As Wayfair works to streamline its cost structure, the company plans to lay off 10% of its global workforce, a total of 1,750 employees, as part of plans to generate more than $1.4 billion in annualized cost actions.
The cost-cutting plan, initiated in August 2022 is well underway and is expected to accelerate the company’s timeline for adjusted EBITDA breakeven to earlier in 2023 as the first step towards positive free cash flow, the company stated.
The 10% reduction includes 18% of Wayfair’s corporate employees, or 1,200 workers. The move reflects efforts to eliminate management layers and reorganize the business to be more agile. Under the restructuring that began last summer, the labor portion represents approximately $750 million in annualized cost savings.
Layoffs aside, Wayfair announced that December momentum strengthened. In the month, year-over-year gross revenue trends experienced improvement compared to the month of November. Combined, recent topline performance and additional cost savings are driving faster progress toward the company’s profitability objectives. Wayfair now expects to reach its adjusted EBITDA breakeven commitment earlier in 2023 as its first step toward a goal of generating sustainable positive free cash flow. Wayfair will provide full results for the quarter and year ended December 31, 2022, in February.
Wayfair detailed aspects of its business plan, including:
- Approximately $750 million of annualized labor reductions, including cash and stock compensation relative to second quarter 2022 levels.
- The majority of labor savings are reflected in the company’s selling, operations, technology, general and administrative expense line.
- About $500 million of annualized operational cost savings already are underway with full realization anticipated by late 2023
- Reductions are reflected in the cost of goods sold expense line, and Wayfair may choose to reinvest a portion of these savings back into the customer value proposition
- In excess of $150 million in identified annualized reductions relative to planned non-COGS, non-labor spend, including advertising, capital expenditures and various G&A expenses
- Due to the workforce reduction, Wayfair expects to incur between $68 million and $78 million in costs consisting primarily of employee severance and benefits, most of which are expected to hit in the first quarter. The estimated amounts don’t include any non-cash charges associated with stock-based compensation.
“We are encouraged by our recent topline performance and in particular the momentum in orders,” Niraj Shah Wayfair CEO, co-founder and co-chairman. “Our market share continues to improve as our core offering strengthens across key dimensions such as availability, speed, and price. Although difficult, these are important decisions to get back to our 20-year roots as a focused, lean company premised on high ambitions and great execution. The changes announced today strengthen our future without reducing our total addressable market, our strategic objectives, or our ability to deliver them over time. In hindsight, similar to our technology peers, we scaled our spend too quickly over the last few years. The good news for Wayfair is that we have operated in a highly productive and efficient way for the vast majority of our 20-year history, and we are now simply returning to that.”
