• Wayfair is exiting Germany and plans to cut as many as 730 jobs, or 3% of its global workforce.
• The online home goods company wants to reprioritize investments and sees a better return on other initiatives, such as physical retail, finance chief Kate Gulliver told CNBC.
• "Scaling our market share and improving our unit economics in the German market has proven challenging," founder and CEO Niraj Shah said in an employee memo shared with CNBC.

Wayfair is exiting the German market and plans to cut as many as 730 jobs, or about 3% of its global workforce, as it looks to focus on new growth drivers such as physical retail, the company said Friday.

About half of the affected employees will have the option to stay on with Wayfair if they agree to relocate to London, Boston or other locations where the company has a presence, finance chief Kate Gulliver told CNBC in an interview. The affected positions include corporate roles as well as roles on Wayfair's customer service and warehouse teams, she said.

In a memo to employees shared with CNBC, founder and CEO Niraj Shah said it would take too much time and money for Wayfair to expand its business in Germany and the company's dollars would be better used for other growth initiatives.

"Scaling our market share and improving our unit economics in the German market has proven challenging due to factors such as the weak macroeconomic conditions for our category in Germany, the lower maturity of our offering, our current brand awareness, and our limited scale," wrote Shah.

"In our recent assessment, we concluded that achieving market-leading growth in Germany remained a long and costly endeavor, and one that is increasingly lagging the potential return we see in other areas. To ensure we align our resources with initiatives that can deliver the greatest impact, we made the difficult but necessary decision to reallocate efforts to areas with strong long-term potential where our current efforts are showing great progress," he wrote.

Shares fell about 3% in early trading Friday.

Germany, where Wayfair has been operating for 15 years, makes up a "low single digit percentage" of Wayfair's revenue, customers and orders, Gulliver said. The restructuring is expected to cost between $102 million and $111 million, which includes $40 million to $44 million in employee-related costs like severance, benefits, relocation and transition costs and around $62 million to $67 million in non-cash charges related to facility closures and other wind-down activities, Wayfair said in a securities filing.

The company expects to make those payments over the next 12 months, but they are expected to be incurred across the fourth quarter of 2024 and the first quarter of 2025 — a six-month period set to conclude at the end of March.

Wayfair expects to reinvest any savings from restructuring mostly across other core initiatives, such as its physical retail plans and its remaining international markets, it said in a securities filing. The company's guidance isn't changing, said Gulliver.

Friday's layoffs are the fourth that Wayfair has implemented since summer 2022, but this move is less about cost savings and more about reallocating resources to initiatives that are actually making the company money, said Gulliver. 

"We're not doing this because we're saying that we need some, you know, cost efficiency play, and so therefore we had to look for more costs and we identified Germany," said Gulliver. "We see better ROI initiatives that we are already further along on that we can continue to invest in. So it's an investment prioritization, and [we're] going after areas like the U.K., Canada, etc. where we see a really exciting opportunity." 

Those initiatives include Wayfair's foray into physical retail, which began in earnest in May when it opened its first namesake store outside Chicago. Since the location opened, the company has enjoyed what Gulliver described as a "halo effect," where online sales to customers who live near the store have increased. It plans to open another store or two in the U.S. "in short order" and also hopes to expand those doors to international markets such as Canada and the U.K., said Gulliver.

"Obviously, we want to nail it in the U.S. first," said Gulliver. "But we are excited about the potential over time." 

Still, physical retail can be a massive capital expenditure. And Wayfair hasn't turned an annual net profit since 2020.

Wayfair's decision comes as the company looks to boost topline growth in a sluggish housing market that has dampened demand for all things home. In the three months ended Sept. 30, sales fell 2% to $2.9 billion.

"It's always difficult to make a decision that impacts humans," she said. "We care very deeply about the team there, and we're so appreciative of their work, but we do believe that this is the right next step for the business to allow us to focus on these higher ROI priorities."