BUSINESS

Overview

           Wayfair is transforming the way people shop for their homes.

          Our homes are the center of our lives, where we raise families, create our fondest memories and spend most of our time. Our homes are very personal expressions of self and identity, which is why many of us seek uniqueness, crave originality and enjoy the feeling created by home design, furniture and décor. We built Wayfair to meet this emotional need for mass market consumers by creating one of the world's largest online destinations for the home.

          Through our e-commerce business model, we offer visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices for over seven million products from over 7,000 suppliers across our five distinct brands — Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane. Our typical Wayfair customer is a 35 to 65 year old woman with an annual household income of $60,000 to $175,000, who we consider to be a mass market consumer and who we believe is underserved by traditional brick and mortar and other online retailers of home goods. Because each of our customers has a different taste, style, purchasing goal and budget when shopping for her home, we have built one of the largest online selections of furniture, home furnishings, décor and goods. We are able to offer this vast selection of products while holding minimal inventory because we typically ship products directly from our suppliers to our customers. This supplier direct fulfillment network is a key component of our custom-built and seamlessly integrated technology and operational platform, which also includes extensive supplier integrations, a proprietary transportation delivery network and superior customer service.

          Our co-founders are lifetime tech innovators who have worked together in the consumer internet sector since 1995 and have created a company culture deeply rooted in technology. We employ over 300 engineers and data scientists who continue to improve and enhance our technology platform. Our success reflects a deep culture of data-driven decision making, operational discipline and an unwavering focus on customer service. Our technology and data focus also facilitates critical e-commerce capabilities such as tailored shopping experiences across our five brands, consumer targeting and personalization, as well as "anytime, anywhere" shopping across our websites, mobile-optimized websites and mobile applications, which we collectively refer to as our sites.

          We founded our company in May 2002 and have since delivered over 13 million orders. From 2002 through 2011, the company was bootstrapped by our co-founders and operated as hundreds of niche websites, such as bedroomfurniture.com and allbarstools.com. In 2006, we launched AllModern. From 2003 to 2011, we grew our net revenue organically from $7.7 million to $517.3 million, representing a 69.2% compound annual growth rate, or CAGR. In late 2011, we made the strategic decision to close and permanently redirect over 240 of our niche websites into Wayfair.com to create a one-stop shop for furniture, home furnishings, décor and goods and to build brand awareness, drive customer loyalty and increase repeat purchasing. We also changed our name from CSN Stores LLC to Wayfair LLC. Additionally, we expanded our multi-brand strategy beyond our then existing brands — Wayfair.com and AllModern — by launching Joss & Main. In 2013, we acquired DwellStudio, and in 2014, we launched Birch Lane.

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          Since our strategic shift was fully implemented in 2012, we have experienced significant and accelerating growth. To drive further growth we intend to:

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build our existing brands:



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acquire more customers;



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continue to invest in the consumer experience;



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increase repeat purchasing through merchandising, data, analytics and technology;



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add new suppliers and deepen relationships with our existing suppliers;



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continue to invest in our technology and operational platform, including our mobile platform;



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opportunistically launch new retail home brands;



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expand internationally; and



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opportunistically pursue strategic acquisitions.

          Our strong customer loyalty and deep supplier relationships have helped us grow our Direct Retail sales, which we define as generated primarily through the sites of our five brands. In 2013 and the six months ended June 30, 2014, we generated Direct Retail net revenue of $673.4 million and $469.5 million, respectively, an increase of 73.0% and 75.0% over 2012 and the six months ended June 30, 2013, respectively. In 2013, we delivered 3.3 million orders for 2.1 million Direct Retail active customers, representing increases of 85.2% and 61.0%, respectively, over 2012. In the six months ended June 30, 2014, we delivered 2.2 million orders, representing an increase of 76.6%, over the six months ended June 30, 2013. In the six months ended June 30, 2014, we had 2.6 million Direct Retail active customers, representing an increase of 75.0% over the six months ended June 30, 2013. In 2013 and the six months ended June 30, 2014, net revenue per active customer was $322 and $332, respectively, an increase of 7.3% and 6.1% over 2012 and the six months ended June 30, 2013, respectively. In 2013 and the six months ended June 30, 2014, 47.2% and 51.2% of orders delivered, respectively, were from repeat customers, up from 37.4% and 47.7% in 2012 and the six months ended June 30, 2013, respectively. Additionally, our mobile platform drives growth by engaging and reengaging customers where and when they want to shop; in the first six months of 2014, 27.9% of all Direct Retail orders delivered were placed from a mobile device, up from 21.3% in the first six months of 2013. See the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Financial and Operating Metrics" on page 55 for further detail.

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          In 2013 and the six months ended June 30, 2014, we generated net revenue of $915.8 million and $574.1 million, respectively, up 52.4% and 49.8% over 2012 and the six months ended June 30, 2013, respectively. Net revenue in 2013 and the six months ended June 30, 2014 included $673.4 million and $469.5 million, respectively, from Direct Retail and $242.4 million and $104.6 million, respectively, from Other, net revenue generated primarily online through third parties, which we refer to as our retail partners. In 2013, we generated a net loss of $15.5 million and Adjusted EBITDA of $(2.9) million, improvements of $5.5 million and $9.1 million, respectively, over 2012. In the six months ended June 30, 2014, we generated a net loss of $51.4 million and Adjusted EBITDA of $(37.0) million, increases of $43.1 million and $34.9 million, respectively, over the six months ended June 30, 2013. Our net loss and Adjusted EBITDA results were driven primarily by our increased investment in advertising in 2012, 2013, and the six months ended June 30, 2014. Because we hold minimal inventory and a majority of our customers pay us before we pay our suppliers, we have an attractive net working capital dynamic which typically allows us to generate more cash than our Adjusted EBITDA on an annual basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures" on page 55 for more information and for a reconciliation of Adjusted EBITDA.

Our Industry

          The home goods market is large and characterized by specific consumer trends, structural challenges and market dynamics that are shaping the future of our industry.

Addressable Market Size and Growth

          Large and Growing Home Goods Market with Significant Online Potential:     The home goods market is large, global and growing.

          According to Euromonitor International, Ltd., a market research firm:

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Our addressable home goods market, which we define as the U.S. furniture and home décor markets, was $233 billion in 2013.



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The U.S. home goods market can be expected to grow at a 2.5% CAGR in real terms from 2013 to 2023, reaching $297 billion in 2023.



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The total market size for home goods in Western Europe was $292 billion in 2013.

          Based on the above and online market size industry data obtained from comScore, Inc., an internet analytics company, we believe:

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The online penetration of the U.S. home goods market in 2013 was approximately 7%.



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The online penetration of the U.S. apparel and consumer electronics markets in 2013 were approximately 15% and 54%, respectively, which are significantly higher than the online penetration of the U.S. home goods market.

          Based on these online penetration rates and the adoption rates of other retail categories, we believe the online penetration of the U.S. home goods market will accelerate significantly from 2013 to 2023, driving outsized growth in the online home goods market. Assuming a $297 billion U.S. market for home goods in 2023 and online penetration of 15%, we believe the online market for home goods would be approximately $45 billion in 2023.

          Mass Market for Home Goods is Large and Underserved:     The home goods market can be split into three segments: the lower-end, mass and higher-end markets. We believe the mass market for home goods represents the largest addressable opportunity within the home goods sector and that the mass market consumer is underserved due to structural limitations of brick and

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mortar and other online retailers. These limitations include limited product selection due to high inventory carrying costs and restricted showroom and warehouse space. While there are home goods retailers that serve the mass consumer in various capacities, there are many challenges to providing a one-stop shop for the consumer to easily browse, discover and purchase a large selection of mass market home goods at affordable prices. For example, the lighting market and the paper towel market in the United States are each $7 billion annually according to The Freedonia Group, Inc., Euromonitor and Fisher International, Inc.; however, we believe that while the paper towel market has a limited number of unique products (less than a hundred), we believe the lighting market has a vast number of products (hundreds of thousands).

          Women Control an Outsized Share of Spending within the Household:     In 2013, women represented 70% of our customers. According to a report released by the U.S. Census Bureau in 2013, there are 158 million women in the United States, of which 63 million are between the ages of 35 and 65. We believe these women control an outsized share of spending, particularly spending related to furniture, home furnishings, décor and goods.

          Beneficial Effects of the Millennial Generation Aging and Maturing into the Home Category:     We believe there are approximately 73 million millennials (which we define as individuals currently between the ages of 18 to 31) in the United States, many of whom are accustomed to purchasing goods online. According to a survey by Jeffries Group and AlixPartners, as cited by eMarketer, Inc., a market research firm, 29% of millennials buy essential goods online as compared to 12% of baby boomers (which we define as individuals currently between the ages of 48 to 66). As millennials age, start new families and move into new homes, we expect online sales of home goods to increase. In addition, we believe the online home goods market will further grow as older generations of consumers become increasingly comfortable purchasing online.

          Mobile Commerce is Growing Rapidly and Only Just Beginning in Home Goods:     The proliferation of smartphones and tablets has made mobile commerce one of the fastest growing online channels. Since consumers have access to their mobile devices virtually anytime and anywhere, they have the opportunity to browse, discover and shop throughout the day. According to eMarketer U.S. retail mobile e-commerce from smartphones is projected to grow from $15 billion in 2013 to $35 billion in 2018, and mobile e-commerce from tablets is expected to grow from $26 billion in 2013 to $96 billion in 2018, representing 18.5% and 29.9% CAGRs, respectively. Additionally, from 2013 to 2018, mobile e-commerce as a percentage of overall e-commerce is projected to increase from 15% to 30%.

Why Home is Different

          Home is Shopped Differently than Other Retail Verticals:     Homes are very personal expressions of self and identity, which is why many consumers seek uniqueness, crave originality and enjoy the feeling created by home design, furniture and décor. As a result, many consumers desire inspiration and attractive visual merchandising when searching for the perfect item. Consumers shopping for home goods often cannot articulate what they are looking for other than to describe a feeling or visual image that they want to capture in their home. For example:

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Emotion:     "I'd love my home to look and feel like this..."



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Inspiration:     "I'm always browsing for my home, and asking my friend for ideas..."



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Discovery:     "It's hard to describe what I'm looking for... I'll know it when I see it."

          In addition, while consumers typically know the names of big box and specialty retailers that offer various home products, they rarely know the names of the product brands or suppliers. We believe traditional search-based sites that rely on directed product search (e.g. "running sneakers")

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or brand name search (e.g. "Samsung 32-inch LCD television") have difficulty serving customers shopping for home products in this more emotional, visual and inspiration manner.

          Home Shoppers Desire Uniqueness, which Requires Vast Selection:     In the mass market for home goods, consumers with different tastes, styles, purchasing goals and budgets require a broad selection of products and choices. This need for selection applies across many home categories, including furniture, décor, lighting, kitchen, bed & bath, outdoor, home improvement and baby & kids, each of which has dozens of sub-categories with hundreds to tens of thousands of products. Brick and mortar home goods retailers must balance a consumer's desire for uniqueness, which requires massive selection, with the challenges of high inventory carrying costs and limited showroom and storage space. These challenges often result in low inventory turns. Furniture Today, an industry trade publication, estimated that in 2013 U.S. furniture retailers turned their inventory a median of only 4.4 times per year. We believe traditional online retailers of home goods face similar challenges meeting a home shopper's desire for uniqueness due to high inventory carrying costs and limited storage space.

          Time Consuming and Inconvenient for Consumers to Shop across Brick and Mortar Home Retailers:     To browse a vast selection of products across highly-fragmented brick and mortar retailers, consumers must shop multiple stores. For example, if a furniture retailer has 20 bedroom sets on its showroom floor, a consumer may feel she must visit multiple stores to see a wide enough selection to make an informed purchase decision that satisfies her style and budget needs. Often this effort requires a consumer to spend an entire day or weekend shopping for a specific item. Product selection at brick and mortar retailers is limited, may not be relevant to a given consumer who lives nearby and may be out of stock. We believe the lack of an easy-to-browse, one-stop shopping experience with massive selection has led to dissatisfaction with brick and mortar home goods shopping. In contrast, Wayfair.com offers over 900 bedroom sets across many styles and prices, which mitigates the need for a consumer to visit multiple stores to find the perfect item at a price she can afford.

          Difficult to Browse, Value Shop and Price Compare:     Mass market home goods shoppers frequently seek a wide variety of information from disparate online and offline sources to research home goods products. Because this information is not easily comparable, it is more difficult for consumers to make informed home décor and design-related decisions. In addition, consumers may struggle to mix and match different home goods items they are considering buying from multiple traditional brick and mortar retailers. For example, retailers carrying dining room tables and chairs may not also carry lighting.

          Challenging Logistics for Consumers and Retailers:     Logistics, fulfillment and customer service for home goods products are challenging given the various categories, shapes, sizes, weights and price points in the home market. Large bulky items, such as living room sofas, dining room tables and bed frames, are particularly challenging and costly to warehouse, ship and deliver. Many consumers seek first-rate customer service so they are not burdened with managing delivery, shipping and return logistics on their own. However, we believe big box retailers that serve the mass market for home goods are often unable or unwilling to provide this level of customer service. In addition, many regional retailers do not ship nationally, which we believe is because they lack the required scalable technology, operations and distribution infrastructure.

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Our Solution

Key Benefits for Our Customers

          We offer our consumers vast selection, easy access and value, inspirational content, personalized and mobile shopping experiences and superior customer service to help them find the perfect item at a price they can afford.

          Broad Selection and Choice:     We offer one of the largest online selections of furniture, home furnishings, décor and goods with over seven million products from over 7,000 suppliers. Our customers shop across different use cases, ranging from practical everyday purchases to inspired and spontaneous shopping. To address the different tastes, styles, purchasing goals and budgets of our target consumers, we offer five distinct brands tailored to meet their specific needs: Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane.

          Easy Access and Value:     We offer consumers a one-stop shop with home goods pricing designed to be on par with big box retailers and a merchandising experience designed to be on par with specialty retailers. With easy online access to millions of affordable home products across over a thousand sub-categories, we believe consumers no longer need to shop across multiple online and offline retailers to find what they want at affordable price points.

          Inspirational Photography and Editorial Content:     To inspire customers, we produce beautiful imagery and highly-tailored editorial content both in house and through third parties. We often present and merchandise our home products around an idea, creative content or contextual imagery to drive customer inspiration and sales. We also have relationships with media outlets such as HGTV that allow us to create integrated media campaigns for our brands.

          Personalized and Mobile Shopping Experiences:     Our purpose-built technology platform, which is fully integrated across all of our sites, including our mobile applications, is designed to provide consumers with a compelling user experience as they browse, discover and purchase our products. We use personalization, based on past browsing and shopping patterns and personal preferences, as well as inspirational imagery, to create a more engaging consumer experience. Our investment in mobile allows us to deliver value, convenience and inspiration to our customers who are browsing and shopping anytime and anywhere, often during spare minutes throughout the day. Our custom-built platform is designed to provide us with detailed and real-time insight into our suppliers' inventory in order to ensure our customers are browsing current information and rarely experience stock-outs.

          Superior Customer Service:     Our customer service organization has over 440 representatives based in Ogden, UT, Boston, MA, Galway, Ireland and Sydney, Australia. Our representatives are available 7 days a week by phone, email and live chat. By helping consumers navigate our sites, answering their questions and helping to complete their orders, this team helps us build trust with consumers, build our brand awareness, enhance our reputation and drive sales. We are regularly highly ranked by StellaService, a third-party provider of customer service ratings for online retailers.

          We grew our active customers from 1.3 million in 2012 to 2.1 million in 2013, representing an increase of 61.0%. We grew our active customers from 1.5 million to 2.6 million in the six months ended June 30, 2013 and 2014, respectively, representing an increase of 75.0%. We delivered 1.8 million orders in 2012 and 3.3 million orders in 2013, representing an increase of 85.2%. We delivered 1.3 million orders and 2.2 million orders in the six months ended June 30, 2013 and 2014, respectively, representing an increase of 76.6%. Of our orders delivered, orders from repeat customers grew from 37.4% to 47.2% from 2012 to 2013 and from 47.7% to 51.2% from the six months ended June 30, 2013 to the six months ended June 30, 2014. Through a mix of increased purchase frequency and average order value, we grew our net revenue per active customer from

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$300 in 2012 to $322 in 2013 and from $313 to $332 in the six months ended June 30, 2013 and 2014, respectively, representing an increase of 7.3% and 6.1%, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operation — Key Financial and Operating Metrics" on page 55 for further detail.

Key Benefits for Our Suppliers

          Through our technology platform, we offer our suppliers a cost-effective channel, the ability to leverage our technological expertise, a real-time view of our demand and proven logistics capabilities to help sell their products.

          Cost-Effective Access to Our Large Customer Base:     We sell products from over 7,000 suppliers, many of which are small, family-run operations without well-known product brands and without easy retail access to a large customer base. We buy products from our suppliers to sell to our large customer base of 2.6 million active customers. This enables suppliers to increase their sales and access the growing e-commerce market.

          Ability to Leverage Our Technological Expertise to Drive Sales:     Over the past decade, we have purpose-built our technology platform for selling home goods to consumers. Our technology platform is designed to allow suppliers to easily provide us with their full product selection. We offer this vast selection to acquire more customers and drive greater sales. Through our technology platform, we believe many of our suppliers have increased their sales, which has strengthened their loyalty to us. Of the suppliers whose products we sold in 2008, we are still doing business with 72% of them today, and the sales we have generated from their products have increased by 88% from 2008 to 2013.

          Real-Time View of Our Demand and Inventory Needs via Data and Analytics:     We offer our suppliers a real-time view of our demand and inventory needs via powerful data and analytics. This proprietary information is designed to allow our suppliers to optimize their manufacturing and merchandising strategies to better match supply and demand on our sites, enabling them to turn their inventory faster. We believe our suppliers are better able to anticipate demand than those suppliers whose products are only placed on retailers' showroom floors or warehouses until they are sold.

          Proven Logistics Capabilities:     Our logistics infrastructure allows us to ship directly from our suppliers to our customers. This supplier direct fulfillment network is a key component of our custom-built and seamlessly integrated technology and operational platform, which also includes extensive supplier integrations, a proprietary transportation delivery network and superior customer service. Once a product is purchased on one of our sites, we notify our supplier and the supplier packages the item for us to ship directly from their facilities to our customer. We offer fast and reliable delivery to our customers via our proprietary transportation delivery network for certain large parcels or FedEx, UPS, the U.S. Postal Service and other carriers for smaller parcels, and we leverage our scale to reduce shipping costs. We also offer a full suite of supplier management tools designed to make it easier for our suppliers to do business with us, including a convenient way to provide us with information about the millions of products that we sell — such as description, classification and attribution tools, dynamic wholesale pricing tools and end-to-end customer order monitoring and exception management tools — via our supplier extranet.

          Our technology allows us to work with suppliers of all sizes, types and levels of sophistication. We grew our supplier base from 5,190 in 2011 to 7,052 in 2013.

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Our Strengths

          We offer one of the largest online selections of furniture, home furnishings, décor and goods among with over seven million products from over 7,000 suppliers. Through our e-commerce business model, we are transforming the way people shop for their homes by offering visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices. We believe we have achieved this due to our following key strengths:

          Our Large Scale Drives Powerful Network Effects:     Our large scale and breadth and depth of product selection has attracted a large and growing customer base. The larger our customer base, the greater and more compelling the opportunity for our suppliers; and, the larger our supplier base and product catalog, the more selection there is for our customers, creating powerful network effects. These network effects are further enhanced by our data and analytics capabilities. With each transaction, we learn more about our customers through data analysis which helps us to acquire customers more economically and personalize their shopping experiences, driving repeat purchases. For our suppliers, our data and analytics capabilities are designed to improve inventory management and logistics. These network effects are fundamental to our business and allow us to grow and to continue investing in advertising, merchandising, product selection, technology and our operations.

          Superior Logistics Infrastructure and Supplier Direct Fulfillment Network Require Minimal Inventory and Capital Expenditures:     Because we typically ship products directly from our suppliers to our customers, we offer our customers millions of home goods while holding minimal inventory. Through our supplier direct fulfillment network, Direct Retail orders delivered in 2013 were 3.3 million, which generated $673.4 million of net revenue with only $11.4 million in inventory on average in 2013. Direct Retail orders delivered in the six months ended June 30, 2014 were 2.2 million, which generated $469.5 million of net revenue with only $17.4 million in inventory on average in the six months ended June 30, 2014. Our extensive supplier integrations, management tools and processes are designed to allow us to onboard and manage suppliers of any size, type and sophistication level. As a result, we can work with thousands of suppliers to provide a vast selection of home goods for our customers, while buying and holding only select inventory. Additionally, we have required relatively modest capital expenditures to support our operations. In 2013, our property and equipment expenditures were $6.7 million, and our site and software development costs were $9.0 million, an aggregate of only 1.7% of net revenue. In the six months ended June 30, 2014, our property and equipment expenditures were $24.3 million, and our site and software development costs were $6.1 million, an aggregate of only 4.7% of net revenue. Our capital efficiency has allowed us the flexibility to further invest in growing our business.

          Trusted Brand with Rapidly Growing Awareness:     We offer five distinct brands tailored for customers with different tastes, styles, purchasing goals and budgets. Since the launch of Wayfair.com and our rebranding efforts in 2011, our aided brand awareness has increased to 52% in August 2014, according to Hanover Research. As part of our rebranding efforts, we also focused on driving inspirational buying, including via recently-launched features such as "Ideas & Advice" buying guides, "Shop the Look" rooms by designers and "Editor's Picks," designed to allow consumers to explore different home décor ideas and discover their unique styles. As we grow, our brands are increasingly becoming a significant point of differentiation with both our customers and suppliers.

          Personalized Shopping Experiences and Differentiated Use of Data, Analytics and Technology Drive High Customer Repeat Rates:     We built our large information database to analyze our sources of visitor traffic and consumers' browsing and shopping patterns across our sites. We apply rigorous analytics to this data in order to generate personalized and relevant shopping experiences for each of our customers in order to improve their shopping experience. We

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believe this personalization allows us to offer a vast selection of home products without overwhelming individual customers with endless options or less relevant product offerings. Our powerful search is designed to ensure ease-of-use and convenience for our customers, and our sophisticated pricing algorithms are designed to deliver pricing that is competitive with real-time prices in the market. Orders delivered from repeat customers increased from 37.4% in 2012 to 47.2% in 2013 and from 47.7% to 51.2% from the six months ended June 30, 2013 to the six months ended June 30, 2014.

          Powerful and Custom-Built Technology Platform:     Our co-founders are lifetime tech innovators and have created a company culture deeply rooted in technology. We employ over 300 engineers and data scientists who continue to optimize our technology platform. Our success has been built on a culture of data-driven decision making, operational discipline and an unwavering focus on customer service. Our technology and data focus also facilitates critical e-commerce capabilities such as tailored shopping experiences via multiple brands, customer targeting and personalization, as well as "anytime, anywhere" mobile shopping across our sites. We also provide suppliers with data, analytics and technology to help them grow their sales to us. Our extensive supplier integrations, management tools and processes, which we built specifically for the unique complexities in the home goods market, allow us to onboard and manage suppliers of any size, type and sophistication level, which, we believe, provides a significant competitive advantage.

          Well-Positioned to Benefit from Platform Shift to Mobile:     Mobile is an increasingly important part of our business, especially for Joss & Main. Our Joss & Main consumers are able to browse our daily flash sales events whenever they have a few minutes of spare time throughout the day, regardless of their location. We launched our mobile applications for Joss & Main in 2012 and Wayfair.com in 2014. In the first six months of 2014, 43.5% of Joss & Main orders delivered and 27.9% of all Direct Retail orders delivered were placed from a mobile device, up from 35.8% and 21.3%, respectively, in the first six months of 2013.

          We expect the number of orders delivered that are placed from a mobile device to grow with the launch of our Wayfair.com mobile application and a majority of our mobile-optimized sites in 2014. We have invested in mobile technology to optimize the shopping experience across our sites for use on the majority of mobile devices. We believe that our ability to anticipate and react to significant platform shifts by our consumer audience will continue to drive growth in our business.

          Proven and Operationally Disciplined Management Team:     Our company was founded in 2002 and bootstrapped by our co-founders from 2002 until June 2011, when we raised our first outside capital for use in our business. Between 2003 and 2011, we grew our net revenue from $7.7 million to $517.3 million, representing a 69.2% CAGR. Over more than a decade, our founder-led management team has developed deep and broad experience in the home goods market and across all facets of e-commerce, including marketing, merchandising, technology and operations. Our success has been built on a culture of data-driven decision making, operational discipline and an unwavering focus on customer service.

Our Growth Strategy

          Our goal is to further improve our leadership in the home goods market by pursuing the following key strategies:

          Continue Building Leading Retail Home Brands:     We currently offer five distinct brands — Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane. We plan to continue expanding our existing brand portfolio and may opportunistically launch new brands. When launching new brands, we expect to leverage our experiences, insights, customer data, merchandising expertise,

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technology and operational platform and supplier base to create desired brands for our customers with minimal upfront capital.

          Acquire More Customers:     We believe there is significant opportunity to further grow our customer base. As of June 30, 2014, we had 2.6 million active customers. We plan to grow our customer base by attracting more unique visitors to our sites through two main strategies and then converting those visitors to active customers:

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Increase Brand Awareness .    We intend to continue investing in our brand awareness strategy. In connection with our rebranding efforts that began in 2011, we launched a brand marketing campaign focused on TV and online advertising for Wayfair.com. We launched national TV campaigns for Wayfair.com in September 2012 and for Joss & Main in October 2013. We have achieved 52% aided brand awareness in August 2014, according to Hanover Research. Our online efforts are focused on building brand awareness to drive visitor traffic via direct navigation, search engine optimization and email marketing campaigns.



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Expand Direct Online Marketing .    We plan to continue to expand our direct online marketing efforts through paid campaigns including display advertising, search engine marketing, comparison shopping engines, affiliate networks and social advertising.

          Continue to Invest in the Consumer Experience:     We have made significant investments to improve the consumer experience on our sites, such as creating highly engaging visual imagery and merchandising, as well as easy-to-use navigation tools and personalization features that enable better product discovery. For example, we recently launched features such as "Ideas & Advice" buying guides, "Shop the Look" rooms by designers and "Editor's Picks." We plan to continue to develop features to enhance the consumer experience on our sites.

          Increase Repeat Purchasing through Merchandising, Data, Analytics and Technology:     Our continued investments in merchandising, data, analytics and technology allow us to deliver increasingly tailored and personalized shopping experiences for consumers across our sites. For example, by analyzing the past browsing and purchasing history of consumers that visit our sites, we are able to show them a tailored selection of products when they visit Wayfair.com or JossandMain.com. We believe our focus on a personalized shopping experience drives sales from new customers as well as repeat customers. In 2013, our Direct Retail sales consisted of over 3.3 million orders delivered for 2.1 million customers, representing 85.2% and 61.0% year-over-year growth, respectively. In 2013, 47.2% of orders delivered were placed by repeat customers, up from 37.4% in 2012, and net revenue per active customer was $322, up 7.3% over 2012.

          Add New Suppliers and Deepen Relationships with our Existing Suppliers:     We continue to seek new suppliers with compelling products to add to our selection of home goods. We leverage our significant scale and the structural advantages in our business model to build, maintain and deepen long-term relationships with our suppliers. Our platform creates a large scale marketing, technology and distribution advantage to help our suppliers efficiently and cost-effectively drive sales. Our supplier management tools — including wholesale price management, self-service product addition and fulfillment performance monitoring — are designed to allow our suppliers to sell more of, and have greater visibility into our sales of, their products on our sites.

          Continue to Invest in Our Technology and Operational Platform, Including Our Mobile Platform:     We intend to continue to enhance the systems our consumers use to interact with our sites in order to facilitate better product discovery and to provide customer inspiration and idea generation tools through personalized interactions and high-speed, reliable site performance. We also plan to continue investing in our infrastructure, including enhancing our merchandising, data, analytics and technology platform, as well as developing additional logistics and transportation

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solutions, self-service tools for our suppliers, fulfillment offerings and enhancing our development, testing and deployment systems. Finally, we plan to continue to launch additional mobile capabilities. Following the successful launch of our Joss & Main mobile application in 2012, in 2014 we launched the Wayfair.com mobile application and mobile-optimized sites across a majority of our domestic and international sites.

          Expand Internationally:     Until late 2012, we were primarily focused on growing our U.S. business. We currently deliver products to customers in a number of countries, including the United States, the United Kingdom, Canada, Australia, Germany, France, Austria, Ireland and New Zealand. We are investing in our international business by building our international infrastructure, developing deeper country-specific knowledge, building international supplier networks and establishing our brand presence in select international regions. We intend to expand in these countries, especially Joss & Main, which we launched in the United Kingdom, France and Germany in 2014. In 2013, we generated net revenue outside of North America of $41.5 million, or 4.5% of our total net revenue.

          Opportunistically Pursue Strategic Acquisitions:     Since our inception, we have made two acquisitions, the remainder of the stake of our Australian joint venture in 2011 and DwellStudio in 2013. We may continue to expand our business through opportunistic acquisitions that allow us to enhance our customer offering, build our multi-brand portfolio, enter new geographies or enhance our operational infrastructure.

Our Customers

          Our typical customer is a 35 to 65 year old woman with an annual household income of $60,000 to $175,000, who we consider to be a mass market consumer and who we believe is underserved by traditional brick and mortar and other online retailers of home goods. Historically, she has had three primary ways to shop for home goods: (1) affordable mass market alternatives such as big box retailers, (2) higher-end, more curated alternatives such as specialty retailers and (3) regional home décor and furniture retailers. Mass market retailers may be cost-effective but typically do not have aspirational and inspirational merchandising. They also tend to have limited product selection in home goods. Higher-end specialty retailers tend to be more inspirational with beautifully curated merchandise, but the home products they offer often exceed the mass consumer's budget. Regional home décor and furniture retailers often have a regionally inspired selection that is limited and typically not beautifully merchandised. Consumers often must visit multiple stores to make an informed purchase decision, requiring a larger time commitment. We believe none of these alternatives fully serves the mass consumer's home goods needs, which is why we built Wayfair. We have created an e-commerce model that offers vast selection, visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices.

          We have a significant opportunity to serve additional mass market consumers shopping for their homes. According to a report released by the U.S. Census Bureau in 2013, there are 63 million women in the United States between the ages of 35 and 65. In 2013, 2.1 million active customers made Direct Retail purchases from us.

          We also believe the aging of the millennial generation provides a growing population of target customers. According to a survey by Jeffries Group and AlixPartners as cited by eMarketer, a market research firm, 29% of millennials buy essential goods online as compared to 12% of baby boomers. As millennials age, start new families, and move into homes, we expect this generation to represent an increasing percentage of our customer base.

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Our Brands and Websites

          Each of our customers has a different taste, style, purchasing goal and budget when shopping for her home. To help her find the right products for her home, we offer five distinct brands: Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane. Each brand has a unique identity that offers a tailored shopping experience and rich product selection to a different target audience.

Wayfair.com:     Wayfair.com is our flagship mass market brand that focuses on offering the largest selection of home furnishings and décor, from low- to high-end and across all styles. Customers browse our vast selection and can discover and purchase products in one convenient and affordable place online. Paired with curated daily sales events and inspirational content, we believe Wayfair.com meets a broad range of consumers' home shopping needs.

Joss & Main:     Joss & Main is our online flash sales site that combines inspiring home design with significant savings. Joss & Main is designed to bring a compelling editorialized shopping experience to our loyal customer base every day. We believe Joss & Main provides a stylish lifestyle within reach for our customers.

Unlike our other brands, Joss & Main operates exclusively as a flash sales site, which means we launch various online sale events daily featuring images of styled rooms created to provide the consumer with design inspiration. We typically notify our customers of these daily sale events via "push" notifications to their desktop and mobile devices. These events are available for a limited time, and often have limited inventory, which we believe creates a sense of urgency and excitement for customers.

AllModern:     AllModern is an online destination for original design for modern home enthusiasts. From beloved icons to emerging brands, AllModern offers a comprehensive online collection of modern design at a range of price points. The AllModern shopping experience combines product discovery and modern design principles. AllModern also offers daily sale events for certain products.

DwellStudio:     DwellStudio is an online design studio for modern, fashion-forward home furnishings. The collection — including furniture, bedding, home accessories and a line of baby and children's furniture — features sophisticated style and high quality. Founded by Christiane Lemieux in 2000, the studio's philosophy is to design pieces with classic elements for a modern setting.

Birch Lane:     Birch Lane is a new destination for classic style and timeless home designs. We believe Birch Lane's traditionally-styled furniture and décor collections, shoppable online or through a print catalog, inspire customers to bring home the looks they love at affordable prices.

In addition to our five brands, we also generate net revenue through two other sources:

Retail Partners:     A portion of our net revenue is generated online by retail partners. These relationships allow consumers to purchase Wayfair products through the retail partners' sites. Our retail partners enable us to reach a broader consumer base, help us build our brand and drive incremental net revenue.

Wayfair Media Solutions:     Wayfair helps selected manufacturers, retailers and other advertisers market to our large consumer audience. For example, regional and national furniture stores often advertise with us to geo-target local consumers. National stores and consumer brands across industries can display advertisements on our sites, as well as engage our consumer audience with integrated marketing campaigns, sponsored stories or buying guides.

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Our Operations

          Category Management:     Our category management team is responsible for deepening our relationships with existing suppliers as well as sourcing new suppliers so that we continue broadening our product selection for consumers. Our largest product categories include furniture, décor, lighting, kitchen, bed & bath, outdoor, home improvement and baby & kids. Within each of these product categories, there are also numerous product sub-categories. Our category managers work with suppliers to negotiate discounts and promotions on an ongoing basis. Category managers and buyers also seek to identify and fill any gaps in our product selection. In 2013, we added over 800 new suppliers.

          Supplier Management:     Our supplier management team seeks to optimize the performance of the suppliers in our network. We have built extensive supplier integrations, management tools and processes that allow us to efficiently onboard and manage suppliers of any size, type and sophistication level. Our supplier management tools include wholesale price management, self-service product addition and fulfillment performance monitoring.

          Site Merchandising:     Our site merchandising team manages the presentation of products across all our sites, as well as the customer shopping experience. Our enhanced product imagery, presentation standards specific to and appropriate for individual product categories and detailed and intuitive site navigation are designed to provide a relevant, seamless shopping experience across our catalog. The merchandising team seeks to continually enhance the customer experience

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by providing regularly updated, detailed information for each of the products we sell to offer the customer a data rich shopping experience.

          Inspiration, Editorial Content and Photography:     We seek to provide our consumers with a visually appealing and inspiring online shopping experience. While we increasingly style and photograph more of our product displays at our in-house studios, we also utilize third party studios. As part of our rebranding efforts in 2011, we launched editorial features such as "Ideas & Advice" buying guides, "Shop the Look" rooms by designers and "Editor's Picks," which are designed to allow consumers to explore different home décor ideas and discover their unique styles. We also manage blogger contributed content and work with media partners such as Coastal Living, Country Living, This Old House, Sunset and HGTV to bring their content to our site. We believe our editorial content and visual imagery provide an engaging and inspiring experience for consumers.

          Pricing Strategy:     Our pricing team approaches pricing scientifically and algorithmically, by applying data and analytics to optimize our pricing on a real-time basis. Our goal is to maintain competitive pricing that delivers good value to our customers. Therefore, we dynamically price and re-price our products across all of our sites on a regular basis. We believe our technological skills and capabilities enable us to understand our competitors' pricing and dynamically adjust to offer competitive prices on any given day. Because we focus only on the home, we also focus on attributes that are uncommon to most categories but relevant for the home market. For instance, in the home market, customers frequently pick products based upon pricing relative to the immediately available alternative options. In addition, we believe the fact that we are an online home goods retailer that takes minimal inventory gives us greater pricing flexibility relative to brick and mortar home goods retailers who purchase and hold inventory.

          Fulfillment and Logistics:     Our logistics infrastructure allows us to ship directly from our suppliers to our customers. This supplier direct fulfillment network is a key component of our custom-built and seamlessly integrated technology and operational platform, which also includes extensive supplier integrations, a proprietary transportation delivery network and superior customer service. Once a product is purchased on one of our sites, we notify the appropriate supplier, and that supplier packages the item for us to ship directly from its facility to our customer. We offer fast and reliable delivery to our customers via our proprietary transportation delivery network for certain large parcels or FedEx, UPS, the U.S. Postal Service and other carriers for smaller parcels and we leverage our scale to reduce shipping costs. In the first six months of 2014, we shipped orders within North America out on an average of 2.4 days, different handling requirements and complexities for large and small parcel items. We have scaled our business from 1.8 million orders delivered in 2012 to 3.3 million orders delivered in 2013.

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Order Fulfillment and Logistics Flow

          Customer Service.     Our customer service organization has over 440 customer service representatives based in Ogden, UT, Boston, MA, Galway, Ireland and Sydney, Australia. Our representatives are available seven days a week by phone, email and live chat. By helping consumers navigate our sites, answering their questions and completing their orders, this team helps us build trust with consumers, build our brand awareness, enhance our reputation and drive sales. We are regularly highly ranked by StellaService, a third-party provider of customer service ratings for online retailers.

Our Technology

          We are a technology company first and foremost. Technology is infused in everything we do, not just the consumer facing sites. Over the past 12 years, we have custom-built our proprietary technology and operational platform to deliver the best experience for both our customers and suppliers. Our success has been built on a culture of data-driven decision-making, operational

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discipline and an unwavering focus on the customer. We employ over 300 engineers and data scientists and believe we are able to attract and retain some of the best technological minds. Our engineering department is organized into four operating groups (storefront, operations, infrastructure and corporate IT) that have built a full set of technology solutions specific for the home goods market.

          Storefront:     We offer a large set of tools and systems with which our customers directly interact, which we refer to as our storefront system. Our storefront team develops an experience specifically tuned for shopping the home goods category. The major areas this group works on are:

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Product Discovery and Site Search



•

Merchandising Systems



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Content Publishing Systems



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Multi-Device Delivery (e.g. mobile)



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User Generated Content (e.g. reviews)



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Online Flash Sales Systems



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Checkout Systems



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Customer Account Self-Service Tools

          Operations:     A majority of the software we have written is designed to deliver the reliable and consistent experience consumers desire, but is not consumer facing. Our engineering operations group is responsible for these areas, including:

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Email Marketing Platform



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Data Science and Clickstream Analysis



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Product Catalog Management Systems



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Product Pricing Systems



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Partner Automation



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Product Feed Tools that enable marketing on third party sites



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Marketing Program Support and Automation



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Fulfillment Center Management Systems



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Transportation Selection Algorithms



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Domestic and International Logistics Automation



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Fulfillment Services



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Supplier Self-Service Systems (our supplier extranet platform)



•

Order Processing Algorithms



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Payment Processing Systems



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Supplier Management Systems



•

Financial Systems



•

Global Inventory Visibility

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          Infrastructure:     We have developed a variety of tools and systems that enable us to move quickly and efficiently as we scale our organization. Our infrastructure group supports a variety of proprietary, purchased as well as open source systems. Many of our systems run in multiple data centers. Our infrastructure group is primarily focused on the tools, processes, systems and platforms that provide the technical infrastructure that drives our business, including:

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Deployment Infrastructure



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Server, Storage, Communication and Datacenter Infrastructure



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Monitoring and Alerting



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Issue Identification, Tracking and Resolution



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Human Resource Systems



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Project Management Systems



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Project Tracker System (our internal collaboration tool)



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SQL Databases



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No-SQL Data Storage and Retrieval Systems



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Big Data Analytics and Reporting Platforms



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Performance Improvement



•

Security



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Testing and Quality Assurance



•

Source Code Control and Revision Management

          Corporate IT:     In addition to developing a large amount of software that is specific to our business, we run systems common across multiple industries. Our Corporate IT group is primarily focused on these parts of our business, including:

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Internal Messaging Infrastructure



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File Sharing and Collaboration Systems



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Internal Knowledge Bases



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Electronic Data Interchange and External Data Exchange Systems



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Employee Support and Help Desk Services



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Call Center Systems and Corporate Phone Systems



•

Customer Communication Systems

Our Competition

          The market for online home goods and furniture is highly competitive, fragmented and rapidly changing. While we are primarily focused on the mass market, we compete across all segments of the home goods market. Our competition includes furniture stores, big box retailers, department stores, specialty retailers and online home goods retailers and marketplaces:

•

Furniture Stores:   Ashley Furniture, Bob's Discount Furniture, Havertys, Raymour & Flanigan and Rooms To Go;



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Big Box Retailers:   Bed Bath & Beyond, Home Depot, IKEA, Lowe's, Target and Walmart;

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Department Stores:   JCPenney and Macy's;



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Specialty Retailers:   Crate and Barrel, Ethan Allen, HomeGoods, Pottery Barn and Restoration Hardware; and



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Online Home Goods Retailers and Marketplaces:   Amazon, eBay and One Kings Lane.

          We believe that the primary competitive factors in the mass market are vast selection, visually inspiring browsing, compelling merchandising, ease of product discovery, price, convenience, reliability, speed of fulfillment and customer service. We believe our technological and operational expertise allows us to provide our customers with a vast selection of goods, attractive price points, reliable and timely fulfillment, plus superior customer service, and that the combination of these capabilities is what provides us with a sustainable competitive advantage.

Sales and Marketing

          Our sales and marketing efforts bring new and repeat customers to our sites and help us acquire their email addresses through various paid and non-paid advertising methods. Our paid advertising efforts include search engine marketing, display advertising, paid social media, catalog and television advertisements. Our non-paid advertising efforts include search engine optimization, non-paid social media, mobile "push" notifications and email. Upon acquiring a customer or a potential customer's email address, we seek to increase their engagement with our sites and drive repeat purchases. This effort to increase engagement and repeat purchasing is primarily accomplished via unpaid mobile "push" notifications and email marketing efforts.

          We rigorously manage our paid marketing efforts, to ensure that each new spending initiative is cost-effective with a measurable return on investment within a short period of time. This disciplined approach of required investment payback periods ensures that we only pursue sales and marketing strategies with the best return profiles.

Our Culture

          We believe a critical component of our success has been our corporate culture that influences the way we incorporate technology solutions, the way we serve our customers, our daily focus on execution and a constant desire to innovate further. We have nurtured this culture to ensure we are providing our customers with a "zillion" options while providing a transparent transaction process for all parties involved. We believe our culture and focus has fostered accountability by nurturing the type of "go to" employees that are never done improving Wayfair for our customers and suppliers. To help new employees orient to our culture we call out five specific values:

           1.     We Love a "Zillion" Options.     Delivering options across styles and price points for our customers is what we do. With more styles and more choice, there is more chance of finding the perfect item for your home.

           2.     We Use Our Brains.     We trust and empower our employees to build solutions and systems for complex problems. We reward brains with more responsibility and experience.

           3.     We Like Transparency.     We gather and share information openly and transparently because it enables us to figure things out, build relationships and make shopping easier.

           4.     We're Never Done.     We're passionate about continually making things better and faster through open minds and teamwork, measuring results, then adjusting. Some call it a learning mindset, some call it flexibility. We call it another day at the office.

           5.     We Are "Go-To" People.     We are a company full of "go-to" people who help each other, our customers and our communities by being active, accountable and accessible.

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Facilities

          Our corporate headquarters are in Boston, MA, where we currently occupy approximately 133,000 square feet of office space pursuant to a lease that expires in June 2024. In 2015, we will expand our headquarters to occupy approximately 142,000 additional square feet of office space. Prior to the expansion of our headquarters in 2015, we will also occupy additional office space in two locations near our headquarters. We also lease approximately 795,000 square feet of fulfillment center space in Hebron, KY and Ogden, UT. This fulfillment center space is expected to expand by an additional 180,000 square feet in 2015. We lease additional office space in Ogden, UT, Orem, UT and New York, NY, a photography studio in Framingham, MA and retail space in New York, NY for DwellStudio.

          Our European headquarters are located in Galway, Ireland, where we currently lease approximately 6,200 square feet of office space. We also lease additional office space in Sydney, Australia, London, England and Berlin, Germany for our international operations.

          We believe that our facilities are sufficient to meet our current needs. We intend to add new facilities or to expand our existing facilities as we add employees and expand our operations. We believe that additional space that is suitable for our needs will be available as needed to accommodate any such expansion of our operations.