Wayfair Inc Q1 2022 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Steven Paul Forbes - Guggenheim Securities, LLC, Research Division - Analyst : Michael, also congrats on the planned retirement. Would love to just hear your thoughts on OpEx labor productivity and really why the recent ramp in SOTG&A and expenses doesn't change the longer-term margin walk and margin target for that respective line item. Niraj S. Shah - Wayfair Inc. - Co-Founder, Co-Chairman, President & CEO Sure, happy to answer that. So I think the biggest thing to keep in mind is that -- so the headcount -- non-OpEx headcount, like you're talking about customer service or the fulfillment headcount, they're very much tied to today's order volume, today's order flow, the number of orders going through our transportation network, the number of phone calls we're getting tied to today's orders. And so that, you say, "Well, how does that leverage over time?" There's some leverage there with technology on things. But by and large, those are, to some degree, tied to the order flow, will get a little better but tied to the order flow. When you look at OpEx, it's really not tied to today's order flow. So if you look at the technology we're building, whether it be storefront technology around visualization or different ways for product navigation or whether you talk about the ocean freight, the forwarding business and how we're going to add a lot more automation to that or you're talking about things we're doing, a great example will be physical retail. Physical retail will take a long time before it's substantial. And yet there's a very substantial-sized team working on it today. Because you need the team to build the offering and you need that in order to have one store. But one store doesn't move our P&L. But then one day, decades from now, you have many, many stores, that could be meaningful, right? So the way to think about OpEx is OpEx labor productivity is not relative to today's revenue. It's relative to the revenue x years from now. And you cannot ramp OpEx fast and get it to work because the people need to get ramped up. And that takes a meaningful period of time. And we found that if too high a percentage of people are new and don't have any historical knowledge, actually, it's counterproductive. You hurt yourselves, and meaning, we've said that we're never going REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 05, 2022 / 12:00PM, W.N - Q1 2022 Wayfair Inc Earnings Call to -- we don't want to have more than 50% of the people with less than 1 year of tenure. And with turnover and with growth, you can hit that. And we've hit that in the past, and we've had problems. And so last year with the Great Resignation, we didn't really grow OpEx for a number of quarters. We started to at the end of the year. We've now added some folks there. Our plan on adding to OpEx is a very moderate ramp so that we can actually make sure that we ramp people up. We've actually had a burst of new people here, so we need to make sure we ramp them up. So we're not going to pile on, pile on, pile on and create the problem we've had in the past. And so the way to think about it is it's a moderate ramp that lets you do things that really stimulate revenue in the future. And so the percentage cost of OpEx as a percentage of revenue goes down. Because if, in fact, you're building high ROI initiatives, they stimulate revenue in a way that's substantial. And you've done that work years before, right? And so that's why you can't link it in the current time. But this is why we really think about it this way. And as I mentioned, we have a variety of plans in place, meaning there's no one ramp plan we're 100% committed to. We moderate what we're going to do based on a combination of things. And the macro is obviously a very, very, very large driver of that as well.