Wayfair on Friday reported fourth quarter direct retail net revenue, which includes sales from the company's sites, increased 26.5% to $2.5 billion.
The online home goods retailer's net loss for the quarter swelled to $330.2 million from $143.8 million in the year-ago period, according to a company press release. Wayfair reported negative adjusted EBITDA of $180.2 million or 7.1% of total net revenue.
For the full fiscal year, the company's direct retail net sales increased 35.3% to $9.1 billion, while its net loss widened more than 95% to $984.6 million.
Questions around the financial viability of online pure plays were bolstered this week by Wayfair's mounting losses.
Since making its public debut in 2014, the online home goods retailer has failed to turn a profit, with losses growing year after year, now nearing the $1 billion mark. GlobalData Retail Managing Director Neil Saunders called that "eyewatering."
"In our view this is quite extraordinary, especially as it means losses have almost doubled since the prior year," Saunders said in comments emailed to Retail Dive.
The company, which owns Wayfair, Joss & Main, AllModern, Birch Lane and Perigold, operates primarily online. It spent $310.9 million on marketing in the fourth quarter alone, a nearly 34% increase from the year prior, which brought total spend for the year to $1.1 billion. But Saunders said that "even without advertising, Wayfair's model generates no profit; with advertising it is plunged into the red. And spending $28 on advertising per order, which amounts to over 12% of the order value is, in our opinion, absurd."
Online mattress brand Casper, which made headlines this month after it slashed its IPO target, has similarly shoveled a lot of money into its marketing efforts. Its total marketing expenses between 2016 and Sept. 30, 2019 were $422.8 million, according to a document filed with the SEC.
As the cost of customer acquisition gets prohibitively high, many online pure plays are pushed to expand their operations offline. It wasn't until last August that Wayfair opened its first permanent store located in the Natick Mall in Natick, Massachusetts, after testing several pop-up locations. And Casper in 2018 announced extensive expansion plans of opening 200 stores across North America after partnering with traditional retailers like Target, Nordstrom and West Elm to enter brick and mortar.
"No one denies the necessity of advertising and marketing to attract customers, especially for a category that is infrequently purchased," Saunders said. "Equally, no one would deny that online furnishings is a hard business with relatively thin margins. However, others have made it work. Sadly, Wayfair has not. And it does not appear that it will do so any time soon."
Wayfair has, however, taken up more share of the home goods segment over the years, which has negatively impacted traditional players like Pier 1, and has grown its active customer base to 20.3 million users. According to 1010data, Wayfair generated a third (33.4%) of online furniture sales in 2019, followed closely by Amazon (29.7%). Far behind are more traditional players like Walmart (4.7% of online furniture sales) and Macy's (3.7%).
But, the path to profitability remains unclear. "That the company has a $1.5 billon long-term debt pile which costs it about $54 million a year in interest is bad enough, but on top of this its operating metrics are incredibly weak and do not even hint at the business being sustainable," Saunders said. "Taking out advertising costs, at operating level Wayfair made a $5.4 million operating profit this quarter; nowhere near enough to cover the interest payment on its debts."
Earlier this month, Wayfair announced 550 job cuts, 350 of which are based in Boston where the company is headquartered. The layoffs affected about 3% of Wayfair's global workforce, the company said at the time, but it may not be enough to push the company into the black, Saunders noted.
Though Wayfair continues to generate significant revenue gains, a rarity of sorts in the industry, growth may be slowing. Coupled with mounting losses and increased advertising spend, more pressure will be placed on its bottom line. "Should there be a more serious downturn in demand from either a recession or an escalated coronavirus crisis, we believe the impact could be catastrophic for Wayfair," Saunders said.