Wayfair’s shares surge after the online retailer laid off 1,750 employees

Niraj Shah, CEO, Wayfair

Ashlee Espinal | CNBC

WayfairShares rose more than 20% on Friday after the retail giant announced it would lay off about 1,750 employees, or 10% of its global workforce, to help with company-wide cost cutting.

The announcement marks Wayfair’s second job cuts in less than six months since the retailer laid off about 5% of its workforce in August. According to a press release, executives expect the two rounds of layoffs will save $750 million a year.

Wayfair has already begun layoffs in Europe, and employees in North America will be notified of their employment status on Friday, Niraj Shah, Wayfair’s co-founder and chief executive officer, wrote in a company-wide email to employees on Friday morning. The retailer will offer employees severance pay based on each individual’s circumstances, such as country, tenure and level, Shah wrote.

The Company anticipates costs of between $68 million and $78 million, primarily related to employee severance and benefits, primarily in the first quarter of 2023.

Retail giants like Wayfair have been forced to reconcile their pandemic-era gains as consumers shift their spending priorities away from categories like home furnishings. The online furniture retailer, which has been one of the winners of the pandemic as consumers spend more on home decor and office furniture, has since struggled with supply chain issues, causing delayed orders and frustrated customers.

Wayfair reported a 9% year-over-year sales decline and a loss of $286 million in the third quarter of 2022. Sharp declines in recent quarters have come after the Massachusetts-based retail giant reported a 55% sales jump to 14th quarter in 2020 .1 billion US dollars.

“Unfortunately, along the way, we overcame complicated things, lost sight of some of our fundamentals and just got too big,” Shah said in the email to employees. “Operationally, we see and feel that we are no longer or need to be as agile as we used to be.”

Shah wrote that the company’s operating expenses as a percentage of its revenue rose to 17% last year, after hovering around 10% to 11% for most of the company’s 20-year history. In addition to the layoffs, he added that the retailer has cut costs on advertising, insurance policies, janitorial services and software licenses.

The company now expects to return to Adjusted EBITDA profitability earlier in 2023 as a result of these cost-cutting efforts, the press release said.

“Today’s changes are all about reducing management levels, right sizing in certain places and making the organization more efficient,” Shah said.

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