Honestly is exiting the German market and plans to cut as many as 730 jobs, or about 3% of its global workforce, as it looks to focus on new growth drivers such as brick-and-mortar retail, the company said Friday.
About half of affected employees will have the option to stay with Wayfair if they agree to move to London, Boston or other locations where the company has a presence, chief financial officer Kate Gulliver told CNBC in an interview. The affected positions include corporate functions as well as positions in Wayfair's customer service and warehouse teams, she said.
In a memo to employees shared with CNBC, founder and CEO Niraj Shah said it would take too much time and money for Wayfair to expand its operations in Germany and that the company's dollars would be better used for other growth initiatives.
“Scaling our market share and improving our unit economics in the German market has proven to be a challenge due to factors such as the weak macroeconomic conditions for our category in Germany, the lower maturity of our offering, our current brand awareness and our limited scale,” Sjah wrote.
“In our recent assessment, we concluded that achieving market-leading growth in Germany remains a long and costly undertaking, and one that continues to lag further behind the potential returns we see in other areas. To ensure we focus our resources on initiatives that have the greatest impact, we have made the difficult but necessary decision to reallocate efforts to areas with strong long-term potential where our current efforts are showing great progress,” he wrote.
Shares rose about 5% in premarket trading Friday.
Germany, where Wayfair has operated for 15 years, represents a “low single-digit percentage” of Wayfair's revenue, customers and orders, Gulliver said. The restructuring is expected to cost between $102 million and $111 million, including $40 million to $44 million in employee-related costs such as severance, benefits, relocation and transition costs and approximately $62 million to $67 million in non-cash costs related to the closure of facilities. and other wind-down activities, Wayfair said in a securities filing.
The company expects to make these payments over the next twelve months, but they are expected to occur in the fourth quarter of 2024 and the first quarter of 2025 – a six-month period ending at the end of March.
Wayfair expects to reinvest savings from the restructuring primarily in other core initiatives, such as its physical retail plans and remaining international markets, the company said in a securities filing. The company's guidelines are not changing, Gulliver said.
Friday's layoffs are the fourth Wayfair has made since summer 2022, but the move is less about cost cutting and more about reallocating resources to initiatives that actually make the company money, Gulliver said.
“We're not doing this because we say we need some cost efficiency, and that's why we had to look for more costs and we identified Germany,” Gulliver said. “We see better ROI initiatives that we have already made further progress and can continue to invest in. So it's an investment priority, and [we’re] we are going after areas like Britain, Canada, etc., where we see a really exciting opportunity.”
Those initiatives include Wayfair's foray into brick-and-mortar retail, which began in earnest in May when it opened its first namesake store outside Chicago. Since opening the location, the company has enjoyed what Gulliver described as a 'halo effect', with online sales to customers living near the store increasing. It plans to open one or two more stores in the U.S. “in the near term” and also hopes to expand those doors into international markets such as Canada and the United Kingdom, Gulliver said.
“Clearly we want to get it to the US first,” Gulliver said. “But we're excited about the potential over time.”
Yet physical retail can be a huge capital investment. And Wayfair hasn't had an annual net profit since 2020.
Wayfair's decision comes as the company looks to boost sales growth in a sluggish housing market that has dampened demand for all things home. In the three months ended September 30, sales fell 2% to $2.9 billion.
“It's always difficult to make a decision that affects people,” she said. “We care deeply about the team there, and we are extremely grateful for their work, but we do believe this is the right next step for the company to allow us to focus on these higher ROI priorities.”