One of the region’s biggest technology companies is retrenching in the face of economic headwinds, shifting consumer trends, and a broader slowdown in the industry.
Online home furnishings retailer Wayfair said Friday it is cutting 870 jobs, including 400 in its home city of Boston, as the company reacts to sales declines triggered in part by steep inflation.
Chief executive Niraj Shah announced the job cuts in a memo to all 18,000 employees Friday morning. The layoffs represent about 5 percent of Wayfair’s global workforce, and 10 percent of its corporate team.
The announcement triggered a big sell-off in Wayfair’s stock, down 20 percent to close Friday at $57.01.
In recent months, Boston-area tech layoffs have mostly hit privately held companies such as DataRobot, Hydrow, and Whoop, and a few publicly traded firms, including Desktop Metal and Pear Therapeutics. But Wayfair is by far the biggest area tech firm to retrench.
And while it doesn’t come as a huge surprise, it is a notable setback for one of Boston’s most successful home-grown consumer-tech startups. For many years before the pandemic, Wayfair had grown seemingly without interruption, hiring so many that new employees had to queue up on Monday mornings to enter the offices.
Early in the pandemic, Wayfair and other online retailers experienced a surge in consumer demand for things like home and office furniture, said Jules Pieri, an investing partner at XFactor Ventures.
But now that demand has ebbed, the company is confronting the consequences.
”It’s evidence of a kind of ‘damned if you do, damned if you don’t’ dilemma for senior leadership in an e-commerce company right now,” said Pieri, who cofounded the online marketplace Grommet. “If Wayfair hadn’t prepared for the continuation of growth they had experienced … everyone would be thinking they were asleep at the wheel.”
Now, with the threat of a recession looming, she said, CEOs “are having a hard time reading the tea leaves, because their businesses have not necessarily shrunk dramatically, but the investor base is preparing for nuclear winter.”
Wayfair is offering severance based on geography, tenure, and job level. In the US, affected employees will receive a minimum of 10 weeks of pay, as well as continued vesting of employee equity through October. Wayfair expects to spend $30 million to $40 million related to the workforce reduction, mostly for severance costs.
A few employees took to Twitter to share e-mails announcing their termination. One said she had just been hired in June, only to be laid off two months later.
Others turned to LinkedIn in search of new opportunities.
“This news is devastating and couldn’t come at a worse time for me and my family as we’re literally two months out from closing on our dream home,” wrote Erick Miles, a Wayfair human resources practitioner who lost his job. “To those Wayfairians impacted, this hurts now, but we’ll heal later!”
In February 2020, Wayfair had a similar-sized layoff, cutting 550 workers globally, including 350 in Boston.
But Wayfair benefited significantly during the early part of the pandemic, as many people refrained from shopping at brick-and-mortar stores and spent money on fixing up their homes. Wayfair executives expected revenue growth to continue into 2022. But as inflation picked up, consumer spending shifted and revenue declined.
The company’s stock was trading at nearly $200 a share at the start of the year, but has suffered a precipitous drop since, with its market capitalization plunging from $20.5 billion to $6 billion on Friday.
The layoffs come just two weeks after Wayfair reported disappointing second-quarter earnings. On Aug. 4, Wayfair said its total net revenue for the April-June period fell 14.9 percent from the same time a year ago to $3.3 billion. As a result, the company posted a $378 million loss for the quarter, compared to a profit of $131 million a year earlier.
Perhaps more alarming, the number of active customers — essentially the number of people who bought an item on Wayfair’s sites at least once in the preceding 12 months — dropped to 24 million from 31 million a year ago.
On Aug. 4, Shah told analysts that Wayfair’s customers are “being more deliberate about where their discretionary dollars are going” as prices rise. Wayfair has also noticed that customers are shifting their discretionary spending away from goods to services such as travel.
The company initiated a hiring freeze in May, to keep a check on expenses. And while the tech industry has been slammed by broader economic problems, Shah on Friday said Wayfair has challenges specific to its retail business.
“We were seeing the tailwinds of the pandemic accelerate the adoption of ecommerce shopping, and I personally pushed hard to hire a strong team to support that growth,” the CEO wrote. “This year, that growth has not materialized as we had anticipated. Our team is too large for the environment we are now in, and unfortunately we need to adjust.”
Shah explained that the workforce changes fall into three categories: thinning out management layers, better aligning the company’s work with its strategic priorities, and adjusting areas that grew faster than can be supported by current sales.
He reiterated that Wayfair management is committed to steering the company “in a financially responsible manner.”
“We are actively navigating Wayfair towards a level of profitability that will allow us to control our own destiny, while still investing aggressively in the future,” Shah said.
Globe correspondent Collin Robisheaux contributed to this report.
Jon Chesto can be reached at firstname.lastname@example.org. Follow him on Twitter @jonchesto. Diti Kohli can be reached at email@example.com.Follow her on Twitter @ditikohli_.