Wayfair Inc. (W) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to our next session. For those of you who are just tuning in, I'm Maria Ripps, Internet analyst here at Canaccord. And I couldn't be more excited to introduce Niraj Shah, Wayfair's Co-Founder and CEO. Niraj cofounded the company all the way back in 2002 with Steve Conine. And over the time, the company has grown into one of the leading e-commerce marketplaces with more than 30 million active customers and $14 billion in revenue. Niraj, thank you so much for joining us today.

Maria, thank you for having me today.

So to start off, I had fun recently listening to How I Built This podcast, the original episode you did a few years ago, and then the more recent one about the impact of COVID. And I have to say, it was very interesting to revisit the very beginning of the company. And I mean you've come a long way. So as we get started, I would love it if you could share with us your high-level thoughts on how the company evolved over the past few years, especially over the past year. And what are some of the strategic priorities for the management team these days?

Thanks, Maria. Well, I think just to give some context over the last few years, if you go back, as you mentioned, the company started in 2002, but I think a lot of our current history starts when we launched the Wayfair brand in 2011 and then we transitioned the sites for a couple of years. But really, we started building Wayfair as a brand in 2013. I think a number of folks may remember that we went public in 2014. And so what's interesting is over those 7 years from 2014 until now, we've gone from the one -- little over $1 billion in direct retail sales in 2014 to 7 years later in 2020, we did over $14 billion. And along the way, quite a lot changed. We started building our logistics network in 2015. We started really expanding aggressively into Europe in 2015. And what we've done over time is really built the infrastructure to be the leader in home that we are today and everything from what we have for technology capabilities to logistics capabilities, et cetera. So COVID, this last 1 year has been a real test of those capabilities we built, where volumes spiked. We -- there's all types of complexities and logistics around both delivery, but also the international supply chain and ocean freight. And we've been able to show that a lot of the capabilities we built have, in fact, given us the advantage we said it would in terms of being able to keep reliability high, being able to get capacity when it's scarce, being able to bring that selection of goods to customers to bear even when there's a lot of competition for a relatively limited amount of inventory. So where we sit today, we're particularly -- well, we're excited that COVID looks like it's almost done, but we're also particularly excited about how the company is going to be able to keep compounding for the years to come.

Right. And so the company has been growing really nicely, and then obviously, COVID came along and really accelerated e-commerce adoption, particularly in the furniture category as people were stuck at home. So has the pandemic impacted your business? I mean, obviously, there is a ton of impact. But what are sort of the most important things that you learned over the past year? And sort of just tell us about how business sort of evolved over the past year.

Yes. So from 2014 to 2019, over that period, our compounded annual growth rate, or CAGR, was just a little under 50%. So we've been growing quite quickly. This past year, 2020, we grew 55% from 2019 to 2020. So it was a big growth year for us, but not out of the realm of what we've been seeing over time. And I think that kind of compounding is part of the opportunity that we certainly have. I think our supply chain capabilities have really shined and showing both the agility that our team has. And just the fact that we're used to that rate of growth, I think, helped us where all of a sudden with COVID, you have different safety precautions, you're implementing dramatic changes in a very large infrastructure overnight and handling a surge in volume, and that's ended up going very well.

Got it. So -- and now as the vaccine rollout accelerates and sort of the economy reopens, consumers are likely to spend more discretionary spending to travel and out-of-home entertainment, how does Wayfair plan to keep consumers engaged on the platform?

Yes. I think one of the things that might not be fully understood, we specialize in home. So the home is all we do. But home is fairly expansive, meaning that I know earlier, you mentioned furniture. Furniture is about 1/3 of the TAM that we go after. It's where we started, and so I think that might be why we're most closely associated with furniture and then decor, the whole home furnishing space. But frankly, if you walk a Home Depot or a Lowe's, about 50% of their floor is dedicated to categories that we specialize in, whether that's lighting or plumbing or flooring and tile, large appliances, grills, vanities, door mats, bird feeders, greenhouses, sheds, et cetera. And what we've been finding is that customers, just across the whole spectrum of home categories, whether it's in home improvement or in housewares, or in furniture and decor, they've just never had great access to the selection and the breadth with the content and the imaging, the things that we can bring to bear while still offering fast delivery. And that's pretty compelling. The average customer spends $3,000 to $4,000 per year on these categories. And so even today, where from our active customers, we're getting on average $500, a little under $500. That's a pretty small share of that $3,000 to $4,000. And our competitors, by and large, don't offer that selection, and they don't offer the kind of calibered merchandising and experience that the end customer wants. And so we think there's a lot of room for us to keep taking share. It's why we were able to grow through the financial crisis. And it's why I think, frankly, we're going to be able to grow even if spending splurges on services, which I would expect, as you do, travel, entertainment, leisure. I think American savings accounts, for example, have gone from $800 billion to $3-plus trillion. I think there's money to spend. And I think, frankly, we're going to be able to keep taking share at a pretty significant rate.

Great. I wanted to ask about brand building and marketing in general. So sort of the way I think about Wayfair's marketing evolution is sort of in 3 phases. The first phase was when you had to launch number of websites, and you largely focused on SEO for customer acquisition. Phase #2 for you was when you started sort of focusing on a fewer number of websites, but your marketing spend was still largely targeting sort of direct customer acquisition. And Phase #3 was kind of started a few years ago, was sort of -- has been focused on brand building. And I believe you found sort of customer engagement and loyalty for those channels to be much, much stronger. So with that as a backdrop, can you just maybe talk to us about how you think about Wayfair, the Wayfair brand today? What are some of the metrics you look at to understand the strength of your brand? And more broadly, how are you thinking about investments sort of to continue to build it?

Yes, sure. So the marketing spend we have, certainly, brand building is one aspect of it. But the majority of our marketing spend is really about getting new customers. And the way to think about it is, we'll spend up to a year's worth of contribution margin to get a new customer. But what happens is, after they first get engaged with us and they really see what the experience is like, from a repeat standpoint, we don't really need to spend very much to get in front of them. And the reason is, they have a strong point of view once they've gone through that full experience and what they think of Wayfair. And if they're quite happy, they're very inclined to come back. And what we find is that they're signing up for our e-mail list. They're downloading our app. They sign up for app notifications. So we have many ways to communicate with them which -- where we have a direct relationship, so we don't need to pay for advertising. And so while there is some overall halo we get from our paid advertising, the truth is that direct customer relationship is what drives our business. And the reason we've grown at the rates we've grown is that our repeat business grows at a much faster rate than new, and so we're getting a lot of new customers every year. But what happens is that once they have the experience, they then decide if they want to come back, and we're finding that they do. And so our business now is up to 72% repeat orders. And that's while, as I mentioned, we're only getting $500 per customer per year, which keeps inching up. And so there's so much runway to go when you think about the $500 million relative to the few thousand dollars. And you're right, we -- on one hand, we have 31 million active customers, but on the other hand, we only have 31 million active customers, and so there's a lot more to get. And so as we look to the future, marketing is a key part of the mix in terms of being sort of ever-present and acquiring new customers. But it becomes a smaller piece of the mix as we keep rolling through time, as our brand is better understood and ubiquitous. And as customers, we have more and more active customers who every year, the customers who come back are spending more that year than they did the year before. And that's been the trend that keeps compounding.

Got it. And in addition to Wayfair, I think you have a couple of other brands that you operate today, including Joss & Main, Birch Lane, AllModern, Perigold. So can you talk about how you leverage your sort of direct customer relationships that you just mentioned to grow those brands? And more broadly, how do you look at upgrading sort of multiple brands today?

Yes. So the way we think about it is, you don't just want to proliferate brands. It's quite expensive to have a brand. So the question is, what's the right number of brands? And so the way we think about it, our platform for mass is Wayfair. And then what we found is that there was a great opportunity in luxury. Our platform for luxury is Perigold. So on Wayfair, you find this broad assortment of goods that come from like the opening price point all the way up through the middle and just stop as you enter into premium, has a little bit of premium in it. But what you find on Perigold are all the brands that you would find in the design center, the Boston Design Center, the D&D Building in New York, et cetera. It's the 300 brands historically were only distributed through the trade, through designers and decorators. They have a selection that's far beyond what any other retailer and the high end can offer. We are then giving them a way to get direct-to-consumer through what they can do on Perigold. And then we provide what they don't have, which is the infrastructure for delivery and logistics, the infrastructure for the -- reaching the customer, et cetera. And then we have 3 specialty retail brands, AllModern, Birch Lane and Joss & Main. And there, we're offering a very narrow curated experience around a very specific style at the higher end of mass in the specialty space. And so we feel like each of our brands plays a very specific role, allowing us to really maximize the impact we can have when we look at the total addressable market that's in front of us, which between Europe and North America is $840 billion.

That makes sense. I want to switch our conversation here to talk about fulfillment and logistics. And you touched on that in the beginning of our discussion. So that's one of the key differentiating points for Wayfair, and that was the decision that you made several years ago to invest in fulfillment and logistics. So CastleGate and WDN. So that came at the expense of profits for several years. But now you really started to see that leverage, which creates sort of -- as demand accelerated. So today, your fulfillment network is viewed as your probably the strongest competitive advantage. Can you maybe spend a few minutes talking more broadly about your strategic approach to building your fulfillment network? And what was it that sort of made you recognize that it would become so important for the company's operations?

Sure. So in the goods that we handle, if you look across home goods in general, they're generally large and bulky. They're low dollar value per cubic foot. And the way that manifests itself is, of every revenue dollar, $0.20 is basically spent on some form of logistics. And the other is the initial transportation, whether it's the ocean freight and the drayage, whether it's the over-the-land transportation, whether it's the final mile or the warehousing. And as much as $0.20 of every dollar spent on that, the reality is if you look at our suppliers, by and large, they're small and medium-sized businesses. So their ability to optimize the logistics is quite limited given the breadth and scale that they have. And so what we found is that there's quite a good opportunity for us to build out a logistics infrastructure to enable our suppliers to use it, thereby offering a higher quality of service at a more competitive cost and enabling the customer to get incredibly fast delivery. Because by worrying about the whole chain, we don't worry about taking goods and putting them in the cheapest place to get to in the United States, which would be in Southern California when 70% of the population is on the Eastern Coast of the United States, for example. We worry about putting goods right near where the population centers are. The net cost savings of that final mile savings more than makes up for the cost earlier. So your net cost goes down. You get to next-day delivery. It's quite an exciting sort of thing. Ocean freight is the same thing. I mean, today, there's headlines about how the Suez Canal has a ship that's effectively blocking it due to some mishaps a few days ago. That's just the latest in what's happened over the last year on ocean freight, just creating a tremendous amount of congestion. We, with the scale of the forwarding business we've built starting 3 years ago, have been able to provide our suppliers with access to containers and transit during a period of time where there's been tremendous congestion. And last year, we moved 46,000 TEUs. This year, we'll move significantly more than that. And this is with the top-tier carriers, with Maersk and Hapag-Lloyd and others. And this is something that we're in a position to do that our suppliers aren't. So we view logistics as a key thing that you need to do in order to win with the customer. And what we found is the way we can do it with our suppliers is by us building the infrastructure and then partnering with them, letting them use it and purchase the appropriate services from us, that's enabling all those benefits to flow to the customer.

Got it. And as you look at your sort of fulfillment network today, what level of investment in CastleGate still remains? What are some sort of focus areas for future investments?

Yes. So what's interesting is that the expensive part of building out a logistics operation is the start, and it's the start because you basically need to build a bunch of pieces while you don't yet have the volumes to warrant all of them. So you have that -- because if you only build what you have the volume for, you never really build what you need, and so you have to build it for a relatively high cost. And then as utilization increases in it, you basically, all of a sudden, it's operating quite efficiently, giving you gains. From that point forward, it's not particularly expensive because what you need to do from that point forward is just expand it when you need capacity. But because you're only expanding it for capacity, the capacity you add gets used very quickly, and so that the cost of the underutilization doesn't really exist. Where we are today is we built this footprint. We have 18 million square feet of logistics space across Europe and North America, the consolidation operations in Asia. Those 18 million square feet are spread across, for example, in the U.S., it's 65 buildings. And those buildings, some are small delivery operations, some are 1 million square foot warehouses. We still have a runway of a lot of utilization we can drive out of that, which is why we really haven't launched very many buildings this year or next year. But we will launch buildings into the future. But at that point, if you think about 18 million square feet, if you add 1 million square foot building, you've really only added, what is that, roughly 6% capacity to your network. And so you think about our business where we've been growing at rates many multiples of that, right? We've been growing at rates in excess of 40% a year for a long time. It doesn't matter what rate you grow at the point being you eat up 6% of capacity very quickly when you grow at these kinds of excess rates. And so the nice thing is we're at a point where we're getting the benefits. We can add a lot of finesse. Every new building we open is just driving up the next-day delivery percentage. And at the same time, it doesn't really have very much cost associated with it.

Great. That's very helpful. I wanted to ask about sort of the home category more broadly. So there is a perception among some investors, and I actually think you brought it up in the beginning of our discussion as well, that sort of in the home category, once people furnish their homes, they don't need to buy anything else for a number of years. Your level of repeat purchases, which is over 70%, suggests otherwise. So maybe can you share your thoughts on how you view sort of discontinuity of your customer relationships?

Sure. So I think if you think about what ends up happening is the reality is customers don't furnish their whole home at once. And in fact, the only place that's really ever done is at the super high-end of the market. And so what customers do is they tend to move with the things they have, they'll add some pieces over time. And then if you think about the categories you describe this as being in, I think that comment is also rooted when people think about furniture. But the reality is, furniture is just one piece of our TAM. And so sure, furniture, but let's just start with the backyard as a space. Well, you have furniture, but then you'd have -- you have your patio umbrella. You have grills. You have planters. You may have a hot tub or gazebo. You may have a shed. You may have a hammock. By the time you're done listing out all the things you could have in your backyard, they're quite numerous. Now if you go to the front of your house, you have a door mat, you have a mailbox. And again, you can go down through a long list. You have a bird feeder. Now when you look in your garage, you might have garage storage. There's other items that we'll sell there. Now you go into the house. Well, there's furniture, there's large appliances and there's lighting and plumbing and tile when you do a renovation. And then there's all the decorative categories. And you go into the kitchen, there's the small electrics. There's the plates, there's the knives. And so what happens is you're actually in market for something in home at every point in time. And so if you look at that, the customer in theory could buy from us constantly. Now we don't have 100% share of wallet for our customers, so they're not. But if you look at the $500, that $500 is coming from 2 purchases per year on average from our active customers. But one of the statistics we just put in our investor presentation is, we mentioned that last year, the same year where we had 31 million active customers, we mentioned that we had 4 billion visits to our site or our apps. And obviously, we have some visits from people who don't buy from us, but we have pretty good conversion rates. So if you do some basic math, you'll find out all of a sudden, the average person is visiting our site many dozen times a year. You say, "Well, why would they visit your site many dozen times a year and only buy twice?" Well, the truth is there's only 2 categories that customers are very, very passionate about broadly in physical goods, and I'm not talking about automobiles. Meaning they're not as passionate about grocery or consumables. But when you get to fashion and home, they're actually quite interested in trends and what's out there, where things are headed and ideas and inspiration and aesthetics. And so all of a sudden, you'll actually -- if you think about it, you'll realize, well, there's magazines devoted to fashion, there's magazines devoted to home. And so a lot of what we're doing with customers is basically providing them with content, letting them explore and get ideas, and that manifests in them purchasing from us more and more over time. And that's kind of the journey of what we've been on. And I think it's why home is different. So once you realize the breadth of home, the $840 billion is not any one category. It's 1,500 different classes of goods. And then when you realize how consumers engage with the category of home, you start realizing how loyal and sticky the customers are and why it becomes so obvious that we're just -- that repeat flywheel is still in its early days.

Got it. I mean you've done a great job innovating in certain categories over the years like mattresses, for example. Are there any sort of category that you sort of would like to add at this point?

I think by and large, in terms of categories, we really like the categories we're in. If you go through the top NAV tree on wayfair.com and you just saw those different pull downs, you can see all the different categories we're in, and there's quite a lot. There'll be a bunch that you might not have thought us -- about us for. Like, I don't know if you would have thought about us for a hot tub or thought about us for garage storage or thought about us for a refrigerator or thought about us for doors or cabinet hardware. But those are all categories we're in today. And in all of those categories, we're taking more and more share as the years go by. And so I don't know that the big focus is adding more categories to that list, but it's more about going deeper, taking more and more share. And honestly, even at the $14 billion we did last year, if you look at the TAM and what the potential is between Europe and North America, we're at less than 2% share out of that $840 billion. That $840 billion, just with the category growth is on track to be $1.2 trillion in 2030. If we simply kept taking share at the rate we have over the last number of years, 5 years, I believe it is, we would actually end up 8x as big in 2030. If we were 8x as big, 8 times 14 is $112 billion. $112 billion would still be less than 10% market share out of the $1.2 trillion. So it's not very much share. And now if you look at the rate that we've been taking share, it actually does keep climbing, we would expect that we could have a significantly better outcome if we do a good job. But the point being, this is a very large, very fragmented category, full of opportunity. And customers in -- before the opportunity with the Internet, coupled with the type of logistics and other tools we've built, the imaging capabilities and technology we've built, it wasn't possible to really take a tremendous amount of share because that fragmented nature was required for a customer to get access to selection, no one retailer could have the whole selection. All of a sudden, we can offer an incredible experience to the customer in a way that warrants them giving us more and more of their spending. So I think that's the journey we're on.

Got it. That's very helpful. I wanted to ask you about the competitive landscape. And sort of how do you view the competitive landscape within the home category more broadly? And what do you think the unique advantages that Wayfair enjoys as a pure-play e-commerce platform for the home category versus others that perhaps sort of have a multi-category approaches?

Yes. I mentioned a few minutes ago how home and fashion are really bespoke, and they really -- if you're buying AA batteries or nails or a power saw or paper towels or dish soap, they're kind of all the same. It's a commodity. You know what you want. There's a few brands that compete with each other. You basically type in what you want, you get it. Or you type in the category and you get the 4 different brands and you pick the one you want. Maybe it's a 42-inch TV, you don't just pick it by brand. Maybe you read the reviews of the Samsung one versus the Sony one, and you pick which ones is a little better for you at the price point you want. But it's all commodities, and that's what most e-commerce platforms are focused on. To really focus on fashion or to focus on home requires a bespoke approach. And those two, fashion and home, are quite different from each other. So they share attributes, meaning aesthetic matters. People want to find the right, unique item. They don't want the same item as anyone else. But then when you get deeper, how logistics works, how merchandising works, what content and education customers need, those are entirely different. And so we're very focused on home because it's a huge market with a real need for these differentiated points in order to really provide the customer with the best experience. Who do we compete with? We compete with basically those folks who focus on commodities. And so as a result, it's very hard for them to really be the logical place a customer would want to go, which is why we're successful in taking share so well. And we then take the gains we're getting and we invest back into making the experience more bespoke, and that just creates a compounding cycle. And the reality is we're now at a size where we gain so much benefit that the amount that we can invest before -- we're not maxing out our investment by some arbitrary number. We're maxing it out by, like, there's only so much you can actually do at any given point in time, like you can lower your headcount so fast productively, you can only spend so much in advertising productively. And so we use those constraints and what's left is the profit, and I think we've been demonstrating that the profit potential of the business is tremendous because we're actually hitting profit levels that are close to the old long-term model while we're still aggressively investing a tremendous amount. And that's basically, I think, we recently updated this guidance for folks to basically show them that the profit potential is actually dramatically higher than we'd previously explained. And so I think folks are starting to see that the model works, and we're at a scale where there's significant benefits accruing to us.

Got it. Niraj, I'm sure that for a lot of your vendors, Wayfair represents a significant majority of their sales. So as you scale, how does that impact the way you think about possibly bringing some of your suppliers in-house?

We think we benefit by having a partnership model we have today with our suppliers, meaning that we focus on half the value chain. So we focus on end customer delivery, customer service, merchandising, marketing. We then partner with them on 2 things, and I'll come to those here in a second. What they do is they basically focus on product development and design, manufacturing and QA/QC. And so they focus on that. The 2 things we partner on, one is the physical supply chain where it needs to start in theirs and end up in ours and so how do we partner there. And the other one is what we call the content supply chain. So they're building these items. Well, we need information from them, and that then needs to manifest with all the content we can make available to customers to help them pick the right items in a way that make customers very happy. So the way to think about it is, what would be the benefit of us basically trying to cut out our suppliers? We would basically create competition amongst our suppliers in a way that wouldn't encourage them to lean in our platform. We wouldn't be able to harness the energy of these 10,000-plus suppliers who are each going to market with an innovative view on products and innovative view on what they can do from a product development and manufacturing standpoint. And so we view it as well, we're going to be better off just giving them more tools and partnering more and more closely and how do we integrate those 2 supply chains, the physical supply chain and the content one as well as we can. And so I think the traditional retail model, well, I'm just going to cut off my supplier and go direct to the factory. Yes, if you offer 4 bar stools on your shelf, and that's what you think the customer wants, sure, that makes sense to do. The problem is the customer doesn't want 4 bar stools to pick from. They appreciate that we have 10,000, and we have 10,000 because we partnered with all of these suppliers. And the retailers who have this old playbook of where, oh, we just pick what we offer and we just go direct, that's great, but the days of that model winning is unfortunately for them over, and that's the real challenge.

Got it. That makes sense. Switching our conversations here to international markets. If we look at your footprint outside of the U.S., so you've got Canada, the U.K., Germany. You recently talked about the U.K. and Germany generating over $1 billion in combined revenue. Can you maybe talk about how those markets are scaling? And what are sort of -- how do you view the profitability curve there?

Yes. So the 3 international markets we're in today, Canada, Germany and the U.K., are all growing very nicely. We have a household brand in Canada. We have one in the U.K. And I'd say in Germany, we're about 2 years into what is a 4-year cycle to building one, and it's tracking quite nicely up that curve. So we're really happy with the performance we're having in all 3. I think one thing to understand is what we've done in Europe is we haven't focused on building a business in the U.K. and a business in Germany. We actually invested ahead of the curve into a network for Europe, meaning that we -- there's 30 different countries we source from where we have a transportation network pulling out of those countries, delivering today only to customers in the U.K. and Germany. But by having this network of suppliers that are all across the various countries, the transportation network that connects it all, we're basically in a position, and we have category teams based out of our headquarters there in Berlin, that we have an Italian category team, Spanish category team, they cover the suppliers in those countries. They're all native speakers of the language, et cetera. We're in a very good position to actually keep expanding. And so I think the way to think about it is the international P&L, which doesn't show the profitability that the U.S. has, it will as it gets more scale. So there's nothing that's different about that. It's just an earlier point in time, and we're not going to forego some expansion opportunities we have to grow that business in a way that just focuses on near-term profits versus much larger long-term profits. But we're pretty excited about how far it's come because that business, which was only $50 million in 2015 in Europe is now, as you mentioned, well over $1 billion, and it's growing at a very fast rate because, again, $1 billion is not very large relative to the TAM. So it's going to be able to keep doing that for a while.

Got it. And as you think about sort of expanding there, sort of what markets do you need or want to be in longer term?

Yes. So I think the way to think about it is, right, we have a B2B business in North America that's about 10% of the business in North America. It's less than 1% in Europe because we really haven't focused on that yet. So we'll grow our B2B business there. We're in luxury in North America with Perigold. We're not yet luxury in Europe. So we will get into luxury in Europe. We have a great opportunity in the countries in Europe. We're in the U.K. and Germany. There's other countries we haven't approached yet that will make sense. So there's opportunities to expand. But I think the way to think about it is, expect us to stay focused on home, expect us to stay focused on North America and Europe, but expect us to really want to fully penetrate the TAM by using all of these strategies that we kind of test and pilot and then expand as they make sense in a way that just makes our overall business stronger and strong.

Got it. That makes sense. I want to ask you about sort of your data that you accumulated on your platform. And sort of you have granular -- you have access to granular consumer to -- data to granular consumer behavior. You see what they're looking for. You see what they're actually buying, you see what they buy together, et cetera. So can you maybe talk about this data asset, how it helps your business? And how are you sort of planning on leveraging it going forward?

I mean, it's a huge advantage we have because if you think about the experience in our categories, part of the wonder is, well, having a huge selection means we have the perfect item for every customer. Well, if we can figure out how to help each customer find the perfect items for them, that's pretty compelling. So everything from what e-mails do we send a customer to how do we treat different customers differently in terms of their interest in content versus products to how do we know what the right selection is for a person, how do we know what categories they might be interested in. There's a whole series of things we can do from a customer lens. Then similarly, we can take a lot of the data we have, and we can share it back with our suppliers, help our suppliers understand what's happening on the platform, what are the types of products that are in demand, where are there gaps in their catalog that they may want to fill that are gaps where they could create a big business for themselves by providing that item on our platform, how do we help them know what the exact sweet spots are on price. Maybe their pricing is something a little too high, but there's a lot more volume if they move the price down a little bit. So we're trying to take all the data and use it 2 different ways: help our suppliers take care of our customers, help our customers have an incredibly good experience. And that creates a very nice reinforcing cycle. We then, of course, also use the data internally, how do we make everything we're running more efficient and better. So we're highly quantitative. We have over 3,000 people who are building technology or who are data scientists. These are data scientists, software engineers, product managers, analytics folks. And what they're doing is they're just improving this kind of technology that we use to do everything we do in ways that our competitors can't. Part of it is building the technology. Part of it is what fuels the technology is the data underneath.

Got it. We have a lot of questions coming in here via webcast. Maybe I'll just take 1 or 2. One is, how much does next day or 2-day delivery drive conversion?

So faster delivery speed, I mean there's a curve -- basically faster delivery speed -- with every faster level of delivery speed, conversion does tick up. The irony in our business is, the faster delivery speed actually means that your cost of delivering to the customer actually drops because the delivery speed is basically a function of how well we forward position the good to begin with, whether it's already in the geography where the customer is. Because if it is, we can do next-day delivery. I mean that's where the advantage of our logistics network is shining through because it's allowing us on a more and more cost-effective basis to forward position more and more. And as we grow, we open up more centers, we basically can do that more and more and more so. So it's a nice cycle we're in. But I don't have an exact number to provide you with, so I'm not going to share that. But the point being, 2-day drives conversion and then next day drives even better conversion.

Got it. Another question we have here is how has Wayfair -- how has Wayfair's customer LTV to CAC ratio trended over time? And how should we think about a natural ceiling for the LTV to CAC ratio?

Yes. So it -- the short answer is it keeps getting better. And the reason it keeps getting better is, I've mentioned, we'll spend up to the 1-year contribution margin to get a new customer. And so you say, well, the breakeven point, the 1 year in has stayed the same. But if you look at our investor presentation, there's a slide in it, which shows the cohort curves, and what you notice is the cohort curves keep getting higher and they actually rise over time. So what that actually means is that all the -- if the breakeven is at the same point, but the area under the curve is increasing over time, that means your IRR or whatever you want to think about your return, it's actually increasing. And then from an LTV standpoint, you have to pick what time horizon you want, but you have some of these curves that we show you in that presentation that go out 5 years, and you can see that they keep rising. So you have to decide what lifetime value you want to use, but no matter what time frame you use, basically, you see the returns keep increasing. And we think there's a long way to go to your question about where we think the ceiling is because, as I mentioned, we're only getting about $500 per customer per year. And so you can take a position and say, "Well, you're never going to get the full few thousand dollars." And that could be very well accurate. I certainly believe that that's accurate. But we get far more than $500. And so you realize, just moving that number a little bit cause a tremendous amount of profit in the model because all of your other costs have been -- all the contribution margin effectively drops to profit. Well, the truth is we think it can rise dramatically from $500 over time.

That makes sense. And maybe another sort of question here to address is, can you talk about your sort of experience with pop-up stores? And can you just share with us your thoughts around omnichannel strategy? Sort of how do you view that? And sort of how are you thinking to potentially -- about potentially capitalizing on physical retail?

Yes, sure. So over a period of 2 years, we tested some different pop-up stores in different locations. We learned a lot from that. That led us to launching one mall-based store that we launched in a mall outside of Boston, but it was fairly small. It was about, I want to say, just under 4,000 square feet of sellable space. So quite small, particularly when you think about the Wayfair brand proposition and the categories and assortment we have. That was quite -- from an economic standpoint of dollars per square foot and the likely it was very productive. We learned a lot from that. We're now working on the next concept we want to test. And so the basic idea is it's just like everything else we do. We're going to test and learn. We'll find a concept that we think really delivers what we want, and then we'll scale it out. The reality is I can run you through that math. If you just grow out the share taking we've been doing, we're 8x as big by 2030 to $112 billion. Well, the truth is, as I mentioned, that's less than 10% of the end market, the $1.2 trillion, right? And so if you think about it, we could achieve that without stores. But what would stores help us with? Well, store should only make the opportunity and the outcome even better, well, and should we think our shares should rise, whether or not necessary, yes, we do. So these are all in hand. Meaning, we have a big opportunity in Europe and the countries we're in. We have a big opportunity in Europe with the B2B business. We have a big opportunity in Europe to expand countries. We have a big opportunity in North America. We have a big opportunity with what we're doing now in B2B verticals and the categories becoming more bespoke. We have a big opportunity if we add stores as a channel in the mix. Because we already have the supply chain built out and because our suppliers basically own the inventory in the chain, stores are effectively a high-margin marketing channel for us in the way some of these other ones have been. So that's why we're continuing to test concepts to find what we think will work.

Got it. Well, that's been awesome, and it's been incredibly insightful discussion. And before we let you go, I'd like to ask you one question that we're asking all our participants today. And that is, what is one prediction about the e-commerce space that you think might surprise people over the next 2 or 3 years?

I don't know if the exact time frame is right, whether it's 2 or 3 years, it might be a little longer than that. But I have -- my belief of how the phone, the smartphones people have and the cameras and the device, the hardware that's in them is going to make it such that I think augmented reality is going to become a very basic part of the purchase process, almost an intuitive part in a way that my children, so my wife and I, we have 2 teenagers. And they -- when we make sometimes references to when we were young, they can't even fathom how that would work that way or how that was possible. There's an element where I think augmented reality will become a very intrinsic part of purchasing, particularly in the home category where just -- it will just become such that you can imagine that you didn't carry a phone with you. It would be that type of thing.

This is great. Well, this is a great prediction, Niraj. Thank you so much for joining us today. We really appreciate it. Thank you very much.

Thank you.