Home Renovating Boom Is Sputtering. Why That’s Bad News for Wayfair.

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Wayfair’s previous pandemic-based momentum might soon be coming to a halt, as the virus that causes Covid-19 eases and inflation continues to eat at consumers’ wallets.

The e-commerce company, which sells furniture and home goods, had previously benefited from the pandemic, as consumers were forced to make the most of their staycation by concentrating on home remodeling and decorating.

That trend might be slowing, though. Shares of the company were falling in premarket trading Thursday by 4.2% to about $102, after Wells Fargo analyst Zachary Fadem downgraded the stock to Underweight from Equal Weight. Fadem cited concerns on potentially lower demand amid a high-inflation environment where consumers are also out and about more, spending more money elsewhere. He also lowered his target for the stock price to $100 from $110.

“As the macro environment evolves, we see elevated risk of spend shift away from the Home Furnishings category via inflation, Covid pull-forward, lower income consumer pressures, and shift back to experiences such as travel,” Fadem wrote in a research note.

Wayfair (ticker: W) didn’t immediately respond to request for comment.

But the stock was falling long before Fadem’s downgrade. Wayfair stock (ticker: W) has tumbled 43% in price over the past year, and 37.4% over the past three months, while the Dow Jones Industrial Average has fallen 6% and the

S&P 500
has fallen 6%.

Wayfair seems to be struggling with several things it depends heavily on, Fadem said. First, a strong consumer sentiment in the home-improvement and décor sector. Second, efficient supply-chain operations. This gives competitors such as

Amazon (AMZN),

Walmart (WMT), and

Target (TGT) the opportunity to swoop in, he said. Those companies are beginning to home in on the home-decorating sector, creating higher margin mixes for them.

Wayfair’s demand had already begun to outpace its supply in the past year. The company even noted in its fiscal fourth quarter and full-year earnings call that competitors such as Home Depot (HD) and Lowe’s (LOW) might have fared better in 2021 due to their logistics and supply-chain strength.

Fadem said he is still keeping an eye on other home-improvement and décor-based stocks such as

Williams-Sonoma (WSM),

Bed Bath & Beyond (BBBY), and

RH (RH).

Recent data collected by Wells Fargo suggest web traffic trends in these sectors slowed in March, according to the same note.

All in all, Fadem said trends that were popular a year or two ago might be choppy under a new backdrop of challenges, such as accelerating inflation and the return of more normal life in a postpandemic world.

Write to Logan Moore at [email protected]