• by Sarah Mahoney  @mahoney_sarah, November 3, 2022

Wayfair’s latest numbers show just how badly the ecommerce furniture company is struggling to hang on to the millions of friends it made during the pandemic.

The company says third-quarter revenue fell 9% to $2.8 billion, despite intensified ad spending. Ad costs rose to $353 million, up from $315 million a year ago. And its losses ballooned to $283 million, up from a loss of $78 million in the year-ago period.

“We’re continuing the work we set out last quarter to control the controllables,” says Niraj Shah, Wayfair’s chief executive officer and co-founder. He says those efforts focus on “driving cost efficiency, nailing the basics, and earning customer and supplier loyalty every day.”

More alarming is the exodus of shoppers, now at 22.6 million, a decrease of 23% year-over-year. Even the loyalists -- the repeat customers who account for 77% of Wayfair's sales -- are shopping less, placing 19% fewer orders than last year.

One bright spot is that revenue per active customer rose 13%, to $547. And the average order value climbed substantially, rising from $283 to $325.

And while it’s been easy to predict some customers would drift away as consumer focus moves past the intense nest-building that characterized much of the pandemic, the speed of the shift is surprising.

“Consumer attrition has occurred faster than we anticipated,” writes Jaime M. Katz, senior equity analyst who follows the company for Morningstar. She had forecast a 15% drop in customers, not 23%. She calculates that customer acquisition costs have reached an all-time high.

While the results are bruising, “the silver lining is that the slowing demand has offered Wayfair the opportunity to reset its expense profile. Leadership pointed to more than $500 million in cost savings to be harnessed in 2023.”

Still, she adds, “despite massive savings planned, we think higher costs to engage customers are likely to persist for some time.”

Neil Saunders, managing director of GlobalData, is more pessimistic about Wayfair’s outlook. “The bad performance … underlines the fact that Wayfair’s business isn’t working and that it is losing an extensive amount of market share, especially within the North American market,” he writes in his comment.

Because Wayfair shoppers tend to be casual furniture buyers, they’re more likely to buy on impulse -- and to vanish when household budgets get tight. GlobalData's research indicates “the average Wayfair customer is more affected by economic tightening than the shoppers of traditional chains.”

Saunders points out that since some of the company's planned cuts will eliminate marketing spending, that could hurt rather than help sales. “Overall, we had little faith in Wayfair before this slowdown,” he says. “We have even less now.”