, like refrigerators — the kinds of products that shoppers are reluctant to buy over the internet sight unseen.” These stores, said the Times, “would serve as showcases where people could view the items in person, with orders being delivered to their homes.”
Then in November 2017, Amazon added augmented reality (AR) to its iPhone app to provide customers with the ability to view furniture products in their home. According to Recode, AR provides “a good sense of a product’s dimensions and a decent idea of its color,” factors that may “be enough to push an undecided shopper into completing a purchase online they otherwise wouldn’t have.” An advantage like this scales for a juggernaut like Amazon, creating a scenario where “even a slight increase in a purchase conversion rate leads to real revenue gains.”
Combine these three elements—a furniture-specific program for sellers or furniture retailers, the introduction of private label furniture brands, and the implementation of augmented reality in the customer experience—and one can see that Wayfair is under threat. These factors, plus the argument that product surfacing in the furniture category is driven by visual, not text-based search, as Wayfair CEO Niraj Shah asserted in 2017, have been addressed by Amazon in a way that should concern Wayfair and other online furniture sellers.
How brands need to approach this frontier
So what do brands need to do in light of all this? Brands and furniture retailers must realize that Amazon is a platform that has customers with purchase intent unlike any other North American e-commerce platform. Amazon will also likely provide incentives to brands that partner with them early on in this new area of interest.
Furniture brands and furniture retailers that want to leverage this opportunity should consider using a third party to manage their Amazon business. The risk of managing it themselves is the execution of ineffective listings and unprofitable pricing strategies,a risk that is especially acute in a category such as furniture that is not as established for Amazon. Brands that have an established, dedicated team to look after their marketplace business should consider employing the assistance of an agency or Amazon specialist service to navigate this new frontier and capitalize on it.