Wayfair - The Next Amazon You Haven't Heard Of

NEW YORK ( TheStreet) -- One micro-site dedicated to television racks and stands launched nearly a decade ago could become the next Amazon ( AMZN) for home goods.

Wayfair.com, formerly known as CSN Stores, has created a profitable business with more than 200 sites dedicated to home goods and furnishings. All of these micro-sites are now under one umbrella, forming a mega-site that is gearing up to take on the likes of retail giants like Amazon, Wal-Mart ( WMT)and Target ( TGT).
Wayfair CEO Niraj Shah

Niraj Shah and Steven Conine started CSN Stores in 2002, around the same time Amazon first started churning a profit.

"The idea was to focus on online retail, but in category others at the time weren't really covering well," Shah told TheStreet.

E-commerce was littered with start-ups that were trying to sell cheap books, electronics and DVDs, but few were focusing on the home goods market.

After launching Racksandstands.com, Shah and Conine continued rolling out these dedicated sites with domain names like Bedroomfurnituredirect.com, Strollers.com and Everyatomicclock.com, which culminated in about 200 sites, 4.5 million items and 5,000 brands.

Now Wayfair.com, which officially launched as the rebranded site in September, is a compilation of all of these sites, carrying 1,900 kitchen faucets, 1,000 dog beds and 1,300 bedroom sets. The company defines home goods broadly, offering staples like furniture, decor, housewares and home-improvement merchandise, as well as pet items, luggage and outdoor recreation goods like kayaks and canoes.

While the offerings in home goods are abundant, Wayfair.com stops short of trying to be all things to all people, refraining from featuring apparel, electronics, books, movies and music.

"We only want to participate in categories where we can offer the customer the best experience," Shah said. "First and foremost we are focusing on home. I don't want to say we would never go beyond this, but right now we have a long list of things we want to do in home."

"By just focusing on home we can do things that other retailers don't do because their focus is broader," he continued. "Amazon's experience on their site is tailored to certain categories and goods, which are different than the ones we are in. Their home offering, it's not bad, but there are a set of costumers that would prefer to shop in a different way."

Shah said Wayfair is also able to offer a bigger selection in home goods than big-box retailers like Target.

"These retailers obviously have an advantage over us because they are much more well known, but there is certain aspects of what we do that we think we can use to differentiate ourselves and be successful even with them there," Shah said.

While Wayfair directly competes with retailers like Williams-Sonoma ( WSM), Pottery Barn, Crate and Barrel and Restoration Hardware, Shah said these companies only target one small slice of the market.

"These companies have a focus on the upper markets, just below designer and luxury, and they tend to be fairly narrow in the style range they cover," Shah said. In total, these four companies have sales of about $4 billion, he estimates, while the entire furniture market in the U.S. is $75 billion; with housewares it's more than $100 billion.

"Those companies do well with a specific demographic, but there is still a very large market they aren't tapping into where people are on more of a budget or want access to more selection," Shah said. "If Crate and Barrel-style happens to be their style, and if they aren't particularly sensitive to price, Crate and Barrel may be their go-to destination first, and it is unlikely they will switch. But the market is very large and these companies have such a small piece of it that we just decided to go after the mass offering instead of the lifestyle retail approach."

But it's not just about offering a wide selection, Shah said. Wayfair is also keenly focused on providing detailed product descriptions that make it easy for shoppers to find what they are looking for, and then having these items at competitive prices.

The Boston-based company is also looking to differentiate itself by creating an emotional experience. Wayfair hired Kristine Kennedy, formerly editorial director at Better Homes and Gardens, to bring editorial content to the site that can help inspire shoppers and guide them when making a purchase.

With the tagline "there are a zillion things home," Wayfair is positioning itself to be the online destination for home goods. The company is on track to do $500 million in sales this year, up from $380 million in 2010.

The company is also expanding internationally, operating in Canada, the U.K., Germany and Australia. In January, it also launched a private sale site focused on home goods called Joss & Main.

Wayfair received its first round of venture capital in June, selling a minority stake to four investors for $165 million. "Business has been profitable since inception, we didn't need capital," Shah said.

The end goal is becoming a public company, though an initial public offering isn't part of the near-term plan.

"Right now we are focused on long-term health of company and we think there will come a point that being a publicly traded company is a better option for us then being private," Shah said. "Right now, that isn't something we are focused on. At some point in next five years, will we think it would be smart for us to be publicly traded, answer is yes."

- Reported by Jeanine Poggi in New York.

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