Shoppers splurged for new sofas, beds and furnishings, remodeled kitchens and backyards and invested in remote work setups. Demand was so high that it broke global supply chains and caused long delays for goods.
Fast forward two years. The picture looks much different now.
Inflation has squeezed out lower- and middle-income customers, who have scaled back their discretionary purchases to focus on paying for necessities like groceries, gas and rent. Wealthier customers have shifted their spending from furniture and other goods to travel and services. Mortgage interest rates increase, which reduces the demand for new homes.
That is putting pressure on Wayfair and other chains that saw an increase in sales earlier in the pandemic.
Wayfair said Thursday that sales fell 15% during the most recent quarter ended June 30 compared with the same period last year; it also lost 24% of its active customers – signs that the company is struggling to retain the customers it gained at the start of the pandemic. Wayfair had a net loss of $378 million during the quarter.
“Customers are more aware of where their discretionary dollars are going as prices at the gas station and grocery store eat up a larger share of [their] wallet,” Wayfair CEO Niraj Shah said on a call with analysts Thursday.
“We’ve also seen a lot of these discretionary dollars flow away from goods to services, especially travel,” he added.
Shah said customers have been shopping down to cheaper options, and Wayfair has stepped up promotions to stimulate demand.
Wayfair’s shares have fallen more than 60% this year, while RH shares have lost 45% and Bed Bath & Beyond are down 57%. Williams-Sonoma, which also includes West Elm and Pottery Barn, has fallen 13%.