Wayfair at Citi’s 2025 Conference: Strategic Growth Amid Challenges

On Wednesday, 03 September 2025, Wayfair Inc. (NYSE:W) presented at Citi’s 2025 Global Technology, Media and Telecommunications Conference. The company outlined its strategies to navigate current economic challenges, focusing on tariffs, competitive positioning, and growth initiatives. While Wayfair highlighted its strengths in logistics and technology, it also acknowledged the pressures from tariffs and market competition.

Key Takeaways

• Wayfair is leveraging its diverse supplier base and logistics network to manage tariff impacts.
• The company is expanding its physical presence with new store openings, enhancing its market share.
• Generative AI is being used to improve customer and supplier experiences.
• Wayfair aims to maintain a contribution margin of 15% or higher.
• The Wayfair Rewards loyalty program is driving increased repeat purchases.

Financial Results

Wayfair reported an increase in revenue for Q2, maintaining a gross margin range of 30-31% while optimizing gross profit dollars. The company is targeting a contribution margin of 15% or higher, with advertising expenses managed at 11-12% of revenue. Supplier advertising is contributing to gross margin growth, which is reinvested in customer experience. Wayfair aims for a 10% plus EBITDA margin through gross margin expansion and efficient advertising spend.

Operational Updates

Wayfair’s growth strategy focuses on price, selection, availability, and delivery speed. The company is expanding its physical footprint with new stores in Chicago, Atlanta, New York, and Denver. The Chicago store has significantly boosted sales in Illinois. Wayfair is also enhancing its CastleGate logistics program, now offering multichannel fulfillment.

Future Outlook

Wayfair plans to continue capturing market share through core offerings and technological advancements. The company is optimizing contribution margin by managing gross margins, customer service costs, and marketing expenses. Wayfair anticipates online retail will grow to 50% of the market, with continued market fragmentation benefiting larger players.

Q&A Highlights

Wayfair has maintained competitive pricing on high-volume items despite tariffs, with suppliers absorbing costs. The company sees Amazon and HomeGoods as major competitors but believes its logistics and specialized focus provide an advantage. Wayfair is comfortable with advertising spend in the 11-12% range and is expanding the CastleGate program to improve appeal.

For more detailed insights, please refer to the full transcript below.

Full transcript - Citi’s 2025 Global Technology, Media and Telecommunications Conference:

Unidentified speaker, Host: So we get towards the end of the day. We’ll try to keep everyone real entertained here. A lot of interesting stuff going on with Wayfair and the macro environment. Thank you guys for for being here. Really, really appreciate it.

Niraj Shah, Wayfair: Nice to be here.

Unidentified speaker, Host: Alright. Let’s let’s talk tariffs. Like, I I think that’s where we have to start. So there was more tariff noise last week. It was last week.

Right? Whatever. There

Kaye, Wayfair: there’s Recently.

Unidentified speaker, Host: Constant recent tariff noise. Can can you talk about kind of maybe broadly? I know so far, the impacts have been limited. Potentially, can change. Anything you know about this latest round in conversations with the administration?

Or, you know, where where where are we with that, and how are you

Niraj Shah, Wayfair: guys thinking about it? Sure. So needless to stay, we we try to keep track of everything that’s going on. We’re you know, we try to talk with folks to understand what’s going on. We member of a number of trade associations.

I wouldn’t say we have any insights that would be, you know, really additive to what you’re able to read in the press if you follow what’s happening. So, you know, in that sense, I’d say, well, we know, by not dramatically different than what you know. But what I’d say is, like, the tariff landscape has kind of been a continued evolution. It’s not something that’s had, like, one or two key moments. It’s had many, many key moments.

And I think that the the main takeaway, I think what we would say is that, know, we have a model where we have a tremendous number of suppliers. They operate in a tremendous number of countries, offering a tremendous amount of aggregate selection, and they’re always competing with each other. And so there’s different scenarios in which one would benefit versus each other. Tariffs would create an environment where perhaps one benefits versus another. We have a lot of domestic US suppliers, for example.

But there’s a lot of other environments where one benefits against each other. You know, if ocean freight becomes expensive, that helps some and hurts some. If ocean freight becomes inexpensive, that helps some, hurts some. So there’s kind of always things that are changing in this landscape over the years. Tariffs is currently something that’s changing.

I would say our model being advantaged the way it is is part of how you’re seeing us do well, which is that we just have this wide base of suppliers, and we have a logistics network that enables us to move these goods from wherever they’re made to the markets in which we service customers. We have the ability to warehouse these goods. Have the ability to deliver them both economically with a high value service. And that kind of proprietary logistics network coupled with the breadth of suppliers we have is, I think, kind of endemic to our model and and uncommon if you look at the folks we compete

Unidentified speaker, Host: with. Yeah.

Kaye, Wayfair: Yeah. I I I would add to that. You know, I think we went out, you know, in the May call, and we were we reiterated it in the August call that, you know, we were prepared to manage the tariffs. And then I actually think you got to see us work through managing the tariffs, and we said prices have remained on the items that are selling. Prices have remained quite competitive and and quite strong.

And, you know, our nimbleness here and the sort of competitive tension that the marketplace created, you know, would help to mitigate some of those impacts for our consumers and help our model prevail. And I think whatever sort of future tariff dynamic happens, you’re seeing the benefits of that model in real time right now.

Unidentified speaker, Host: Right. Yeah. I saw yesterday that lumber prices are at or they’ve plummeted, I think, the word The Wall Street Journal used, and ocean freight costs are down significantly. So I guess there there are a lot of moving pieces

Niraj Shah, Wayfair: to all of There’s kind

Unidentified speaker, Host: of always a lot of variety. There’s areas of savings that suppliers have seen also as well. Right? Okay. Maybe just kind of pulling on this a little bit more.

So trends have gotten better. Your revenue numbers were up in 2Q. I guess one of the things that people are really trying to get a good handle on is, we seeing any pull forward in demand first? I think you talked about on the call that you’re not, but maybe you could elaborate on on why you think that’s the case or if that still remains the case. And then, you know, the other thing that I think people are are worried about on the tariff front, understanding your competitive positioning, I wanna elaborate on that also, but that there is that we haven’t seen the price increase really come in yet, and that that will start to play out later this year and and and into next year.

Just wanted to get your thoughts on that before I move on from this topic.

Niraj Shah, Wayfair: So I feel like your first question was around, was there a pull forward in demand? Yes. And so with regards to that, we we have not seen a pull forward in demand. You know, in one category, we’re a relatively small player in, which is large appliances. Back to liberation day, there was a very short period where we did notice a pull forward in demand.

It lasted about a week. Other than that, like, literally, if you look at the overall business and the demand kind of profile, you wouldn’t be able to tell me when various announcements happened.

Unidentified speaker, Host: How how do you understand the the if you’re seeing a pull forward in demand or not?

Niraj Shah, Wayfair: Well, you you mean, you basically have kind of what conversion rate is, what aggregate sales levels are by all these subcategories in the catalog. We’re able to look at it by kind of income segment of our customers. We’re able to look look at it different ways. And then you can see when you have like a break in trend. So for example, in the period, kind of the early period of COVID, you saw it in early in the early weeks, you saw a kick up in cookware and mattresses and very specific subcategories, not in others.

Then as it went on, you saw other categories pick up a few weeks later. Then you saw so you can see when there’s like a I mean, so whatever we’re doing, roundabout a 100,000 orders a week, so rough numbers. So you have enough volume that you can cut it up different ways, and, know, you have, obviously, order of magnitude more traffic than that. Right? And so you you you can kinda tell what’s going on.

Unidentified speaker, Host: Okay. And what are vendors saying right now in terms of absorbing price increases or passing through? So far, we haven’t seen a big impact, but as we kind of go through rest of this year and into next year.

Niraj Shah, Wayfair: I mean, again, what we’ve seen is we’ve seen a pretty stable environment. And you know, there’s no real reason to believe that that’s gonna dramatically change. Now what perhaps happens with the landscape? If the landscape changes, that could change. But the reality is, you know, suppliers are pretty keen to make sure that they’re profitable in how they operate.

Right? They’re also keen to make sure that they’re generating, you know, certain volume of sales so that their fixed costs are covered and they can flow goods from factories, and they have a strong interest in turning their inventory. They don’t like the inventory aging. So they’re balancing those criteria when they price goods. On our platform, they can change the price anytime.

And within five minutes, it will reprice the retail price. So they know that they have that ability. So by having that ability, they know they don’t need to front run things. They don’t need to decide something now because it takes ninety days to go through, which is common in a lot of retailers. Right.

So we prevent them from having to make knee jerk reactions by allowing them to make a decision as they go. We then provide them with data on what’s happening in aggregate on our marketplace so that they can understand the competitive dynamic, They, of course, can monitor what happens to their sales if they make changes. And what we’re seeing is that they’ve they’ve found ways to kind of manage their cost structure such that they’ve been able to stay competitive by and large so that they can keep their demand. Yeah. And that’s obviously important for them.

Right? Just forget about us. Important for them because if they raise their prices and their competitors don’t, they’re gonna lose demand to their competitors. That’s gonna hurt their own business.

Unidentified speaker, Host: Okay. You Kaye, you made a comment that the items that are selling haven’t seen price increases. Increases. Does that mean that others have seen price increases and and they’ve kind of fallen fallen behind, or am I reading too much into that?

Niraj Shah, Wayfair: Well, I mean,

Kaye, Wayfair: the way to think about it is we’re quite focused on those first few pages of the sort order, you know, where are prices on those pages? Because we know that that’s where a significant amount of the conversion happens. Right. And to what Niraj was just saying, you know, certainly, if you do raise price, and it’s not to say that nobody has raised price. Right?

Like, price moves around within, you know, suppliers all the time. Right. But because of the competitive tension inherent in the marketplace where you have a lot of highly substitutable products that are largely unbranded, if, you know, you’re selling, you know, multiple chairs that are similar to this, the chair that is the most price competitive will move to the top of the sort order, and demand will concentrate towards that chair. Right? And so you’ll lose out on volume.

So what we’re seeing is within, you know, sort of like for like items in the sort order in the first few pages, those prices are staying consistent, meaning, you know, we are not seeing a tariff impact there. So the supplier is absorbing the costs or value engineering the product. They’re, you know, taking advantage of lower ocean rates, as you’ve said, you know, things like that. But I wouldn’t necessarily imply that, you know, that means that the tail is is rising. I just our focus is primarily on on those products that are moving quite a lot of volume.

Unidentified speaker, Host: Alright. Got it. Okay. So let’s talk about your competitive positioning. You talked about it a little bit.

In times like these, you guys tend to take share. I think what’s been impressive is if you kinda look back to 2020, when you’ve taken share, you’ve you’ve maintained it. So maybe if you could elaborate a little bit more on what’s letting you do that. Are are are your competitors, your kind of like traditional brick and mortar competitors, have they been raising prices that’s been letting you you take share here? Is it something else?

Niraj Shah, Wayfair: So, I mean, if you if you just zoom out for just a moment, you know, we went public in 2014. At the time, we were 12 years old. The Wayfair brand was only three years old, and we’re doing about a billion in revenue. And then you just through the up to pre COVID 2019, we went from 1,000,000,000 to 9,000,000,000 during a period where, obviously, the category didn’t nine x. Right?

So so we took a tremendous amount of share. Right. Then during the COVID period, you have this, you know, kind of small period of time where revenue bursts way up, and then you have the kind of post COVID, you know, demand moves to brick and mortar. Demand moves to entertainment, leisure, travel spend, kind of levels out to 12,000,000,000. So we’re 9,000,000,000.

Pre COVID, kinda get to 12,000,000,000. But you

Unidentified speaker, Host: still outgrew the category in that period. Correct?

Niraj Shah, Wayfair: And we we yes. So Yeah. If you if you look at the last two years, we’ve been outgrowing the category. Right. And so, basically, the way we take share now is not superior than the way we took share 2014 to 2019, which is, we basically put together an excellent offer.

So the core recipe is price selection availability and speed of delivery. So that’s when I talk about having a lot of suppliers with a lot of selection coming from a lot of places, that that vast ability, kind of vast selection allows customers to find any product they want, and they can find the ones that are of that style and and quality level priced very competitively because they’re obviously not gonna pick the competitive one that isn’t. Right? So they have access to that. Our delivery capabilities allow that to be delivered quickly.

And then we help suppliers keep the best selling ones in stock by giving them guidance on demand. So that’s a core recipe, and that’s kind of what let us take share But if you look at the kinda 2014 and 2019 period, we sort of augmented that with two additional factors. One is we had a large technology organization with which we could build sort of customer and supplier facing features and functions that allow them to kind of have a better and better experience and do more and more. And the third thing is we we’re constantly launching new programs and innovative things that helped us grow.

Well, during kind of that 2021 to 2024 period, we were undergoing a big tech replatforming effort that basically consumed the vast majority of our technology organization. And as a result, we were kind of not in a position to launch a lot of new programs nor are we in a position to do a lot of the feature function work that we normally do. As we’ve gotten through that, and I kind of talked about that in the shareholder letter that we published in February, we’re back to having all three legs of the stool. So we’re kind of working on that core recipe. We’ve got that we have a 2,500 person technology organization working on kind of improving the supplier experience, the customer experience, whether that be the app or the web or whether that be what the suppliers have for functionality to do things for customers.

And we’re launching new programs. And so we’ve talked about a few a lot. We’ve talked about our loyalty program, Wayfair Rewards. We’ve talked about what we’re doing with brick and mortar stores. We’ve talked about Wayfair Verified, which is our editorial program.

We’ve talked about those three because they’re very tangible, very visible. They’re easy to get your head around, but there’s a whole bunch of other things that we’re working on as well. So now when you kinda have all three things now working for you again, you’re gonna be able to take share from your competitors in a very fragmented category at at a nice pace that will compound. And I think what folks are now noticing is that now that we have all three legs of the stool, we’re not taking share at a more modest pace, which is what we could do when we had the core recipe, but we can take it at a faster pace, which is because we are back to having all three legs of the stool.

Unidentified speaker, Host: Okay. And that share is coming from I think you’ve talked about, like, Amazon is taking share. You guys are taking share.

Niraj Shah, Wayfair: Yeah. What we said is, like, if you look 2019 to now and you look at the bigger players and the ones that notably have taken share are us, Amazon, HomeGoods. And they just we the three of us, which are very different in terms of what we sell, the types of goods we sell and and and the like, but we stand out notably versus a lot of other folks. A lot of the other major players are actually down in share from 2019. I’m only picking 2019 because it’s before COVID.

Unidentified speaker, Host: Right. Yeah.

Niraj Shah, Wayfair: Now what you don’t see in that, because that’s a panel of only the larger players, is that a large amount of the TAM is in small to midsize players. And if you compare it to them, they’re they’re losing share at an even faster rate. Right. And it’s being consumed, you know, generally by, you know, the the stronger regionals or by a handful of the biggest players.

Kaye, Wayfair: Yeah. Some of the regionals have gone out of business, and, you know, there’s certainly been consolidation from bankruptcy

Niraj Shah, Wayfair: the market as well.

Unidentified speaker, Host: Okay. Anything else you want investors to know on the share gain sustainability? Because that’s probably one of the biggest questions we get outside of the macro stuff.

Niraj Shah, Wayfair: Yeah. I think the big the biggest thing to understand is, like, so where is it coming from? It’s coming from the fact that it’s a very fragmented market, and there’s far more players seeding share than gaining share. Now why are we able to attract it relative to others? The answer goes back to it’s a combination of, like, so we’re specialists in the category, so our shopping experience is focused on that.

We have logistics capability focused on that. We have a you know, with the kind of that broad selection and offering that really is uncommon. So we have those core assets, then when you think, how well, so how do you bring that to bear? You keep improving that core recipe. You’re launching new programs, and you keep making the technology better.

And that is effectively how we’ve grown the business from twenty years ago to now, and we’re we’re doing that again. I think that post COVID period is an aberration a little bit because of kind of the boom bust cycle of COVID and a little bit because of the kind of multiyear tech replatforming effort we went through. But I think now that those are behind us, I think it’s easier to see that the the patterns return to the pattern that existed. I think that will only become clearer to investors over time as each quarter goes by. Yeah.

Unidentified speaker, Host: Okay. Great. Then maybe let’s talk on some of those, those efforts and start with the large format fiscal footprint in stores. And so you launched in Chicago. Can you talk a little bit about how that’s going?

Atlanta’s coming, New York, Denver in the next couple of years. Sounds like that strategy is kind of going as you expected. You talked about at your investor day, right, that’s 50% of the market that you didn’t have access to, and now you do. So, you know, how is that going, and kinda where where does that ultimately get to?

Niraj Shah, Wayfair: So today, brick and mortar, I think, is roughly 75% on the market. But, like, in the long term Right. You know, if believe online grows to be 50 and you believe brick and mortar ends up being 50, if you never did it, that would be 50 you wouldn’t have access to. Today, it would be 75 that you don’t have access to. Right.

The other thing I would say about brick and mortar stores is that generally, if you look at the cost structure of brick and mortar retailer, you obviously have the cost of the stores, but you have a cost of the inventory, you have a cost of the delivery capability, you have a cost of the the brand, the marketing, you know, to build the customer base. You have you have these other costs in the business. And for us, basically, those are effectively some costs with that with the exception of the cost of the store itself. So we have this leverage. When we open up a store, you know, in the case of the Chicago store, which is in the Northern Suburbs of Chicago in Wilmette, you know, six sixty, seventy miles away, it might not even be that far.

In Romeoville, we have a million square foot fulfillment center. You know, we have these around the country, and it’s full of inventory. Our suppliers own the inventory. We have a 90,000,000 customer file in The US or, I guess, globally, but we have a very large customer file. So we have customers, you know, it’s a household brand in The US.

So we’re able to take the store and get real leverage out of it because of the position we’re in, and we can provide experiences that are harder to provide online and, obviously, touch and feel an item, work in person with a designer. You know, it’s a certain such things like offering financing, which we do to third parties are e it’s easier topic in person than than, you know, over the website. So it gives us a real advantage. Now what we’ve seen with the store in Chicago is that the store on a four wall basis does well. It also creates a halo.

We’ve talked about the lift. If you look at the state of Illinois, which, obviously, we have much more scientific data science models. I show you the lift when you zoom in. But the state of Illinois is, like, an easy way to look at it because the state of Illinois is state of Illinois. And so you just, order ship state of Illinois, and you see a significant lift in the state of Illinois pre post, and that sustained itself.

And then you look at the customers in the four walls who check out, and the majority of them are actually new to file despite the large file we have. So, you know, it’s you could see the economics. Those would imply that the economics are quite good. The economics are quite good. And so we have a plan of what we’re continuing to do in Chicago that we think can improve its performance, and then we have new stores coming next year.

We have Atlanta earlier in the year and Denver later in the year. We had announced one of the twenty twenty seven stores, which is the one outside of New York in Ridge Hill. So

Unidentified speaker, Host: Yeah. Okay. Great. I visited the one in Wilmette. I thought it was great, and now looking forward to the New York one.

And just shifting to CastleGate, so you you hit on it. And at earnings, you spent more time talking about it than I think you have recently, including launching some new offerings. So just to to read off some of it, so you talked about a 40% year over year increase in CastleGate forwarding use, expanding into some new countries. CastleGate penetration on your own fulfillment centers has reached 25%. It’s up 400 basis points year over year.

Expanding into multichannel for your merchants, for your vendors. Talk about that opportunity and CastleGate broadly because that’s a really differentiated offering and kind of where that can go and maybe financial profile, what it can add

Niraj Shah, Wayfair: to margins. Yes. I’ll say a couple of thoughts, and then I’ll turn it over to Kaden. But so, CastleGate, so if you think about the goods we sell, like, they’re big and bulky. They’re, you know, they’re typically heavy.

They might be fragile, you know, in the sense that they they’re items that can get damaged. So how you move these items, how you handle these items really affect your cost structures, your cost of delivery. If you can forward position them from where they’re made close to where the end demand is, that really changes the last mile delivery economics, which is a significant piece of your cost structure. You can reduce damage, which is significant. And to do that, you need to have a logistics network that’s optimized for these types of goods.

These are not the types of goods that are the volume of what people are buying in ecommerce. So most large ecommerce retailers are focused on small packages, you know, under £5 packages because that’s the vast majority of what people buy. That that’s not what what we’re optimized for. So lit CastleGate’s a network we built out to enable our suppliers to basically get access to the kind of benefits you get by having volume because logistics only works with volume, and our suppliers individually don’t have the volume you would need to optimize the logistics. So they pay to use this network that we built.

And then as we get more volume and more scale in it, we can keep adding functionality to it. So house gate forwarding is ocean forwarding where we work with the top carriers, folks like Maersk and you know, and others. And we keep adding lanes, so that’s access from new countries. We have consolidation operations in those countries so we can forward position into more locations economically for our suppliers. They then get the benefit of more sales because the delivery speed gets better, the retail prices get lower.

They’re paying us for those logistics services. So both we get the benefit of the increased volume, and we get the benefit of the CastleGate revenue p and l itself. And we keep adding services to make it easier for our suppliers to put more goods in, turn those goods, and get economic benefit. So that’s a little bit of what we talked about. And so, Kate, maybe you can maybe I’ll turn it over to you.

Kaye, Wayfair: Better sense of what are the what’s the margin profile? How does this, you know, sort of impact the p and l? You know, I think that the largest benefit of offering multichannel is that it makes the CastleGate program, as you’re just saying, more appealing to our CastleGate customers. Right? So, you know, we certainly had feedback from suppliers that one of the things they wanna be able to do if they work in CastleGate is to, you know, make sure that the product isn’t sort of stuck in the network if it’s not moving and that they have other options, and multichannel gives you that other option.

So by far, the most important thing is that how can it help, you know, overall adoption of CastleGate for all the reasons that Niraj mentioned in terms of the value of CastleGate. On multichannel itself, itself, I would think about it as, you know, slightly accretive to gross margins. And, you know, the way that we’ve priced it is to be competitive with other three p l’s. Somebody asked earlier today, so I’ll just clarify here, you know, is the revenue showing up as a contra cogs or in the revenue line? It shows up in the revenue line.

It’s not a contra cogs. So, you know, sort of, you know, additive a little bit on the revenue line. It’s very, very small today, though, so it’s tiny. And, you know, on the gross margins, it should be slightly improving versus where we are.

Unidentified speaker, Host: Would you ever open up CastleGate outside of Wayfair?

Kaye, Wayfair: You mean

Unidentified speaker, Host: So because there’s a three p l for, I don’t know, someone.

Kaye, Wayfair: Some other types of products? Yeah.

Unidentified speaker, Host: Or Yeah.

Kaye, Wayfair: No. Our folks

Unidentified speaker, Host: like a non Wayfair customer.

Kaye, Wayfair: Well, certainly, the multichannel, we will sell to non you know, we’ll sell it to it is acting like a three p l where we will sell to other you know, you can purchase from another retailer, we’ll fulfill it for you. So that is the primary benefit of the multichannel, but it’s still within our space in terms of furniture and decor. We’re not right now opening it to, you know, TVs or tires or something.

Unidentified speaker, Host: But that has to be a Wayfair vendor that’s selling through another retailer. A Wayfair supplier that’s that’s selling, but not someone that’s

Kaye, Wayfair: not it’s not a total third party supplier.

Unidentified speaker, Host: Can it can it bring more suppliers to Wayfair?

Kaye, Wayfair: Well, I we do think it helps for supplier adoption in that, if one of your concerns was, I only wanna work with one three p l Right. And, you know, I’m not sure that one that only ex exclusive to Wayfair is the right one for me. I think it can bring more suppliers to the CastleGate platform, and maybe in that way, Shore brings more suppliers to Wayfair. But that’s not the primary reason. We’d more you’re working with Wayfair, but you haven’t yet adopted CastleGate.

How do you think about CastleGate adoption?

Unidentified speaker, Host: Okay. Yaraj, you mentioned, the loyalty program. Any updates on what you’re seeing there? Is it driving any top line at at all right now?

Niraj Shah, Wayfair: Yeah. So the the so it’s a paid program, so you have to pay $29 to to join. It has significant benefits. And so the customers who join are ones that they’ll they’ll obviously expect to get more than that in benefits per year. So And we’re seeing that member base ramp nicely.

So it keeps growing. And the behavior that members who subscribe exhibit relative to similar customers who have not yet signed up is you do see increases in their repeat rate and purchase rate, etcetera. So it is playing out, you know, kind of as we expect. I I would say it’s still early. You know, we launched it last October, so it hasn’t it’s not even one year old yet.

So, you know, kind of, we think we’re getting benefits from it, but we think most of the benefits are yet to come as it ramps to become a meaningful customer base.

Unidentified speaker, Host: Got it. Okay. Just shifting to GenAI a little bit. So you got launched a few products, the Quarify, Muse, the Discover tab, which I think is a GenAI, right, also. Right?

How how has that driven, you know, growth or certain KPIs, anything, has that been a a benefit for you guys? And maybe within the technology organization that you’re talking about as well, you know, you’re you’ve you’ve shifted from the replatforming. Is GenAI helping you guys there launching products, efficiencies?

Niraj Shah, Wayfair: So we we you know, so, again, part of, kind of our core belief going back to when we started the company, as Steve and I are both engineers by background, is that technology could be a significant differentiator. So we’ve always had a significant technology organization. We’ve always invested in technology pretty aggressively, and generally disproportionate relative to our competitors. And so GenAI, we think, presents a lot of opportunity. The examples you all you gave just now, all of them are examples of features that customers would experience.

And so that’s clearly a place where there’s a lot of Gen AI activity of what we’re doing. But we’ve also been using Gen AI to make you know, it’s it’s really improved the volume of an efficacy of our ad units. It we’ve been using GenAI to kind of add a kind of both QA and add a lot of attribute and missing data to our product catalog. We’ve been using it to kind of facilitate and improve and lower the cost of answering customer service inquiries. We’re doing the same thing on supplier support.

So there’s, like, a long list of places we’re using GenAI, and a bunch of them affect our cost structure, which make us makes us leaner. A bunch of them help suppliers do things, which then helps the whole platform model work. And then a bunch of them are directly features customers interact with, which would then drive up conversion rate, engagement, repeat visits. So we’re being pretty aggressive kind of across the board. And, you know, we think it’s sort you you know, we think it’s just the the kind of early days of what we can do because, you know, if you look at the quality of the models that are out there and what you can use them for and the quality of the data you get back, it’s just you know, every few months, the quality steps up.

And so there’s things today where it’s you run a pilot and, you know, you you see the the potential, but it’s not quite something you’d put into production yet. But you invest in it anyways because you believe in a few months’ time, you will be able to do that, and that’s kind of been the case. K.

Unidentified speaker, Host: What about a bigger picture on the way Gen AI is changing the Internet search, Genetic AI, or Genetic Commerce, being built in into LMs over time? Are you guys preparing for that at all? How how do you envision that changing?

Niraj Shah, Wayfair: Yeah. So, I mean, the same way we’ve been kind of a early partner with Google and Meta and Pinterest as they develop new ad units, we’re similarly with OpenAI, with Gemini, with Perplexity. They they all want to find a way to make queries that are shopping related, higher efficacy, higher quality so that they can answer the questions better. Ultimately, you know, if it’s a commodity purchase where you’re just doing replenishment of the same items over and over, I think there is a potential for, like, an agentic sort of solution that disintermediates the retailer because, you know, that same basket of goods. You know, everyone says our target’s, you know, 8% more expensive than Walmart for the same basket of goods.

What they’re referring to there is literally the same basket of goods. You know? It’s like a Snickers bar eight pack and a Chips Ahoy cookie, whatever, 13 ounce or whatever. It’s the same identical items. Right.

So there, it’s sort of like if a brown box is gonna show up from any retailer with the same exact items and some point, price and speed is all I care about. Right? I don’t care whose name is on the box. I think in a bunch of other categories, if you talk about apparel or, you talk about home, I think a lot of what’s gonna happen is upper funnel. It’s sort of, the providers want to kind of help customers, kind of start to go off in a direction, but I think a lot of the mid to lower funnels still happen on platforms like us.

But what we’re gonna do is we’re gonna invest in making sure that we show up in those places, and we’re also gonna keep adding more and more bespoke experiences on on our own platform such that customers prefer to really shop in our environment because it’s shopping our category is still difficult in the sense that you want to understand what’s out there. You want to pick just the perfect item. You sort of aren’t willing to just say I want a gray sofa, period. And so and then, not just ourselves, but, like, leading players typically have assortments that are, you know, meaningful portion of what you have is unique to you. Right.

And so, you know, it’s not it’s not, you know, exact match products. And so, you know, I can show you a gray sofa, and you can get it at home and think it’s terrible. I can show you another gray sofa. It might even look similar. You get it at home, and you think, you know, one’s terrible, one’s fantastic.

Right.

Unidentified speaker, Host: But you can build that agentic experience into Wayfair. Right? Like, help me Yeah.

Niraj Shah, Wayfair: We have we have pilots running that are basically like a AI designer. We have a bunch of pilots that are running. You mentioned a couple of the efforts we have around inspirational content. So, yeah, you’re gonna see us. We we’ve actually launched some broadly, and we’ve launched some narrowly.

But, yes, we’re we have a bunch of things. Sorry.

Kaye, Wayfair: I think that’s where our, you know, our scale and the significant first party data that we have really helps us.

Unidentified speaker, Host: Right?

Kaye, Wayfair: Because we actually have, you know, the volume of data to be able to do that, to be able to personalize it, to be able to make that shopping experience, you know, whether it’s, you know, truly agentic, but to make it, you know, leveraging those skills. And I think that is different than, you know, regional brick and mortar player.

Unidentified speaker, Host: It helping on the supplier side in terms of their their listings, how they price?

Niraj Shah, Wayfair: Like, are suppliers using it at all? Yeah. So some some of what we’re building are basically we do we do some things today with GenAI to help suppliers with their listings, but there’s actually a bunch of tools we’re building which will

Kaye, Wayfair: Merch side.

Niraj Shah, Wayfair: Allow them to improve their catalog and improve what they’re doing on our platform. Yes.

Kaye, Wayfair: How it’s merchandised, how rapidly that can happen.

Unidentified speaker, Host: Okay. Alright. I want to shift to some of the cost lines. Let’s just start with advertising. So advertising was interesting, came in ahead of expectations in 2Q.

You’ve seen real deleverage in that number since 4Q, so over the past couple of quarters. Can you talk about how you’re thinking about your performance marketing spend between various channels you talked about, like going mid funnel and social and I think influencer as well? You you know, how’s that evolving? What’s the opportunity there? And does that change a long term opportunity on the advertising expense line?

Kaye, Wayfair: Yeah. I mean, I can start and then if you wanna jump So, you know, I I’d sort of step back a little bit and go back to q four, which is where that ramp, you know, really started, and we hit north of 13 on that ad expense line. And what we said then at the time, and I’ll reiterate again here, is that was, you know, not where we intended to continue to operate from. But you saw some one, you know, some sort of step up costs related to testing some of these other areas that you just mentioned, areas of performance marketing where we felt that we should be leaning in a little bit more than we were, and then, you know, mid funnel and some of the other areas where we were not actually probably testing deeply as we should have been before and where we thought that there was certainly opportunity to go further. And so you got some onetime pieces, some of which you’d get leverage on, you know, as time went on.

Right? We always describe the marketing spend as paying back in this sort of multi quarter view. And so part of what you saw in the second quarter is certainly you’re getting some benefits from that. We also said there are places where we’re constantly evaluating what’s efficient. And when we see inefficiencies, we wanna pull back there, and so that will move around a little bit.

And so as we think about, you know, marketing spend in the go forward and what’s the right range, we obviously, you know, hit in that 11 to 12 range in the second quarter. We guided to that again. You know, clearly, that’s a place we’re comfortable with right now. We’re overall really focused on that contribution margin concept that we talked about on the call. So thinking about the gross margin, less the customer service and merchant fees and less the marketing expense, that being sort of 15% or or, you know, better.

And that means that we’re, you know, trying to think through all the time the the dynamic between the gross margin and the marketing spend and sort of how those two are are interrelating. The customer service and merchant fees has continued to improve nicely, but doesn’t obviously move around as dynamically. Margin and marketing being, you know, sort of two of our bigger levers. To your question around, you know, where are we seeing success in these channels, we are seeing quite a lot of opportunity in the mid funnel. So there may be places that we want to, you know, continue to lean in on the mid funnel.

Funnel. So, you know, boosted creator, you know, sponsored creator content, you know, some of the, you know, work that we’ve done on TikTok and YouTube, all of these places are starting to bear fruit. And, you know, as we see, you know, the kinds of returns that we expect from those channels, we can lean in a little bit more into them given that they were much newer and more nascent in the latter half of ’24.

Unidentified speaker, Host: K. And the gross margin line, so maybe just for now, just staying you’ve got the 30 to 31% range. What what gets you at the lower end? What gets you to the higher end? But I think near term, you’ve talked about being beyond that.

It’s a so what breaks you out from that 31, you know, that helps you get to that 10% plus EBITDA margin that you’ve

Kaye, Wayfair: talked about? So so if you thought so first, as we looked at gross margin, generally, it’s made sense to hold in this 30 to 31 when we try to optimize for gross profit dollars on this multi quarter basis. And you can think about the same concept against the contribution margin line. You know, how are we optimizing for contribution margin dollars on this multi quarter basis? And, again, that’s generally been sort of 30 to 31 on the gross margin line for right now.

And so as we’ve seen things that could have expanded the gross margin line, we talked in the q two call or the q one call in May about supplier advertising and actually ongoing growth there. That’s actually become a, you know, really nice, you know, driver of gross margin, but we’ve been able to reinvest some of that, we think, quite profitably in experience in the form of price or, you know, delivery speed or, say, Deluxeing, which is another part of the delivery experience. And what we’re always testing for are are those investments, again, helping to grow the gross profit dollars on this multi quarter basis. So those levers that we’ve always talked about in terms of growing gross margin around, you know, mix, around logistics, CastleGate penetration obviously helps that, around supplier ads, those all still exist. The debate is always, you know, where does it make sense to invest or not?

So we certainly still see the potential to get to that 35. I would say, though, you know, in terms of getting that 10% adjusted EBITDA margins, obviously, we’ve made really nice steps there over the last, you know, year plus. And as you think about, you know, how much more do you need to get there, you can do it with a few points of gross margin, you know, a little bit on the AC and R and ongoing Saka leverage. And I think that’s really important on the Saka piece because what we’ve said on that is, you know, obviously, that’s coming, you know, consistently over the last two and a half years. And that even as the business has returned to growth and continues to grow, we don’t need to add to that line.

So if you hold in that, you know, contribution margin of roughly 15 and your SOC for the time being isn’t growing and, you know, Neeraj just spoke about some of the AI pieces, maybe you get some benefits from that, so you’re able to grow and not add dollars wise to that line, you should be able to use that to get to that 10% as well. So you can see ongoing growth in, you know, gross margin as we talked about. Those levers are there. We’re very focused on the contribution margin piece. And as that flows through, you start boosting the EBITDA margin.

Unidentified speaker, Host: Okay. Great. We didn’t get to q and a. Sorry. But we’re out of time.

Thank you guys so much for being here. We really appreciate it. Thank you. Thanks. Great day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.