Wayfair's Path to Profitability Coming Into Vision, Contingent on Strict Cost Management

Wayfair plays in the fragmented home goods market across North America and Western Europe (an $800 billion-plus global opportunity), offering more than 40 million products from more than 20,000 suppliers. We think its differentiation comes by way of product breadth and its logistics network, which permits faster delivery with fewer touch points and less product damage than its peers. However, we believe Wayfair lacks brand strength, evidenced by its elevated advertising spending relative to peers and customer acquisition costs. Moreover, we think peers will continue to attempt faster delivery, spurring rising competition. Targeting a wide consumer base of customers 25-54 years old with average household income of $80,000 also means Wayfair is competing with mass-market retailers, specialty retail, and low-cost providers, making it harder to stay top of mind. This, along with no switching costs, underlies our no-moat rating.