Wayfair started its life as CSN Stores in 2002. It grew from one website – RacksAndStands.com – to almost 300 standalone sites that offered huge variety for different niche markets. In 2011, co-founders Niraj Shah and Steve Conine realized that to maintain their competitive edge and continue to grow, they needed to build a consolidated brand. Says Shah:
“We had the selection, the price was compelling, we had a 1-800 number to answer any questions. And after all that, the person would say, ‘I love you guys, and the next time I need a bunk bed, I’ll come back.’ Well, they’re probably not going to need a bunk bed for a while.”
As a result they created an umbrella brand – Wayfair – and set about trying to establish the company as a household name. In doing so, they shifted their business model – and yet, despite the consolidation being completed in 2011, have not quite mastered the shift in their operational model. As a result, there is significant debate among analysts over the future of Wayfair, with some prominent voices arguing to short the stock  while others argue this is a short sighted position. 
So – how has Wayfair’s business model changed, and what elements of its operational model are lagging behind?
Business Model – a zillion options
CSN had a simple business model: to offer a huge variety of a very specific type of good. These were sold through totally separate websites, such as Cookware.com and EveryGrandfatherClock.com.
However the shift to Wayfair required a corresponding shift in business model. Instead of disparate experiences, Shah and Conine were hoping to create a one-stop shop for all things home. Their new business model built on the CSN model of variety, providing customers with choices across products, styles, and pricepoints. Their motto of “a zillion things home” illustrates how they are differentiating themselves from brick & mortar retailers, by providing many more options than one could have under a single roof. This has resulted in their mission: To transform the way people shop for their homes
Wayfair is, of course, not the only ecommerce website offering many more SKUs than your average store. However, they have a number of distinct advantages in their operating model that have made them winners in this intensely competitive environment.
Search Engine Optimisation
Providing your customers with options is all well and good, but is useless if the customer is unable to navigate with ease through the many choices. As a result, Wayfair has focused on search engine optimization (SEO) – a legacy from when it was CSN brands, and relied on SEO to drive consumers to very targeted individual websites.
Wayfair keeps its inventory minimal by sending orders straight to vendors – cutting themselves out of the logistics. This allows them to use their capital to improve their SEO and website experience, and also allows them to offer even more variety to customers, as they don’t need to store the added choices. This method of shipping has helped them scale their business rapidly, without having to slow down to build the infrastructure to support new growth.
Wayfair distribution model
New challenges as Wayfair – and additions to the operating model
One of the main incentives of moving from CSN Stores to a single brand was to maximize on the economies of scale that had been achieved operationally, and start to build a brand name nationally. Wayfair is spending a huge amount of money in order to do so, with advertising spend making up 42% of operating costs and 14.5% of revenue in 2014, and adverts such as below running constantly on TV.
Wayfair is also leveraging a historic strength – SEO search – to help build its brand; it spends a minimum of 50% of display advertising budget on programmatic platforms, the advertisements that follow you around the web after you visit a site but don’t purchase. They are also improving their organic search rankings, which is creating up to a 160% increase in conversion on some products.
Previously, any customer service issues were isolated from the brand and linked only to one website, so any negative repercussions were limited. Wayfair need to ensure that their drop shipping method works – and when it doesn’t, that they have the customer service team in place to respond. Rating of 5.5 out of 10 on trustpilot.com suggests they still have a ways to go in this regard. 
Many of these customer service complaints focus on shipping issues, and Wayfair has responded to this by leveraging their relationships with partners, teaming up with FedEx to use their package testing facility – leading to a reduction in damages of over 25% in the first year of the partnership.
Wayfair’s success at brand building and customer service have yet to be proven, although it is clear they are building on their historic strengths of SEO and great relationships with suppliers to improve their acquisition and retention. In order to become profitable, they will need to continue to grow, while also improving their margins. Finding a less expensive way to build their brand and acquire customers, and addressing customer service issues so they are able to retain customers, will be crucial to them going forward.