Dive Brief:

• Citing a shift in consumer spending, Wayfair on Thursday reported third quarter net sales of $3.1 billion, an 18.7% decline from the same period in 2020 when there was heightened demand in the home category; against 2019, net revenue increased 35.4%. In the U.S., net revenue fell 20.8% to $2.6 billion, while international revenue dropped 6.8% to $500 million, according to a company press release.
• The online home goods retailer's active customer base grew to 29.2 million, up 1.5% from the same period in 2020 and up 53% from 2019. But from the second quarter of this year, its customer base declined by 1.9 million.
• Operating loss was $69.8 million from a profit of $221.9 million in the year-ago period, while net loss was $78 million from an income of $173.2 million last year. Advertising costs in the period were $315 million, or 10% of the company's total net revenue, compared to the year-ago period when they represented just under 9% of total revenue.

Dive Insight:

While many retailers suffered for much of 2020, Wayfair, like other retailers selling home goods, was uniquely positioned to gain.

As consumers suddenly were forced to spend more time in their homes, many began redecorating and taking on projects to make their personal spaces more comfortable and conducive to their new normals.

But waning demand seems to be catching up with the home goods retailer.

Since the start of the pandemic, "when consumers were splashing the cash on all kinds of things for the home, habits have started to normalize and purchasing patterns are now a bit more modest," GlobalData's Managing Director Neil Saunders said in emailed comments.

Many of Wayfair's declines, Saunders added, are also related to it "being unable to sustain its own dramatic outperformance during the pandemic." Wayfair benefited over the past year by not only selling in an in-demand category but also by operating primarily online, where many consumers shifted spending as they avoided trips to physical stores.

But now, as consumers begin to shop in person again, Wayfair seems to be at a disadvantage.

For example, store visits to HomeGoods remained above 2020 levels in the last week of October, up 12% year over year on Oct. 30, according to foot traffic analytics firm Placer.ai.

While the home goods market in general remains elevated above pre-pandemic levels, Saunders noted that "[t]he danger is that, as consumer finances come under pressure and as other activities such as travel resume, spending on the home will be deprioritized and overall demand will dip," putting pressure on Wayfair's revenue in the year ahead.

Wayfair also adjusted the merchandise it made available to consumers in the period to address the industry-wide supply chain challenges that have plagued the industry. But, those shifts "became counterproductive," CEO Niraj Shah told analysts Thursday.

"Wayfair did not sell items that were currently not onshore in either our, or our suppliers', warehouses. Therefore we listed these items as out of stock to the customer," Shah said. "In the current environment, customers have come to terms with much longer lead times on products and we need to adjust to that. We're just now beginning to sell products that we know are in transit, including those goods that are on the water. In doing so we're estimating delivery times further out and using that to level set customer expectations."