Amazon takes on Wayfair with new furniture lines

Dive Brief:

Amazon has launched two furniture brands. Rivet offers a mid-century modern design flair, while Stone & Beam takes the farmhouse or cottage approach. Both lines offer a 30-day return policy and a three-year warranty on furniture, according to the retailer’s website.
Online furniture retailer Wayfair took a hit after the news Wednesday, although last week CEO Niraj Shah downplayed Amazon’s move in a conference call with analysts, according to a transcript from Seeking Alpha.
Earlier this year Amazon adjusted policies for its third-party Marketplace furniture sellers to make furniture buying and delivery easier for customers.

Dive Insight:

Amazon's new furniture play gave investors jitters over Wayfair's prospects, but it also presents a challenge to Target, Ikea, niche players like Urban Outfitters and stalwarts like Pottery Barn.

Rivet appeals to the same shoppers attracted to Target’s new "Project 62" furniture line, for example, part of that retailer's renewed commitment to differentiated merchandising, which is supported by a new augmented reality feature on its mobile website that places 3D-versions of Target home products within photos of their actual rooms. And Amazon's move could undermine Ikea as well, which has been slow to e-commerce and is in the midst of an effort to improve the quality of its furniture, which is seen as well-designed but of poor quality.

Wayfair, Target and now Amazon are taking advantage of consumers' increasing willingness to buy large furniture pieces online. E-commerce furniture sales have emerged as a major growth area, rising 18% in 2015, second only to grocery, according to research from Barclays. Some 15% of $70 billion in U.S. furniture sales are now online, according to IBISWorld data. Wayfair, in particular, is benefiting; its sales soared in its most recent quarter, when net revenue grew 39% from the year-ago period to $1.2 billion and direct retail revenue rose 42% to $1.2 billion.

For most retailers, fulfillment is becoming a major challenge considering online shoppers expect free or discounted shipping no matter what they buy. Fortunately for furniture retailers, there exists an infrastructure in local areas for delivery because even brick-and-mortar retailers have long shipped to customer homes from furniture manufacturing hubs or their warehouses.

"This is an area where shipping fees can really take a toll because you’re moving furniture," Jaimee Minney, VP of marketing and public relations at Slice Intelligence, told Retail Dive last year. "The big challenge, unique to e-commerce, is how best to maximize the shipping and handling aspect. When you have gigantic stores you don’t have to think about it as much."

But Wayfair CEO Shah says that Wayfair has a handle on its logistics, which he said remains an advantage against even Amazon. "[I]f you look at our selection, our merchandising, the distribution logistics capability we've built for these large bulky, heavy items, in-home delivery operations, the customer service, these are all significant advantages and I think speak to why our brand continues to gain strength in home," he told analysts, later saying he thought they would be competing more with Walmart and Target than with higher-priced furniture stores, according to Seeking Alpha's transcript. "I think they are going to continue to be a player there. But again, as you move off that very bottom into the mid, I mean, I think that's where you are seeing us continuing to gain huge share and traction."

Amazon already enjoys a 17% market share — and growing — in home furnishings, according to a Morgan Stanley report. But Wayfair has been a "clear winner of market share" in the countries where it operates, according to a note from Neil Saunders, GlobalData Retail managing director, which was emailed to Retail Dive in February. Profits have been elusive for the e-commerce furniture and home goods retailer, as it continues to plow revenues into marketing and customer acquisition. The e-retailer saw 0.5% growth in net revenue per active customer over the last 12 months to $408, despite its 0.5% second-quarter slip, and as of Sept. 30 had 10.3 million active customers, a 39% increase from that time a year ago.

While logistics won't be any easier for Amazon, the e-commerce giant has consistently been able to cushion itself against its massive fulfillment costs with proceeds from its lucrative AWS cloud services unit, a luxury other retailers don't enjoy.