Home goods retailer Wayfair announced plans to lay off 13% of its global workforce on Thursday, just weeks after its CEO sent a late night memo telling employees they needed to work harder. The drastic job cuts come despite soaring pandemic sales and profits in recent years.
Wayfair CEO’s Controversial Memo Preceded Major Restructuring
In December, Wayfair founder and CEO Niraj Shah sent an internal memo to corporate employees asking them to work longer hours to drive the company’s success. The 1:30 am email quickly went viral on social media, with many criticizing Shah’s tone and demands.
“We are going to ask people to do more,” Shah wrote. “The cross functional projects that require more intense collaboration across functions are going to stay the course. There won’t be any scaling back of these efforts – we need all hands on deck.”
Just a month later, the Boston-based company announced plans to eliminate 1650 jobs globally as part of a major “workforce realignment.” The cuts amount to 13% of the company’s total employees.
In an interview with the Wall Street Journal, Shah defended the layoffs as a way to drive profitability after overhiring during the pandemic.
“We obviously got over our skis a bit in building growth infrastructure that matched unrealistic COVID-era growth rates,” he said.
Pandemic Windfall and 2022 Struggles
The pandemic brought unprecedented growth for Wayfair as consumers sheltered at home and invested heavily in furnishing and upgrading their living spaces. The company’s active customer base jumped 46% in 2020 while net revenue soared 55% to $14.1 billion that year. Profits quintupled from 2019.
The good times continued into early 2021 before growth began slowing. Wayfair struggled with supply chain issues, rising digital advertising costs, and pullback in consumer spending in 2022. The company swung to a $778 million net loss in 2022 after reporting over $900 million in net profit the prior two years.
| Key Wayfair Financials | 2020 | 2021 | 2022 |
|---|---|---|---|
| Revenue | $14.1B | $13.7B | $11.3B |
| Net Profit / (Loss) | $185M | $960M | $(778M) |
The slowdown forced Wayfair to lay off 850 corporate employees last August in a round of job cuts Shah said would position the company for “future profitable growth.” But ongoing challenges have now led the company to make deeper reductions.
What 13% Job Cuts Mean for Wayfair’s Future
Eliminating 1650 positions is expected to cut $280 million in annual costs for Wayfair while severely impacting almost every team and function. The cuts will help the company move towards Shah’s goal of reaching 10% adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) profit margins.
Departments seeing major downsizing include Wayfair’s transportation, customer service, media, and merchant organizations. The company is also closing its Ireland customer service office.
While painful for those losing their jobs, analysts say the cuts are necessary steps for Wayfair to streamline operations and adjust expenses to match slowing growth. Wedbush analyst Seth Basham believes Wayfair remains well positioned as a leading home e-commerce player but needs to scale back bloated teams built up during “hyper-growth years.”
The restructuring aims to accelerate Wayfair’s path back to strong profitability. But the company warned of further “volatility” in coming quarters. With economists broadly expecting a recession in 2023, the online home goods sector faces plenty of uncertainty ahead.
What This Means for Laid Off Employees
The 1650 employees losing their jobs will receive severance pay and career transition services. But the sudden job cuts just weeks after being told to work harder are still likely to leave many former staffers feeling frustrated and blindsided.
Wayfair said laid off workers will receive 14 weeks of base pay plus two weeks for every year worked at the company. For example, an employee with five years tenure would get 34 weeks salary.
The company will also cover 12 months of health insurance and external career coaching services for U.S. workers losing their jobs.
These severance packages exceed norms at many companies. But for longtime employees who gave years to Wayfair’s remarkable growth story, the end still marks a painful reversal they never saw coming last month.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
