Wayfair Inc Q3 2020 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 : Niraj, I was hoping you could expand on your comments around demand moving online at an accelerated path, right? And sort of appreciating the difficulty around determining overall kind of demand growth this year. But I was wondering if you could provide some thoughts on how you REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 03, 2020 / 1:00PM, W.N - Q3 2020 Wayfair Inc Earnings Call think COVID has impacted Wayfair's online sales capture rate this year compared to that 35% to 38% run rate the company has experienced over the past couple of years. And any thoughts on like the sustainability of that -- of a new like elevated capture rate going forward? Niraj S. Shah - Wayfair Inc. - Co-Founder, Co-Chairman, President & CEO Yes. Great. Thanks for the question, Steve. Key thoughts. So one, I would say, at a very base fundamental level, one of the things COVID has done is it's certainly driven e-commerce adoption broadly. And then you're kind of seeing that not just in home, but you see it in categories like grocery, et cetera. I think that is a little bit of a 1-way door. So as customers come online, if they never bought online in the category like home, for example, they're not going to go back to not buying at all in home in a future state. And so you kind of see that a little bit in our numbers. Last quarter, new customer order growth was 109%. That's the only quarter where our news ever beat repeat. And so if you think about the 109%, that's just a crazy amount of new customer growth, to get those customers within payback and simply that they're kind of coming online for the first time. This quarter, it was like 48.7%. So it dropped back some, but there's like a big bolus of millions of new customers we've now gotten. And as they go through repeating, what happens is the share of wallet we get from them, it keeps ticking up each year. And so if you look at this quarter, it's gone back to our more normal pattern where repeat this year -- repeat, this quarter, weekly order growth was up 84.5%. And so if you think about kind of how that share transfer works, it's that we market heavily to get a customer to check us out. But once they've made an order, really they've really experienced what we offer from a selection, from product discovery, from a customer service, from a delivery and logistics standpoint and it's that experience that causing them to come back. And so I think what we're going to see is we're going to see kind of -- to your point about share taking, we're going to continue to take share quite nicely over time because all we're doing is we're simply onboarding more and more customers to an experience. And in this period, we just had an opportunity to onboard far more, and so we're up to 29 million active customers. And you can kind of think of them as -- you can't take it for granted, it's not an annuity that's guaranteed. But effectively, the way it works, if you look at kind of how the cohorts build, it's a bit of an annuity because if we keep making the experience better and better, these cohorts then just keep stacking on each other. And each year, they can actually spend a little more than they've spent the previous year. Because at the $500-odd dollars we're getting per active customer, it's still a small amount in terms of share of wallet relative to the few thousand dollars you're spending per year in home. And so we would expect this to continue to compound. If you also think about all the things we've invested into, these are things that are bespoke for home, so whether it's around what we've done with 3D models and imagery or what we've done to access exclusive selection and what we're doing on delivery and logistics. Remember, every delivery and logistics network is not the same. We're focusing on these home goods, the big and bulky items that are prone to damage. Generally, these experiences are hassle-filled. We're making them easy and convenient. What we've done with customer service -- these are all -- we're building them out in a very bespoke way for home and that is the experience that a customer has with us. And they're not commodity items. It's not like we have Bounty paper towels and the other guy doesn't. So if you want Bounty, you buy it from us. When the other guy's out-of-stock on maybe all paper towels or whatever, you can just buy them anywhere, it's the same thing. Home is different. And so I think the advantages we're building is -- it doesn't manifest in the numbers you're talking about.