The Supply Chain Matters blog again highlights the now more noticeable evidence of over optimistic planning that was conducted by major online shopping platforms these past two years. This has resulted in increased initiatives to now scale-back operations and trim staffing. Last week, Boston based home goods and furniture online platform provider Wayfair announced it will shed nearly 5 percent of its global workforce and upwards of 10 percent of this provider’s corporate level staffing, amounting to upwards of 900 people.

The motivations and explanation are common to what has transpired among other high profile online retail platform provider announcements of late. They reflect the notions of riding the wave of consumer preferences in their significant use of online channels to acquire pandemic related desired products. Products such as home office furnishings and technology needs, in residence fitness equipment or pandemic related medical, cleaning or other household supplies were in constant high demand during 2020 and 2021.

Wayfair CEO Niraj Shah in a company wide email to employees indicated that the pandemic fueled growth trajectory that was planned to continue had not materialized and that staffing levels were now too large for the existing online business environment. The company’s latest report of Q2 financial performance was headlined with a 14.9 percent year-over-year decrease in net revenues, and a $378 million operating loss. The home goods online platform provider’s reported number of active customers was down 24 percent in the most recent quarter.

That explanation is a familiar one in that it is the same theme recently communicated by the CEO of online retail platform provider Shopify in announcing headcount reductions of up to 10 percent would be initiated.

Reporting quarterly financial performance for the June ending quarter, Amazon surprised investors in reporting that online retail revenues fell for the third straight quarter, incurring a 4 percent decline in segment revenues. Since that Amazon announcement, a number of aggressive actions in reducing headcount via attrition and cutting back on excess capacity has occurred. The online giant has also increased the inventory management and logistics fees charged to hosted third-party sellers within the Fulfilled By Amazon segment.

In its reporting on Wayfair’s recent headcount reduction actions, The Wall Street Journal cited data from Adobe Analytics indicating that in July, online prices dropped for the first time in more than three years as retailers continue to adjust to significant changes in consumer spending patterns. Similar discounting is underway among brick-and-mortar retailers.

In the specific case of Wayfair, this online provider has struggled in achieving consistent profitability. The company’s latest financial performance results reflected the fourth consecutive quarter of operating losses.

From the merchandise and inventory planning dimension, the online provider has been constantly challenged with high levels of merchandise SKU’s, constant seasonality cycles of consumer demand leading to low inventory turnover.

There has also been a noticeably high turnover of supply chain focused management as executives took on the challenges of Wayfair’s unique online business model. That included the implications of a wide selection of seasonally driven inventory needs, global-wide logistics and consequent double-digit transportation cost increases.

Other online platform providers large and small have now taken actions to reduce staffing and capacity. Most visible have been Walmart and its recent decision to shed upwards of 200 corporate employees. Peloton Interactive remains involved in a complete business restructuring that is resulting in thousands of employee layoffs and a turnabout in manufacturing, supply chain and customer service sourcing strategies.  Other specialty online providers such as online beaty brands retailer Glossier, Stich Fix and specialty optical products Warby Parker have each initiated noteworthy headcount cutbacks recently.

As our research and consulting arm has highlighted for clients, with the private equity community now cutting back on equity investment moves because of this highly uncertain global economy, online start-ups as well as ongoing online providers are having to take internal actions to achieve, maintain or surpass expected profitability goals.

This cycle has a ways to go as platform providers align to new market realities that involve lower rates of business growth.

 

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