By Brian Baskin and Laura Stevens
Amazon.com Inc. wants to furnish your home.
The online retail giant is making a major push into furniture
and appliances, including building at least four massive warehouses
focused on fulfilling and delivering bulky items, according to
people familiar with Amazon's plans.
With that move, the Seattle-based retailer is taking on the two
companies that dominate online furniture sales -- Wayfair Inc. and
Pottery Barn owner Williams-Sonoma Inc. Furniture is one of the
fastest-growing segments of U.S. online retail, growing 18% in
2015, second only to groceries, according to Barclays. About 15% of
the $70 billion U.S. furniture market has moved online, researcher
IBISWorld says.
But even the biggest players in online furniture are struggling
to get the market right. Unlike established categories such as
books and music or even apparel, retailers are still hammering out
basic concepts like how much variety to offer on their sites and
the most efficient ways to deliver couches and dining sets to
customers' homes.
While Amazon has been selling furniture for years, it has lately
decided to tackle the sector more forcefully.
"Furniture is one of the fastest-growing retail categories here
at Amazon," said Veenu Taneja, furniture general manager at Amazon,
in a statement. He said the company is expanding its selection of
products, with offerings including Ashley Furniture sofas and
Jonathan Adler home décor, and it is adding custom-furniture design
services. Amazon is also speeding up delivery to one or two days in
some cities, he added.
The retailer already has an approximately 17% market share in
the broader home furnishings category, according to Morgan Stanley,
and it is continuing to gain. That includes smaller items, too,
such as cookware and towels.
While Amazon has disrupted industries from publishing to fashion
with free, fast shipping and easy, app-based one-click buying,
furniture can be a tough sector to crack. For one, it is expensive
to deliver a couch and other big items, and consumers typically
want what are known as "white glove" services, extras like bringing
it into the home, setting it up and removing trash. And while
packing more small packages onto a delivery van brings the costs
down because it can make more stops, you can only fit so many
pieces of furniture onto a truck.
Shoppers are still generally willing to pay for furniture
delivery, but some retailers and logistics companies say they are
facing growing pressure to ship online orders faster. Wayfair
offers free shipping on orders over $49, but delivery times can
range from one or two days to just over two weeks. Pottery Barn
charges on a sliding scale based on price, with delivery costs
running above $100 for more expensive items. Furniture sold and
shipped directly by Amazon is free for Prime members and on orders
over $25, while items sold by third-party sellers may cost
extra.
To guarantee two-day shipping to 99% of consumers, a retailer or
logistics company needs up to a dozen large warehouses spread
around the country, plus around 110 smaller facilities to stage
deliveries to customers' homes, said Troy Cooper, chief operating
officer at XPO Logistics Inc., which manages distribution centers
and fulfills online orders for large retailers like IKEA.
By comparison, a retailer can deliver furniture within a week to
most customers simply by planting a large distribution center on
each coast, similar to how they would manage inventory for
brick-and-mortar stores, Mr. Cooper said.
Amazon is expected to rely on XPO and other third-party
logistics providers to manage distribution centers and handle
delivery of furniture and appliances for the near future, even as
it takes more of its logistics in house in other parts of its
business, people familiar with the company's plans say. Amazon
declined to comment on its delivery plans. XPO declined to comment
on its relationship with Amazon.
Rising sales may be helping reduce delivery costs by creating
better density. Costs go up for transportation companies as
deliveries get more spread out and infrequent.
"Just in the last year, furniture has taken off," said Richard
Phillips, Jr., chief executive at Pilot Freight Services, a Lima,
Pa.-based trucking company that makes larger e-commerce deliveries.
The company's No. 1 business-to-consumer shipment has shifted to
furniture, from TVs.
Pilot is one of many logistics companies building out nationwide
networks to handle bulky items as retailers look for cheaper ways
to ship furniture and appliances ordered online. XPO made 12
million home deliveries last year, up from 9 million in 2015. Estes
Express Lines, one of the largest U.S. trucking companies which is
based in Richmond, Va., started a "final mile" service in December
after noticing retailers were mixing in more home deliveries.
These companies are filling in part a void left by United Parcel
Service Inc. and FedEx Corp., whose executives have complained
about bulky items gumming up distribution centers designed to
process millions of small packages at lightning speed.
"You go for what is the largest segment of the market," said
Carl Asmus, senior vice president for e-commerce at FedEx. "The
sweet spot is not necessarily refrigerators."
Boston-based Wayfair started building out its own delivery
network about a year and a half ago, said Chief Executive Niraj
Shah. The company got into doing its own deliveries because it is
so important in retaining customers. "We built it primarily to
drive quality, but secondarily it certainly gets you cost benefits
at scale," he said.
He said he is not worried about Amazon. The rival is hardly a
new entrant to the space, and it is hard to get the customer
service side of the equation right, he added.
Wayfair on Tuesday reported a nearly 30% increase in
first-quarter revenue from a year earlier, beating most analysts'
forecasts. The company's shares rallied 21% to an all-time
high.
Home deliveries are "exponentially" more expensive but surging
demand makes them worth it, said John Paiva, chief operating
officer at Estes Final Mile. Estes Express Lines plans to expand
its new service to a majority of its more than 200 U.S. terminals
by the end of 2017.
Before launching, Estes spent a year training drivers used to
dealing with warehouse dock workers to interact with ordinary
people, and built a database of instruction manuals for employees
to use when assembling furniture in homes.
"If the driver is having a bad day or doesn't understand the
importance of greeting customers professionally, it can...tarnish
the reputation of the [retailer]," Mr. Paiva said.
Write to Brian Baskin at brian.baskin@wsj.com and Laura Stevens
at laura.stevens@wsj.com
(END) Dow Jones Newswires
May 12, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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