Wayfair Inc at Morgan Stanley Global Consumer & Retail Conference Summary

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

Question: Simeon Gutman - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>When we were finishing out 2023 either the relative momentum of your business market share and or the category felt like we were going to swing a little bit better to, to growth possibly by this point and maybe even a little bit stronger growth by the back half. What the difference was, all those factors you mentioned the, was it the industry, was it market share? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Well, I think, the overall economy has done better than I think a lot of folks expected during the course of the last year. But I would say that the housing market and how the housing market has remained stagnated, has surprised people in its remaining more stuck and more frozen than people expected. So I think that when you think about our category, that has a knock on effect into our category, the category is quite large though and it is sort of it's very fragmented. And so I think the real opportunity for us is actually not to worry about the category rebounding, but just it's how do we, we've been taking share now since late '22 for nine quarters in a row, which is basically the history of the business over the last 20 years. How do we accelerate the rate of taking share? And that's, that's a set of things that we put in place this year that we're very excited about. So I think we kind of look out forward and we know it's cyclical. We know the category will cover; we know the housing market REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 8:45PM, W.N - Wayfair Inc at Morgan Stanley Global Consumer & Retail Conference will get moving again. But rather than trying to time box that and guess that our views will do very well when that happens, but we'll do even better, the more share we're taking in the meantime, the more momentum we're building. And so our whole strategy is around, how do we take share, how do we grow and do it while growing profit dollars. And that's sort of the kind of focus we have. And that's kind of what we've put in place as a framework. That's what we put the pieces in place for. That's what we've been doing. And that's kind of, that's what we're set up to do, accelerate basically.

Question: Simeon Gutman - Morgan Stanley - Analyst : I was going to ask what you think the drivers of share gains are and then you said idiosyncratic things Wayfair is doing or idiosyncratic things that the industry is doing. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder No, they're, basically asymmetric, they're, basically things Wayfair is doing. So, in other words, I'll rattle off just a list to give you just some examples. So you get a feel for what they are. So for example, we talked about in October, we launched a non-tender based loyalty program called Wayfair Rewards, and it's set up very well to take the bulk of our active customers and offer them tremendous value if they were to sign up. And it basically offers them a set up where they're going to, it benefits them to give us a much larger share of wallet. So that's off, that's off to the races earlier this year. We start rolling out a program called Wayfair Verified and this is our merchants picking a cohort of our items. So we have 20 million items, but picking kind of a small subset of tens of thousands of items, testing them, auditing them physically and creating kind of like, I'm old enough to remember consumer reports back in the day where you have true editorial reviews of products. So you can kind of know what they were looking at the room. Maybe half the people know what I'm talking about. And the problem with online today is you can't really tell what you're going to get when you get an item at home, you just don't know what the relative quality will be. So these merchant-based reviews and editorial content called Wayfair verify we think is a real driver of customer satisfaction. We see at lift conversion. That's something that's rolling out. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 8:45PM, W.N - Wayfair Inc at Morgan Stanley Global Consumer & Retail Conference We have a set of delivery program enhancements, consolidated delivery. I've talked about a few times on stage that's continuing to scale nationally. There's a bunch of marketing channels which we either are small in, but we think we can be bigger in things like influencers and certain aspects of social media. And then there's a lot we're doing with kind of creative optimization of our creative ad units that we think can be a driver of us taking share. So we can go down through the list. We have a way for a professional B to B business that we think there's a lot we can do there to drive a lot more productivity of all our, our account managers, our salesforce there. So there's a long list of things we're kind of working our way through them. And basically, we spent a lot of the last three years working on replat form a lot of our core technology systems. So as we got through that, we're able to prioritize a lot of the software development bandwidth that's now become available for future function to these priorities, these things that are kind of product led growth. So that's both kind of how you organize and design and navigate the website or the app and how suppliers do that on the portal. They have to do all the things they do, but it also allows us to run programs like what I described. And so these things are sort of adding up and we feel like we're building a lot of momentum. And again, these are things in our control. So our view is the macro is not in our control, these things are in our control, even with the market, in a malaise, it's still a very large market. There's a lot of shares to be had. You see, there's a lot of retailers out there struggling. I mean, you don't need to go more than a month before you see a given retailer either go out of business or close stores, whether that be, more recently Cons or Badcock or big lots or American freight or, there's a long list and Kirkland's and the container store, the different folks who talk about different degrees of duress. And so the question is like, it doesn't mean all those customers stop buying goods. So where are they going? Well, you have independent folks owning individual home stores in various neighborhoods around the US. That's a base of folks that are doing, doing fine. Then you have a ton of folks in the middle which represents a very large number of doors and then you have a small number of large folks, us, Walmart Target, Amazon, Home Depot Lowe's, who compete online, but a lot of that share in the middle as it gets hollowed out are going to one of those big folks and we're the only one who focuses on home. So how do we, how do we take more and more share? And that is what we've been doing. That's what the list of things is about.

Question: Simeon Gutman - Morgan Stanley - Analyst : But what about the story of the consumer through the lens of the website? Both in terms of higher end product, lower end product? And were there any moments of green shoots in the last, one to two years that have, ebb and flowed? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah. Well, so I would say, that, when you see these economic cycles the higher end customer generally still has money even in a tougher economy. So like our parade platform, which is a luxury platform, it it's been growing nicely, it's doing quite well that that is a customer that's not under the same degree of economic duress as when you get to the lower end of mass kind of where we start, which would be the lower end of the Wayfair kind of audience. Wayfair runs all the way through the middle. We service all these different tranches of customers so we can kind of see the different sort of strains that they're under. But because we have such a breadth of a catalog, we still have something to offer to them and they can move up or they can move down as they, as they're depending, on what they want to buy. And so that's a big advantage we have, we're not, we're, they're not required to kind of stay in a very narrow band, they can explore and buy what they want. But, we, I, you said there are there any kind of signs of life for any green shoots in the last couple of years, the last couple of years, I would say, it's a typical, it's a cyclical category, right? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 8:45PM, W.N - Wayfair Inc at Morgan Stanley Global Consumer & Retail Conference So there's definitely a business cycle to it, I would say, while the severity of the downturn and the duration of it is maybe deeper and longer than people expected. It is a cyclical category. And I think in there is where a lot of the opportunity is because what we find is that market share changes hands even more in the down cycle than it does in the up cycle. We've obviously taken a lot of share in both if you look back through our history, but it presents a lot of opportunity because what you find is that in the down cycle, a lot of folks who just don't have a differentiated assortment or offering in any kind of major way from a customer standpoint, they just have a harder time attracting the business and they eventually, you see that in their financial results or in the fact that they close their doors. So that is what's happening and that's kind of the, that's quite a large opportunity. All the folks I mentioned, a lot of them have hundreds of stores, that these are retailers, hundreds of millions or billions of dollars in revenue. So the changing of share is meaningful and it's not just from the folks who go away, you have a lot of folks who have shrunk by 20% or 30%. Well, the market may not have shrunk by that much in that period where they shrunk by that much. So that's share that moved to other folks.

Question: Simeon Gutman - Morgan Stanley - Analyst : Yeah. I want to ask about the holiday, give it a shot here about seasonal categories about pull forward of demand since consumers are rushing to buy things before the tariffs. I'm leading up to that if that's a behavior that you can talk to. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder I mean, we don't, the concept that consumers are going to pull forward demand before tariffs. I don't know if there's nothing, we don't see anything that would support that consumers think about the tariffs in a way that causes them to pull forward demand. So I don't know if we see that, what we do see is, customers as they have been for the last couple of years, they pay, they're, they're looking for value, they know what major sales are. They pay attention to those sales. You get a lot of traffic during those events. You know, holiday, we've, we've been happy with how holidays played out so far. So, it's still early because even though some of the more notable days are behind us. There's still, quite a lot of revenue to come in December. But we've been happy with how things are 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. DECEMBER 04, 2024 / 8:45PM, W.N - Wayfair Inc at Morgan Stanley Global Consumer & Retail Conference

Question: Simeon Gutman - Morgan Stanley - Analyst : To that 0.1 of the retailers yesterday said, look, there's some items that are single origin that we're all going to be competing on prices are going to go up for everyone. So take a table that is being manufactured in China. Now there's a substitute that could be coming out of Southeast Asia someplace else, but it may not be that exact table, but that table appears on everyone's marketplace. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 8:45PM, W.N - Wayfair Inc at Morgan Stanley Global Consumer & Retail Conference In theory, the price is still going to be the marketplace and no one should have a different pricing architecture unless they decide to do something on their own. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder I think that's right. I do think what, one of the things we've done is we've tried to work with suppliers increasingly to have a collection of items that are not offered necessarily on every other platform. So we have increasingly a set of items that are only offered us, but we still do try to make sure we have the right sort of supply chain benefits on that. But to your point, yeah, I think that in general, the thing about tariffs are they'll generally just be inflationary because a lot of the goods that haven't moved, haven't moved because even with the types of tariffs you're talking about because the tariff is on the very first cost, which is then the, not the price that we're paying and definitely not the price that we're selling it for. And in there you have freight costs as well, which wouldn't have the tariff cost. It ends up being a small enough piece of the cost that it's still not economically sensible to move it in a lot of cases. So you have this dynamic where in a lot of cases, it's just a little bit of inflation that's going to get passed through.

Question: Simeon Gutman - Morgan Stanley - Analyst : Flipping to the inside of the P&L gross margin, profound change on the gross margin line. And in a way, you can look back at Wayfair's first 10 to 15 years of founding of the 25% and below era. And now we're in the '25 to '30 maybe eventually 30% to 35%. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder I just moved to, below '25 to the '30 era, there was no 25% to 30% fair enough.

Question: Simeon Gutman - Morgan Stanley - Analyst : Investment story. There's been a couple of milestones with gross margin and you keep passing them, holding the post-COVID 30 was one of them. Hey, how will we see this business behave? And then this year as promotions came back in the last quarter or so demonstrating that even with lower pricing in some places that is not coming at your expense, can we talk about that? Because that's to me that was the story of the prior quarter of the third quarter where you're showing that it's not even.

Question: Simeon Gutman - Morgan Stanley - Analyst : It's hypothetical if the sales base is 50% higher and that's not, super dreamy scenario. But if it's 50% higher, why can't, why wouldn't the fixed cost leverage of the supply chain get that 30% to 35% alone even without advertising? Is that feasible? Or you'd have to reinvest back into the fixed cost?

Question: Simeon Gutman - Morgan Stanley - Analyst : Degrees of confidence in the 30% to 35% and the duration to get there. And then I don't know if there's any [Sprinkle] of should we focus on advertising as the unlock within that bucket? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 8:45PM, W.N - Wayfair Inc at Morgan Stanley Global Consumer & Retail Conference Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder So confidence, high duration, I'm going to let Kate give you an answer and then on the unlock, what I would say is think of it as an and so we showed kind of a relative size in the bridge of the different numbers, they're all things that are happening. So in other words, the advertisings continue to happen over time, what we can do with curation and as happening over time. So those two are kind of underway logistics happens over time, but a lot of it also happens with scale. And so I think, the pieces of the puzzle are all underway. It's not that one is like 90% of the value. It's not really that type of thing. So I'll let Kate give you the timing.

Question: Simeon Gutman - Morgan Stanley - Analyst : I want to turn to incremental margins preparing for a recovery, by the way, we're 10 minutes left, if the audience has questions you can ask. So just start getting ready and waving us down and we'll get you the mic the incremental margin framework for '24 or even for '25 mid-teens is what I think most people have penciled in their model. Does that happen in an any, I mean, not any but in a flat revenue environment, I think with the framework is that, is that right? Is that the right way to think about it? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder What I would say? So the way to think about what we're focused on, so we're focused on profitable growth. So what does that mean? We want to take market share and grow while growing profit dollars so that the even dot dollars really trying to really grow that and maximize that over time. And we think we do that by taking share. So we, those two things we see consistent with each other in terms of how the flow through works. Let me turn it over to Kate.

Question: Simeon Gutman - Morgan Stanley - Analyst : Okay. I want to ask about the store in Chicago and then go back to Wayfair Rewards. So, first the store, I think it's a different concept and it is definitely reimagined from what we see in home furnishing and for retailers that dream up of what, what their store would look like. Can you talk about the lift or your satisfaction with the lift that you're seeing in Chicago land market? And then, I'm trying to, trying to extrapolate what that means for the footprint. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, just so for folks who don't know. So we've been working on it for a couple of years, but we launched the first store for the Wayfair, first large format store for the Wayfair brand just before Memorial Day. In Wilt Met, which is a northern suburb of Chicago. It's 150,000 square foot store. So it's a relatively large store. It's a destination for, basically all things home. So if you think about the breadth of categories, we carry on Wayfair, not just furniture decor, but all the home improvement categories, all the housewares, categories, large appliances, it covers all the categories. And our theory is that it would be a beneficial way to attract new customers. It would allow us to grow, share of wallet with existing customers. It would create a halo for customers in that geography. So we had a bunch of ideas of what we could do with the store. There's also a lot of categories we're not as well known for. So if you think about large appliances or kitchen cabinetry or, cookware and tabletop, it's also a good way to build awareness for those categories and sell those categories and what's happened so far and stores only been open six months, but it's really, it's been quite fantastic on those dimensions. So the bulk of the majority of new customers we've gotten at the store are actually new to file this, despite having a 90 million customer file, we've been able to get new, new to file customers and just shows you there's some customers where the store is a very comfortable way to engage with a new brand. They don't know. The second thing we've seen is in the store. We don't necessarily try to get you to just buy right there. Obviously, you can buy right there. But all the associates have iPad, they can, they can work with you to create a list of things you're interested in and email you a quote. We encourage you to use your phone, use the app on your phone to scan items and just create your own basket in your in the cart on your app. So our view is that, not everyone's decision cycle is going to be immediate during the visit. So rather than take kind of the high pressure sales tactics that a lot of furniture stores, for example, would do, we took a different view of like let's just, invest in the customer. So what we've done to measure success past just the four wall economics is we measure the halo that the stores created a few different ways. One way is we have the folks who we recognize in the store because they use the app in the store or they gave and associate their email address. That's going to be a narrower set than everyone who came in the store because it's only the folks who did that. But then we track what they do over five and over 30 days and we use a data science model to then net out the cannibalization of what we think they would have done if we didn't have the store. That's one version of halo, we calculate. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 8:45PM, W.N - Wayfair Inc at Morgan Stanley Global Consumer & Retail Conference Second version is we take the geographic area around the store. So a certain mile radius around the store, that kind of the trade area. And we have like synthetic twin markets of other places in the US that are very similar geography distributions to that. And we sort of track the pre versus post and how this geography diverged from these other synthetic twins. That's the second version of hail and the third version is a really crude version, which is, we basically look at the state of Illinois going back two years before the store opened, the store opens. What's the state of Illinois? What's the state of Illinois without the store? And what's the rest of the country? And what you see is those lines basically are very tight until the store opens and you see them diverge and you basically get a view of, what the store did in the four walls, right? And so you get a different version of the hill and we do multiple versions to trying to triangulate. And what we've seen is the halo has been quiet, it's been quite strong. So we've been really happy in that. We've seen the store out of the gates with still a lot of room we think to optimize how it performs is actually doing very well, financially it's doing very well. And also strategically for the goals we want to achieve. It's doing quite well. So we've been really excited about it. We're, we're working on a location for, forthcoming way for sure. We haven't announced it yet, but we're, we're working on that. We're, we're pretty excited about the impact we can have over time because again, when you think about the logistics network I described, we have all these goods located in the right locations around the US. So, for example, one of these 1 million square foot fulfillment centers I described is in Romeoville, [Illinois], which is about, 40-50 miles south of Chicago. And so the goods that we're selling in the store, not necessarily in the store, the small items are right. If you want to walk out with candles or, cookware set, that's in the store, you're going to walk out with it. But the bulk of the revenue is not things that you walk out with the things that you're going to have delivered because it's just the nature of what we sell and those items, there's no new inventory pool, there's no inventory pool. We have to buy the inventory in our entire business is owned by our suppliers. These inventory pools sit in our suppliers, fulfillment centers or in our fulfillment centers where suppliers forward position the goods that are popular items. And then we have delivery operations, delivering these items all day long, all over the country. And so we deliver them to the customer. So it's a very efficient model and it, and it's, it's doing great. So we're pretty, we're pretty excited with what we've proven so far.

Question: Simeon Gutman - Morgan Stanley - Analyst : Two minutes. Does anyone have a feel free? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah. Sure.

Question: Simeon Gutman - Morgan Stanley - Analyst : With that. Thank you, Niraj, Kate. Thank you so much for being. Thank you to all the best.