Wayfair Inc. (W) Earnings Call Transcript & Summary

All right. Welcome, everyone, to our first Investor Day. I'm James Lamb, Head of Investor Relations and Treasury here at Wayfair, and we couldn't be more thrilled to have everybody here. Really appreciate so many of you traveling to Boston for the event. Before we get started, I'd like to acknowledge the safe harbor statement. Certain statements that we make today may be forward-looking statements based on our current expectations of future events. We cannot guarantee that any forward-looking statements will be accurate, although we believe we have been reasonable in our expectations and assumptions, and we do not undertake any obligation to update or revise any of these statements. We will also highlight certain non-GAAP financial measures today, and reconciliations of these measures can be found in the appendix of today's presentation. Investor Day is being webcast live and may be accessed by visiting investor.wayfair.com. A replay and a copy of the presentation will be made available following the conclusion of today's event. So just so you know how the afternoon is going to go, in a moment here, I will welcome Wayfair's co-founders, Niraj Shah and Steve Conine, to the stage to kick us off and really set the scene for the day. Then we're going to spend some time with our extended leadership team. This is something we really pride ourselves on here at Wayfair, a very deep bench of incredible individuals that really lead our core business functions, and we couldn't be more excited to introduce them to you. This team will present a series of deep dives designed to take you through each of the core areas of our business from the perspective of what we -- what drives us every single day, which is the customer journey and optimizing that customer journey. Throughout this journey, you'll gain more insight and more detail into the category-defining capabilities and core differentiators that Wayfair has across our organization and our business. After a quick break, we have some special guests here today. Some of our key suppliers are going to speak about how we've enabled them to unlock the next level of growth for their own businesses. Then Niraj will come back along with our incoming Chief Commercial Officer, Jon Blotner, to walk you through our multiple growth drivers. Finally, CFO, Kate Gulliver, is going to share a financial deep dive, and then we'll end with open Q&A with all of our speakers. As a quick housekeeping item, please hold all of your questions until the end of the event during this Q&A session. So as you can see, we've got a packed and full agenda for you today. So with that, I will welcome up Niraj and Steve.

Thank you.

Thanks, James. Awesome. Thanks, James. So we are very excited to have you all here today. It's great to see some familiar faces and see a bunch of new faces in the crowd. We almost made it a decade without doing an Investor Day.

21 years. So every 21 years.

Yes. That's the thing. So Niraj and I are the co-founders. We started this business in my apartment here in Boston back in 2002. We took it public in 2014. One of my most exciting things about that journey has been ever since we've been public, I haven't had to give Niraj a raise or pay him anything more.

Actually, the pay has gone down.

Yes, I suppose. So one of the things I think that makes us quite unique is that we basically are very aligned with all of you in the room. So Niraj and I both major shareholders in this business. We -- he's shown half of it when we went public. Obviously, we've had some dilution, but we are both -- the majority of our -- vast majority of our wealth is in this business, really believe in it, and we really align the way we are incented with all of you. So very exciting to have been through the whole journey.

And I think we've been fortunate to know some of you for many, many years. And then I know there's a number of you that are relatively new to learning about Wayfair and meeting us. So today, I think, will hopefully be a really exciting day for all of you. We're going to tell you a lot about the business, but I think we're going to provide some interesting insights into it that even for those of you who have known us really well, some of that information might be new to you. So I think, hopefully, you'll find this to be a very exciting afternoon. With that, we're just going to open up with a few quick slides to just lay the foundation. And then as James mentioned, we're going to get other members of the team up here. And just so you know, the 11 different Wayfair leadership team members you'll meet today will all be here during the cocktail hour as well. So if you end up on it and have questions for anybody, you'll be able to see them all at the end of the afternoon as well. First thing I just want to touch on, which I think we talk a lot about, but we talk a lot about it because it's very important, is just that as a product category, home is quite different. And why do we talk about that? Well, when you start learning about the business and all the things we're doing, you'll learn that everything we're doing is very bespoke for what is a very large category and one that functions quite differently when you think about the nature of the goods, how someone understands the goods, how someone picks the right type of item, how that item is delivered. The fact that it's such a large industry that is unbranded, that it's very fragmented and that there's a lot of emotion in it are key drivers to why we can create a very distinct experience that from the customer's perspective is significantly better. And then the fact that we can control the logistics has a dual benefit. One is the customer experience of the logistics and the delivery is much better, so they're happier. But the second is that logistics cost is a significant driver of the cost structure of the business. And so when you control that logistics cost and you can reduce that logistics cost, it allows you to hit retail prices that are much sharper while making the margin you want. And there's no real way to do that unless you take the logistics on yourself. And so we'll talk a lot about those things with some details for you as we go through the day. I mentioned it's a really large category. We just want to underscore that, and we'll kind of give you some insights into how we think about it and how it's cut up as we talk about this through the day. Sometimes we hear is well at $12 billion, $12.5 billion, whatever size you all estimate us to be right now, that's pretty big. So you're not going to be able to necessarily grow a lot. And the truth is the TAM is very, very large, right, $800 billion TAM. And it's growing at around 4% a year CAGR over time. So the 2030 be around about $1 trillion. And so when you think about it from a share perspective, it's quite a small piece of the market we have. And when you couple that with all the things we're doing, which is what we're going to tell you about today, you can start to see why growing at significant rates is very possible and very doable. And lastly, the point here is just that of scale. E-commerce in every category is a game of scale. With scale, you can offer incredibly fast delivery. You can offer a vast selection. You can offer it very economically to the customer. You can invest in advanced technologies. And frankly, without scale, you cannot do those things. And so what's exciting is, on one hand, we're a very small piece of the TAM. On the other hand, on an absolute sense, we have scale. And there's things we can do that take advantage of it. And so when you think about players, when you think about players in the large verticals that exist outside of the general merchandise commodity areas like home, where we focus, or fashion or automobiles, you'll find that they're specialists and you'll see that they've invested in logistics and they've invested in doing bespoke things. Or if you think about the generalist, an Amazon or a Walmart or a Home Depot, you'll similarly hear about how they're investing in logistics and bespoke experiences for whatever they're doing, whether it be building materials or grocery. And that's the key to e-commerce is providing a very specific experience for that category in a way that customers love and then using your scale to increasingly make it differentiated. And with over 2,000 people on the technology side with over 21 million active customers, over 13,000 people on our team, there's a lot of things we're doing, and that's what we're going to talk about today. As you all know, all these slides will also be available on the Investor Relations portal after the event, along with a video recording of this whole session. So obviously, take notes and jot down anything you want, but always realize you'll have that available as well. And so just to wrap up, the key takeaways here. I just want to leave you with home is unique. We're built for it and we're leveraging scale. And on one hand, you're going to hear today how we're investing into a lot of different things and how there's a lot of different things that we're doing that are different. We have large teams on these things. Those investments are large. But to keep in mind, the P&L you're hearing and seeing, the 4% EBITDA we had this last quarter, that's while we're investing in all of these things. So when we tell you we have profitability and that annually it's going to grow, that's why we're doing all of these things we're telling you about. So don't think about the investments and the growth opportunities as inconsistent with growing profitability. Think of them as mutually consistent. I think that's part of what makes us very exciting. We're making fast progress along the plan we told you about, and thanks again for coming. With that, let me hand it over to Steve.

All right. So right. So we're going to go through a bunch of different areas of the business. And we thought, hopefully, a very intuitive way to do it is to take you through kind of the life cycle of kind of the journey of our customers. So we're going to kick it off with marketing. So Paul Toms, who's our CMO, is going to take us up with marketing, which obviously they are the team that introduces the brand to customers, runs the advertising tech stack and really is the initial voice that customers will hear. One of the things I think that is underappreciated probably about us -- well, certainly, our competitors probably appreciate it, but I don't know if broadly is -- we have a very strong advertising capability. And I think we do a really interesting job in allocating how we spend our advertising dollars and how we think about investing and amortizing. So Paul will take you through a bunch of that. Next up is merchandising. We have a massive product catalog. And one of the things about home is it's shopped very differently. It's very motive. And people really a lot of times can't tell you exactly what they want, but they need to be led to a solution. And so we've invested a lot in trying to figure out how do you help rationalize a massive catalog and make it exciting for consumers to shop. So Liza Lefkowski is going to be up. She's our VP of Curated Merchandising and Stores. She's going to take you through a lot of how we think about our catalog -- suite of catalogs. One of the -- I just got actually our physical Wayfair catalog in the mail this week and I don't know if any of you are on our mailing list, but her team puts the catalog together. And it's -- I think it's a piece that's kind of an interesting one that sort of shows you how we think about presenting to the mass market consumer. It does a very nice job, I think, bringing the brand to life. Next, we're going to go to pricing, which I know a lot of you in the room have looked at in-depth and kind of think about how do we -- how is our pricing relative to market and how do we compare to competitors. Corey Gilbertson, who's our VP of Pricing, Competitive Intelligence and Trends is going to take you through a bunch of how we think about pricing and how we sort of segment it out. It is -- obviously, one of the key levers of retail is how you price. And so we have a very strong team behind this and have moved from -- Niraj and I just kind of like surfing the Internet and trying to put our finger on kind of what the price would be, to actually highly programmatic and very advanced data science behind how we price and there's a lot of input data that goes into it. Next, we're going to go into supply chain. So this gets into [ e-notes ], someone's come on to the site, they found what they want, they're placing an order. Thomas Netzer, he's our COO, and he's going to take you through this. But I always tell -- I do a lot of new hire orientations inside the business, and I always tell the new hires that 80% of e-commerce is really the operations side of it. that it is very easy for us to throw up a website that promises everything is in stock, and it all is going to ship same day and it's all going to deliver to you seamlessly. It is very hard to durably deliver that and make that happen. If we do our job right, it's seamless to a customer, you come on and it feels just like the shopping experience you expect. But to make that happen is really what differentiates great retailers from mediocre or resellers that got a business. And so Thomas is really going to give you some insights into our supply chain. A lot of the money actually we've raised in the public markets has gone into that part of the business, and it's gone into building out something Niraj and I would have dreamed about when we started this business as a capability that could really differentiate the company. Today, it's really coming to life. And so he'll dig into that. Sales and service has always been a core thing to us. In the early days, Niraj and I both did a lot of customer service calls and really believe that in this category, servicing customers with a very human touch is important. And while self-service certainly can be very important as well, you need a good blend. And where we've evolved it to today is very impressive. Sanjeev Sahni is our VP of Global Sales and Services. He's going to take you through it. But we've, I think, maintained a very strong human connection with our customer, and we do a very good job of servicing people with very -- a very broad set of complicated needs in this category, while making it more and more efficient and increasingly bringing technology and new techniques in to really make sure that we are doing it as efficiently as we can. Ultimately, that's what lets us deliver great value to our consumer. And then technology is the underpinning of this whole business. We have a very strong team that is all very steeped in technology. And so Niraj and I are both engineers by background. And so our technology platform, our technology team really enables the business and enables all the functions. Fiona Tan's our CTO. She's going to take you through that. It's an area that's near and dear to me. I was the CTO here for the first decade or a little more. And really, I think our capabilities around being able to leverage software and being able to take the execution risk and the development risk of software and bring it in-house and maximize it and really put our thumb on the scale of being able to push it harder than companies that are using consultants or companies that are buying software has been a real advantage to us. So I know you'll find the stuff she's going to go through very exciting. She's going to talk about some of the new cutting edge stuff we're doing as well. So with that, I hand it off to Paul Toms.

All right. Thank you, Steve. Hi, everybody. I'm Paul Toms, I'm the Chief Marketing Officer here at Wayfair. I actually have been here for 16 years. So quite a while. When I started, it was CSN Stores. So it's a pretty big milestone, and I'm actually very excited to be here for our first Investor Day and that we're here to share a lot about what we've been up to and how we think about things. And I personally I'm excited to get to talk to you about marketing. So what I think is probably best as an anchor point for all of us to start with is our customer, who they are and sort of the problem or the need that we solve in the market. So we are a mass retailer. And if you look at that demographically, it's pretty straightforward. We've got a wide age range, 25 to 54 years old, skews female, average household income of $80,000. But what I think is significantly more important is the need that we address in the market. And that is for everyone to be able to create a home or a space that's just right for them. that reflects both who they are and how they live. And we think that, that is a very common need. We think it's both a functional need. So I need a place to sit, I need a place to put my laptop so I can type right now, right? But it's also, for our users, a very emotional need. I need this to reflect my style, I need this to fit my family, I need it to fit my budget, right? And so we think that this is quite wide. It could be everything from your first dorm room, really reflecting who you are and who you want to be when you go away to college. Or it could be an empty nester couple who are redecorating their child's room and turning it into a guest room as they send their child away to college, right? And anything in between and frankly after. So we see this as being quite a large need, quite a durable need. We will always need places to sit. And so that's why we're excited about this market over the long term. We address these, as Niraj mentioned, via 3 core areas of focus. We're going to go into a ton of depth on these, and so I'm going to keep it relatively high level. But at a high level, it's unparalleled selection. We want to have access and offer access to the widest array of goods in the categories where we play to our customers. We want it to be easy and seamless. So whether that's in discovery, comparison, placing an order with confidence, getting a delivery for an item that's big and bulky, we -- and our focus in home only is put on taking all of this nuance and making it easy, right? And then we want to offer tangible value throughout the entire process, and we think we're able to do this by way of our scale. And so we think this solves a very broad set of needs in the market. But when we talk then about our marketing, we take this very broad set of needs, and we want to be incredibly nuanced in our approach, right? And so that we see our customers as being in very different life stages. We see them being in a very different emotional state or they have different financial or they have different constraints that they're dealing with, whether that's time -- it could be time, for instance. But I think where we want to go and how we think about marketing is how do we meet them both, where they are physically, but how do we also meet them where they are in their life and address them and pitch Wayfair to them as their solution that's quite relevant for them. So we meet some of our customers -- many of our customers online, right? But we also meet a number of them offline. We will be very inspirational in our messaging in some channels or to some users, where we'll focus more on confidence building for someone who's not quite ready to buy a sofa that they haven't sat in online, right? How do we give them confidence via our marketing? How do we address value? How do we address the financial impact of making a purchase through Wayfair and how we can provide them the most value of any retailer that they could choose from in the market. And what I think is also important for you to take away is that we try to meet our customers early in their life journey. We place a focus on engaging with customers when they're really entering into this stage of their life. And the point of that, I think, is pretty obvious, but we want to establish that relationship with them early. We want to establish that trust with them early. We want them to have good feelings about Wayfair early so that as they grow in their spending power, as they grow in the size of their home or they grow the size of their family, that they're thinking about Wayfair as being there for them along that journey. And so we also want to be, frankly, omnipresent. We want to be where they are. When we talk about meeting our customers where they are, we mean that in a very physical and real sense too. So it's important for us to be on many, many surfaces and to also hit and deliver, I should say, probably more appropriately, relevant messaging to our customers throughout their journey. And so I've got an example here on the slide, but it's a pretty common example. Often many of our users, when they first interact with Wayfair are not thinking about purchasing for their home or for their space, right? This is a periodic, but common -- they sort of go in ebbs and flows. And so a lot of our television marketing is for introduction. It's for establishing who Wayfair is, what the need is, the emotional benefit of coming and shopping with us. But that customer might not be thinking yet that they have a dining room need or a living room need. At some point, though, they will, right? And so as they start to then say, okay, I know I want to redo my living room. Or I'm moving into a new apartment in Boston on September 1 and I'm going to need a sofa, and then I need some ideas for that sofa, right? So they'll browse Wayfair, they'll browse Pinterest, they'll browse Instagram. It's important for Wayfair to be there as they're in that part of their decision-making. It's often at that point that we then really bring someone to the site, right? So you'll have a click-through on the site. It's an ad that they have confidence in because they know the brand. And it's at that point that we get to be more one-to-one, more direct, more relevant and personalized with our users, right, where we can follow up with them via e-mail and tell them about not just the sofa that they looked at, but the ones that other customers ultimately end up buying, and were happy with. Or how they can decorate around the sofa with coffee tables and rugs and throw pillows. And so what's important to take away is we are heavily, heavily invested and plugged in, and we've got the technology to be in all of these places and deliver relevant messages to the customers across their journey, both up to purchase and, frankly, after because there's a lot that happens after that first purchase as they then bring in the room around what their initial purchase might be. So the net of this and the compound effect of this is significant scale. We have 85 million users on our customer file. We've generated 140 billion media impressions over the past 12 months. We've generated 3 billion visits and clicks to our site and apps over the last 12 months. And this is something that I think the team is obviously excited with and we're proud of. Someone who'd been here since we were much, much smaller, it's a little bit mind-blowing sometimes. And I think there's a lot that we can be proud of. But what it also presents, and I think, more importantly, for this room presents is it is a huge opportunity for us. 85 million contacts in our file allows us to go direct to users, right, to sort of disintermediate media companies because we can talk to folks directly. We have their e-mails. We have their phone numbers. We know their devices. We know when they're at work and we know when they're on their phone, right? That's pretty important. It also allows us to test and learn and iterate more quickly. So when we're going out with messaging, we can learn in days when it might take others weeks, right? That allows us to then be more relevant to a broader set of users more quickly. And it also affords us the opportunity for strategic partnerships with a lot of the biggest names in tech, which then allows us to be in their R&D process and have input so that we can then both know, but also be participants in the building of many of the sort of advancements in technology and in media. So hopefully, this was helpful. Hopefully, exciting. I think let's take a beat, and what I'd like to do now is just take us through a little bit more granularly on how we think about the buckets of our media spend. And I'll go through at a high level here, and then I'll take you through some highlights over the next few slides. But broadly, we think of 3 buckets. Performance. This is -- we might call this direct response marketing. This is highly, highly, highly measurable. We're quite scientific in our approach. It's often one-to-one with our users, right, because we're able to see them click on an ad and then we're able to see them basically on our sites and apps. And it's also typically more mature in the market and larger scale. Brand is the next bucket. I would think of this though still as quite a performance in highly, highly measured and scientific channel, but I would add an inspiration and brand storytelling in this bucket. The important takeaways here are that like it might not be as trackable, but it is something where we have measured and measured and tested and tested over a long time. But the degrees of confidence might be a little bit wider. The confidence there might be wider. The degree of our certainty might be 1 level up from what performance would be. But it's also inspirational. It attracts a higher lifetime value customer. And it's also very important in establishing the long-term connection and relationship that drives direct traffic to our site. So now when someone says, I need to redo my living room, I'm going to wayfair.com, right? That's an important part of our long-term media plan. And then finally, R&D, which is probably very similar to other -- or everyone else's R&D, which is we always want to be exploring. We always want to be pushing. We always want to be going where the market is going, and we have a lot of focus on doing that as well. And so as we dive into performance, I think this is probably where you've thought about us as our wheelhouse historically, and that's probably true. This is where we've been developing the most technology for the longest time. We see it as being quite large scale. We also see it as being quite significant opportunity to win share and also these channels are still growing. And so we see this as still being a tremendous driver of Wayfair's business and of our relationships with customers. Interestingly, I think the leadership position here is sort of built now on technology. It's built on machine learning. It's built on large-scale bidding algorithms. It's built on scientific targeting. So our investment here is more of a technology investment is probably what it would feel like more. But we're excited about the performance here. And one example is that our share of home and garden searches on Google over the past few years has been growing, and our absolute traffic has been growing. And so we still -- we do see this as a large, large opportunity for our business. And as I mentioned, we're quite close partners with all of these companies in their development of their platforms. And so we're working with them as they continue to grow. On brand, I think what's interesting to take away, it is -- we're going to talk a little bit more about the inspiration here, but we've been very excited about television. It's a channel that, while we haven't been in it as long as we've been in performance, we've actually been in it for over a decade, right? We are testing and learning scientifically all the time, but we're also like really proud of our partnership with Kelly Clarkson. We're proud to -- of our ability to connect and solve emotional needs for our customers and to inspire them on that journey of redecorating and building out their space. And we do that with Kelly Clarkson at a high level, and we also did this at a more micro level with influencers. But these are both areas where we're seeing a lot of traction with customers, where we're seeing it resonate quite well with the broader market and that we're pushing in and investing in over the next few years. And then finally, R&D. And so I could show you some examples on these slides, but the bigger point is we're always moving, right? We're always trying things, we're starting up new things, we're sunsetting things that didn't work and we're graduating the winners often into the first 2 buckets. So some examples are here, some wins. Short-form video is something that we're seeing a lot of traction with. We're excited about that space. Original content on YouTube is exciting. But it doesn't have to be high tech. Another area that we've recently graduated up has been circulars. So the like paper that shows up in your mailbox. So it's not just us doing new tech. Sometimes we have to find tried and true methods that have been used in the market for a long time, but we have to sort of crack that nut for Wayfair specifically. And that's what our R&D team is doing. And all of this is then built on top of our proprietary measurement platform, Themis. Themis is what -- is technology that we've been investing in for years that allows us to feel disciplined and principled about our investments here, it allows us to know quite accurately the ROI of our investments across a number of channels. It's been trained on our data, right? The important -- like why we're so confident in this as it's been half a decade of training on large, large data sets of just Wayfair's data, right? Not just clicks, but impressions, catalog drops, online and offline, calls into our call centers, log-ins across multiple devices, television advertisements in their region, their long-term purchasing history with Wayfair. And we're constantly testing and validating and revalidating and iterating on these models to give us confidence in our investment in media. And I'll give you a quick example, just so you know. So like we have an order, right? An order is placed. Well, we know a lot of things about the individual who's placed this order. We know that they're on our mailing list. We know that they've purchased with us before. We know that we dropped a catalog to them 6 months ago and that they visit us on Google that one time when they were searching and they came through to our site. And what Themis allows us to do very simply is divide up that dollar and give our teams back that dollar and say, here's the credit that you can take for that so that you can be sort of disciplined and measured in how you're going to spend next month, and we can feel good about that, right? And then we'll also -- then, we'll keep watching and we'll keep relearning and we'll keep iterating on it and will inform us tomorrow better than it did today, right? So we're 5 years into that. Quite exciting. So anyway, my time is up. So I'm here. Thank you, again. I'll be here for Q&A and cocktail hour. Again, we're super excited to have you here and to tell you more about the business today. And I will hand it off next to Liza, who will tell you about merchandising.

Thank you. Thanks, Paul. Hi, everyone. I'm Liza Lefkowski. I am our Vice President of Curated Merchandising, Brands and Retail Stores. I am thrilled to be here today to talk merchandising. And I really have 2 goals for what I want to share with you today. One is how we think about our very vast product catalog in a really nuanced way. And the second is what we are uniquely doing to create amazing product journeys for customers. So let's just dive right in. I want to start by orienting you to how we think about our product catalog. We manage it in 3 segments. The first, pretty self-explanatory as the branded segment. These are your national brands. These are well recognized by most consumers, think KitchenAid, Kohler, GE, Le Creuset. The second, I'm going to zoom all the way over to the other side of the slide is commodity. Commodity items are ones for which the specifications are quite clear. There's not a lot of differentiation. The purchases are very functionally motivated. So customers are looking for great value for the function that they seek. So think your basic sheet set, your clear plastic storage bins, maybe even a saddle bar stool. In the middle column here is our third segment is where I want to spend the most time today. This is differentiated. This is where you'll find the majority of furniture and decor. It's where you'll find the majority of our business. This is a highly visual segment, personal taste, style really matters. There aren't many known brands here. So we're going to dive in here. I'm going to start by zooming out on the category with a lens on differentiated. Home is a pretty unique category as you've heard us say already today. It's a category that consumers really enjoy. Consumers love shopping for home. They enjoy creating their spaces. But this doesn't mean the category is easy. If you think about furniture, in particular, it can be quite expensive. The logistics can be quite challenging. All of this can be stressful for consumers. It's also a deeply personal category, consumers want their homes to reflect them and how they live. They want it to represent their personal style, their personal taste. But they often have a hard time articulating their personal style or their taste. And if you think about e-commerce, which can be quite search-driven, that poses a challenge. So even when you do find that item that's right for you, you still have some work to do. You have to assess quality. Visually, I think this item is great, but is it at the quality I would expect for the price I'd be paying? In other categories, this is where brands usually play a pretty important role. Brands can be shortcuts to a style I really like, a price I'm willing to pay, a quality level I would expect. Again, home is not really a branded category. So this is an opportunity for Wayfair. This is where Wayfair comes in. If you think about the Wayfair brand at large, we are built on the notion of unparalleled selection as a way to fulfill our promise of creating spaces that are just right for you. But our goal is really to get you as quickly as easily as seamlessly to items that you are going to love at a budget you're comfortable with, at a quality level you'd expect. And we do this by curating our best items into what we call our flagship and specialty brands. So these brands represent a unique look. They have -- they stand for a particular bar of quality for price that is consistent across the line. And it's this portfolio of brands that enable us to cater to a very wide range of consumer tastes, styles and budgets. In some of our brands, they're more elevated in the case of our specialty brands, and some are more value driven. Now our brands collectively offer consumers a unique set of benefits. First, what I've been alluding to quite a bit is finding that perfect product. So we are curating these brands with our best items. There is a strong value promise behind each item in these brands. Second, we want to give consumers the confidence to actually take the leap on an item. So what this means prepurchase is really rich merchandising, making sure these items have all the content around them that make you feel like you really understand what you'd be getting. Let's set expectations around the item. So think imagery, strong product specs and content, in some cases, video. Post-purchase, this means fast, reliable delivery and really superior customer service. The third benefit here is seeing how the space comes together. I hear from consumers all the time, I just don't really know what goes with what? Or how -- I already have this, and I'm not sure if this is going to go with it. We want to help them with that. And so we curate these brands to represent a cohesive look. So if you're buying 1 item in a brand, you can find a lot of other items that will go with that item. We provide lots of imagery, in-context imagery, so people can see what the whole room looks like. Collectively, they should inspire them to complete their whole space, to see what their space is really capable of being. Now before I move on from here, I want to note that we apply a very similar strategy to the commodity segment of our catalog. The commodity segment, if you remember, very functionally motivated. Consumers want the best value for what they're looking for. So we have 2 cross-category commodity brands. One is called Wayfair Basics and one is called Re/Fine. Re/Fine launches later this year. Wayfair Basics focuses on the entry and lower price point items. Re/Fine is a bit more elevated. So if we take the basic sheet set that I mentioned earlier, in Wayfair Basics, you might have microfiber. In Re/Fine, you might have Egyptian cotton or linen. There are 2 other commodity brands on this slide that I want to highlight, Wayfair Sleep and Wayfair Custom Upholstery. These are more category-focused programs, so they are targeted at a specific demand space, offering the best value for that category. Okay. I've oriented you to our complete brand portfolio. What I want to do now is talk about how we actually assort those brands. How do we identify the items that we select into those brands. It starts with what we call a perfect SKU. Perfect SKUs are the foundation for everything we're doing here. A perfect SKU is one for which the recipe is fully intact. That means the item is competitively priced. It's available, it's in stock. It has a fast delivery promise against it. It's merchandised really well, and it has a strong customer track record that you see through reviews, low incidences, low returns. And it's these perfect SKUs that feed what we call our premium brand flywheel. The premium brand flywheel is what creates outsized demand for and outsized returns on the items that are in our flagship brands. There are 4 steps to it. I'm going to take you through each one. So it starts with identifying the best items, the highest potential SKUs in our catalog. This is not just today's winners, but tomorrow's winners. We do this with both algorithms and with merchants. So we have human eyes on all of these products. Second, we merchandise them exceptionally well. So these items are already great on their own. They're even better when they're part of a brand. So we will bolster the imagery around them, make sure you can see all angles, make sure you can see in the context of the room and of the brand. We will add video where that's additive for the category. We'll make sure we have all the content to give consumers confidence in the purchase. In parallel, we make sure the experience around the SKUs is fantastic, fast, reliable, great service at every stage. And then once all of these things are true, we'll make sure consumers can actually see these items. So these are the items that are prominently shown throughout the entire Wayfair experience. You'll see them towards the top of sort. They're prominent in our marketing, on-site and off. They're featured in our promotions. You will soon see them featured in our retail stores. So they're very, very prominent. Okay. Let me just illustrate this for a second. These are 3 elements of the flywheel. On the far left, identify the highest potential SKUs. It turns out we're pretty good at this. So of the 5% of SKUs that we identify as winners, they go on to generate 75% of that cohort's revenue. The cohort is defined by the SKUs age and makeup. Second, these items have far more imagery and far more reviews. So almost 3x as many images, 6x as many reviews. And these are 2 very, very important indicators for consumers when they're deciding whether or not to take the leap on the item. And then these items are seen more, 5x more visits per SKU on items in our flagship brands versus items that are not in our brands. Okay. Now I've taken you through the item level and how we assort these brands. I want to talk about the brands again. I want to talk about how we are enabling discovery of these brands. It's really the brands that put our item -- our best items in context and kind of bring them to life. It's kind of like the pixie dust on top that shows consumers that they can think bigger and bolder about their space. Shown here are a few examples of our curated marketing channels, the catalog that Steve mentioned earlier today. We take a seasonal lens to these curated placements. So we have a team of merchants who build a seasonal line plan of their favorite items for the season, curated exclusively from our flagship brands. These items go on to fuel all of our curated marketing levers. This not only creates consistency in how Wayfair presents to consumers, but it also presents a perspective that is fresh, that is of the moment, it's trend-aware, but it's also very inclusive to different styles, tastes and budgets for the mass consumer. And soon, you'll see this come to life in real life in our stores. I think you all know, we are building retail stores for Wayfair. Our first store opens early next year. What you're looking at here is a snapshot from our retail lab where we have staged the floor sets for every department in the store. So this is a 3-post moment from our living room department. It's what we call a vignette. These vignettes are sprinkled throughout the store. And they are supported by class destinations, think sofas under $999 and trend spotlights, like sage green is having a moment. And so the flagship brands play a very critical role in how we're merchandising the store. Nearly all of the products in the store are curated from our flagship brands. Now in parallel, we're always working on the on-site experience as well. We want to weave these brands more organically into the customer journey. So you'll see things come to life over time. We want it to become more motion forward, more vision -- excuse me, more visual. We want to have the human element come out a bit more. There are real people and style makers behind these brands. We're looking into fairly simple features like mood boards that help customers kind of mix and match and see how different pieces from the brands come to life, trend spotlights, et cetera. So consumers will naturally encounter our brands throughout the customer journey. But we're also looking at ways to accelerate how we build equity in the brands. Paul mentioned Kelly Clarkson. Celebrity and influencers are a great way to give the brands a little bit of a kickstart. So we're super excited about our partnership with Kelly Clarkson. The Kelly Clarkson Home brand has very wide appeal. Kelly Clarkson herself embodies Wayfair in so many ways. And so that relationship has been successful by a number of measures. We want to build on that, not just with megastars like Kelly Clarkson, there's really only 1 Kelly, but also with more focused audiences, smaller scale collaborations that together can add up to become something quite big. All right. So this is a lot of the how. Let's talk about is it working? Short answer is yes. So for the items that we carry into our flagship brands, they are 8x more likely to go on to become a bestseller. And this impact starts very early. So if you look at this chart, the dark purple line diverges from the light purple quite early. This creates very strong returns for our suppliers. More importantly, we're seeing these brands enhance customer lifetime value. Even without all of the enhancements I've talked about today, we are seeing incremental lifetime value for customers who shop these brands versus those who do not. So that is it for me today. Stepping back, I'm hopeful that this was helpful in helping you guys understand how we think about our product catalog and how we think about creating amazing product journeys for our customers. So with that, I want to turn it over to Corey Gilbertson, who's going to talk about pricing.

Thanks, Liza. Hi, everyone. I'm Corey Gilbertson. I've been working on retail pricing problems here at Wayfair for over a decade. I'm really excited to pull up and talk to you all today about some of the things that kind of underpin our decision-making and how our systems work in the space. One of the things that has made pricing such an amazing topic over the years is that it's so important for all of the constituents in the Wayfair market ecosystem. We've shown over and over again that retail prices have meaningful impact on if and also what customers purchase on our platform. Retail pricing is a top topic of conversation with our suppliers as we partner with them, to take costs out of the system and achieve new price points that unlock and help their businesses scale on the Wayfair platform. And the retail pricing is obviously an important component to Wayfair's short- and long-term financial outlook. I want to acknowledge that solving for all 3 of these constituents simultaneously is a difficult task. And it's why internally, we have the rallying cry of building an operating systems that help us achieve the prices we want, at the margins we want. I'll say that again, the prices we want, at the margins we want. When we say the prices we want, we mean prices that are highly competitive that offer tremendous value to the customer and in so doing, build long-term loyalty and Wayfair affinity with them. By the margins we want, we mean healthy unit economics, unit economics that allow Wayfair to continuously improve our financial outlook while also reinvesting meaningfully in our platform. Liza mentioned that we think about our catalog across a few different dimensions. In pricing, we think about it across a few different dimensions as well, these different product architypes. And I'm going to talk to you today to start about the pricing strategy that we deploy in the differentiated portion of our catalog. Again, think about these items as highly visually shopped, items where style matters a lot to the consumer. And frankly, these are items that are difficult to comparison shop across the Internet. Here, we deploy what we call a flat take rate pricing model. And over the next few slides, we're going to unpack what we mean by flat take rates. I'm going to start with take rates. What do we mean by take rates? When we refer to take rates, we're talking about a cost plus markup model that we use at Wayfair. Here, we determined the cost of selling the next unit to the customer. We apply Wayfair margin requirements on top of that. And the combination of those 2 things produces a retail output that consumers interact with. This strategy is not atypical in the industry. But what is unique to Wayfair is that when we talk about cost, we talk about all of the costs. We're talking not just about product cost, but also estimates of outbound shipping, estimates of the likelihood that an item might have an incident that we need to mitigate and the cost to service the order post-order. We collectively refer to these costs as the cost stack. It's something we talk about every day, both internally and with our supply base. There's a few properties of this model that we particularly like. The first is that it aligns everyone's incentive in the value chain. Lower costs, mean lower prices and more volume always. This forces us to really scrutinize cost and also, because we consider every cost item, scrutinize costs at the line item level. It also forces us to take the total cost of ownership mentality to cost. You can imagine that a product with a slightly higher product cost may retail at an advantage relative to a peer product. If it's packaged really well such that its damage rate is highly controlled, it's forward positioned really well in our network such that its outbound logistics are highly efficient and it's merchandised exceptionally well in its platform such that we preempt post-order contacts on the order. I'll now unpack the flat portion of our flat take rate model. When we say flat, we're referring to the fact that within like sets of goods, we set the flat take rate to be the same amount, creating a level playing field for products that compete for the same type of demand on our platform. While it's true that we'll have different take rates across the category, so think about different take rates on recliners versus ottomans versus TV stands, within classes and particularly within subsets of classes, we hold the take rates flat. What this means is amongst a set of products, and here we illustrate this with sort of a few different accent chairs that you could reasonably think of the consumer is choosing amongst. With the flat take rate model, the lowest-priced item here, the lowest cost item, will have the lowest price. This provides the lowest cost item with a meaningful price advantage on our platform and allows it to consolidate demand on Wayfair, stealing share from other like items that will have a higher retail. These incentive structures are critical to us achieving the prices we want, at the margins we want. A natural question you have is likely, how do you set the take rates? I'm going to walk you through a 4-step process over the next few minutes on how we go about it. But to start, I want you to understand that the first 2 steps here are highly quantitative in nature. It's where we use the latest machine learning techniques on Wayfair's massive data sets in order to produce rich mathematical representations of how consumers behave on our website in relation to price. The third step's some fairly straightforward math that falls out of the outputs of steps 1 and 2. And the fourth step is an empowered human-in-the-loop overlay that we go through before we set the take rates live to customers. Starting with steps 1 and 2, what you should understand is when you come to the Wayfair website, about 95% of the products that you interact with are set to retail prices that we believe are optimal, given everything we know about customers and costs. But the other 5% of products are actually in randomized price experiments where we raise and lower the retails in order to measure a consumer response and how they interact. We measured 2 core things based on these experiments. The first we refer to as own price elasticity. What we mean by that is when we raise and lower the price of an individual item, in this example, a red sofa, what happens to the demand of that item? Unsurprisingly, we find that when we raise prices, demand falls and when we lower prices, demand increases. That's not surprising to us at all. I imagine it's not to you either. What's important for setting retail prices is the degree to which this happens. The second thing we measure is when we do raise the price of an individual sofa on our website and if sales do go down, what happens to those sales? We refer to the notion of demand retention as the percentage of those sales that simply flow to other red sofas on our platform. They're simply retained on other goods on Wayfair that fit the customer need and budget. I want to pause here because we find this second effect, this demand retention effect, to be really large. We think it's something that's unique to our industry and the differentiated nature of our product category and something that's facilitated by the Wayfair platform and its vast selection. If we did not account for this fact, we would not set take rates that are optimal on the website. In step 3, we take the outputs of 1 and 2, and we do some fairly straightforward math to basically draw demand curves. We can represent demand curves in a variety of ways. Here we show there's -- here, we decide to show the trade-off between revenue and profit at various levels of take rates. It's fairly straightforward for us to pick the peak point on these demand curves, and you could think of that point as the take rate or the set of take rates that would maximize the amount of money that Wayfair would make today. Notably, we always set take rates to be consistently and considerably lower than the short-term profit optimal take rate that our models suggest. We do this to account for the known long-term benefits of competitive prices and low prices on our platform. Simply put, customers love low prices and they reward Wayfair through loyalty and brand affinity for them. In step 4, we take the steps -- we take the outputs of steps 1 through 3, and we review them. Here, at this point, we bring any new information to bear in our decision-making process that the upstream models might not have considered. That could be a changing outlook on how consumer sentiment may be behaving in a volatile macro environment or it could reflect the latest slate of supplier feedback that we got as we engage them at the latest set of trade shows. One thing we do in step 4 is we review the outputs of steps 1 through 3 for competitiveness outcomes. And in particular, what we do in this step is we compare our prices to exact and like products prices on competitor retailers. And we weigh that data across a couple of important dimensions. First, while we look at 100 different retailers plus, we weigh the retailers that we think have outsized impact on the consumer perception the most. These are the retailers that would pop to mind, as you think about the biggest retailers in the United States, Walmart, Amazon, Home Depot, Lowe's, Target and more. The other thing we do is we weigh the items that are the most popular on Wayfair the most. We believe it is most important that we are most competitive on the items that are at the top of our browse pages and most viewed and interactive with by the Wayfair customer base. I'm going to switch gears briefly, and I'm going to talk about our branded pricing strategy. And brand that I want you to imagine, a curing coffeemaker. It's an item with a well-known national brand, a partner that's easily searchable on the Internet. You can even imagine that a consumer may have decided to purchase a Keurig coffeemaker before they ever visited a retailer. They're going to make their purchase decision based on which retailer offers them the best value across a range of dimensions, from price, to speed, to convenience, to trust. Here, we believe Wayfair, along with just about every other retailer out there, is a price taker in the market. And as such, we deploy a price matching retail pricing strategy. I spoke to you at length in the differentiated section about how we use our cost-plus model to align incentives across suppliers, Wayfair and customers. With prices matching the market, we need a nonprice lever in order to contain -- in order to maintain those incentives in the branded portion of our catalog. And the thing we look to is our exposure systems. With prices priced to market, we use exposure systems to create strong incentives by concentrating our customers' eyeballs on items that are not just competitive, but also at strong unit economics. We illustrate this with this example market of 3 toaster ovens. Here, we've matched the market on all 3 toaster ovens, and you can see that 2 of them are at relatively healthy and uniform margin profiles. You can see that the third toast oven, the middle toaster oven, has lower, relatively disadvantaged unit economics. Matching the market on this toaster oven enforced us to compress the margin profile. Our exposure systems will automatically pick up on that margin compression and they will start to meter out exposure to this middle toaster oven by moving it down from Page 1 in our sort order to Page 2, 3, 4 and so on, depending on the severity of the gap in unit economics. We'll work with the supplier in order to overcome the challenges on unit economics, so this item can regain its spot at top sort. Or alternatively, we'll invite the supplier to spend on Wayfair-sponsored products in order to regain those premium placements on the website. I wanted to give you a few insights into the scale of our system and also the magnitude of our incentive structures before I leave you today. Simply put, we think we have one of the best data sets in the world, powering our prices every single day. We have over in 75 million matches to over 500 different competitors. On the right side of this chart, I speak to the magnitude of the incentive structures afforded by our exposure interventions. What we show here is the number of sessions that terminate on each browse page of the Wayfair platform. So when you come shop a category, how often do you click Page 2, Page 3, Page 4? You see that relatively few customers are clicking through into Page 3 and Page 4. By moving items with poor unit economics from Page 1 to Page 3, we effectively meter out 90% of the eyeballs that those items generate. In summary, achieving the prices we want at the margins we want is a difficult task. We do it every day by bringing proprietary data insights to bear, combining them with a ruthless cost orientation and strong incentive structures with our suppliers. Important to the cause is absolutely an efficient and advantaged supply chain. And so with that, I'm really excited to invite up Thomas to speak more to you about that. Thank you for your time.

Thank you, Corey. Good afternoon, everybody. Thank you for taking your time to attend today's Investor Day. And obviously, thank you for giving me the opportunity to address you. I'm Thomas Netzer. Together with my team, I'm leading Wayfair's operations, and we are responsible for 6 key elements of our business, which you see behind me. I'd like to talk about 4 of those 6. These 4 represent what we call the Wayfair supply chain. And there are just 3 things I would like you to take away from the next 15 minutes. Those are the following 3. Number one, we designed and we operate a proprietary supply chain, which is, we believe, hard to copy and which makes us not only the 1 place for all things home, it also makes us a globally operating, technology-enabled logistics provider. The second thing I would like you to takeaway from the next 15 minutes is the fact that customers and suppliers truly value our services as we are able to provide what we call cost-efficient perfect orders at scale. And the third thing is that we have been able, and we believe we will be continue to be able to provide and unlock significant value for the business in the future across multiple levers, across quality, across convenience, also across cost, not at least because we have the ability to leverage a lot of CapEx, which we have already spent in the past in our logistics setup. So let me explain a little bit more why I said what I said around those 3 statements. And let me start with one conviction, which Niraj actually touched upon already, which is we truly believe we have unique needs when it comes to the supply chain. We did not build our supply chain because we thought that is a nice adjacency to the business. We built that supply chain because we truly believe it is core, it is a key enabler for the business, and without that supply chain, we are not able to provide the quality, the convenience and the cost base for the business to be successful. What you see here are just selective reasons -- a selection of reasons why we believe that our supply chain and our needs are unique. And let me just talk about maybe 1 or 2. First, you were probably very clear that we transport a lot of bulky and big items. So when you think about that, the market out there for transporting and delivering those items is relatively small. Obviously, you can go to what is called less than full container transportation solutions, but they are not actually very specialized for B2C deliveries. So if you look at B2C deliveries for those items -- as I said, the market is small. The market, from my point of view, is also not very professional. And if you use those providers in the market, what you get is not high quality. What you for sure not get is high reliability. You have to deal with high cost. And for sure, you can also not scale the offer in the market easily. This is why we were convinced we should build an own proprietary delivery network for large items, which we have done and operate today, I think, quite successfully. Another example is global sourcing. The majority of our suppliers bring product into the U.S., for instance, from Asia. The majority of our suppliers is relatively speaking, small. Many of them may not even actually ship 500 or 1,000 containers a year. Think about that relative to the biggest vessel in the world, which carries, what, 25,000 40-footers on 1 trip. So their volume is low. If we don't enable them to bring the prices down, because container shipping is all about volume, we cannot actually offer the customer -- our customers low retail prices. So we thought we are in a position, and we should bundle the volume of our suppliers and thereby get better prices from the container carriers, which we then offer to our suppliers and thereby bring the retail price for the customer down. So another reason why we think we have unique needs when it comes to the supply chain. More generally speaking, you can cluster what we think we have developed in terms of capabilities into 3 buckets in order to address those challenges. The first cluster is what I just talked about, in-house logistics solutions, like the container shipping, like the delivery, also like the warehouse fulfillment capabilities we have or the positioning capabilities we have. The second category is what we call partnership management. Here, we collaborate with our suppliers, but also with large and successful third-party logistics providers, like a Maersk, like a FedEx, like a DHL. With those, we have really long-term trust-based relationships. And those relationships allow us to provide solutions like packaging consulting, like forecasting, like returns handling, multichannel, all of those things. And then there is the third category of capabilities we have developed and built in the past and continue to further strengthen, which are all about our automation of the data flows along the supply chain. This includes order management, it includes the container or inventory tracking, but also customer notification and customer interactions. So each of those actually capabilities allows us to not only serve the needs of our customers and suppliers. It also puts us in a position to leverage our supply chain as a true element of the Wayfair value proposition. Now let me double click for a minute on the in-house logistics. And let me add a little bit of flavor what we really do there. And imagine for a minute, you are a supplier and you want to ship 30 sofas from Vietnam to North America. You want to ship those 30 sofas because we told you, based on our data, our forecast, that 30 sofas is the right thing to ship to North America from Vietnam in the next couple of weeks. The 30 is the result not only of us predicting what you're going to sell, but also for taking into consideration what the lead time is to produce and transport the sofas and taking into consideration what the cost of transportation and your cost of capital is, because otherwise, we would just literally tell you, give me 100, put them in the warehouse and then wait to sell them, right? But that would be heavily expensive. So once you agree to the 30 and once you agree that we manage your logistics as you are the supplier, you can actually almost lean back after you have told your factory to produce the 30 sofas and let us take care of the whole flow. What does that exactly mean? That means we now, after you have actually connected with your factory and told us that you gave the order, we reach out to your factory and we will coordinate with the factory when we go to the factory and pick up the 30 sofas. We then actually bring the 30 sofas from the factory to the port, but we don't put the sofas directly on the vessel. Because if we do that, the whole container lands in 1 spot, and that would not be cost efficient. What we do is we decide how to break up the 30 sofas, how many should go to the East Coast, how many should go to the West Coast, how many should go to Texas. And we have developed a unique capability to break out the 30 sofas, combine those 30 sofas of you as a supplier, with maybe 50 actually pillows from you guy and maybe 20 shares from another supplier, consolidate them in another container and bring them to different locations. So this consolidation and forward positioning as a unique capability, we then actually include in our supply chain offering and transport them to the dedicated locations where we need the product. Once they arrive in the location in the break buyout location, the first thing we do is we do a quality control because the worst thing that could happen is, we ship an already broken product, sofa, from Vietnam to the U.S. to then actually liquidate it. That would actually waste a lot of money. So we quality control in Vietnam if the product is good, ship it to our warehouse. It arrives in our warehouse. We actually then quality control it again, put it into the shelf, into the rack and wait for the order. Once the order comes in, as I said, with our proprietary delivery network, we start delivering that product to the customer, to the end customer. And we are one of the very few providers who do that because most other logistics providers and for sure, other home platforms and home good retailers don't handle multi-box products. That sofa is not 1 box, that sofa comes in multiple boxes. And that is the unique capability we offer. Now the sofa goes to the customer. Hopefully, customer likes it in the first place. Maybe we have some customers who figure out that they actually did the wrong measuring at home. Even though the sofa is exactly of the dimensions we told them, they have to accept that they made a mistake and now it doesn't fit. They return it, we take care of the reverse logistics. We bring it back, we grade it. Once it is back in the facility, we make sure that we don't call something new, which is not new. And if it is new, we can sell it again. If it doesn't come across as new, we need to find a different solution. As part of the supply chain solution, we even have then the opportunity to sell the sofa in an outlet facility or, if needed and not in good conditions anymore, give it to a liquidator and sell it as liquidated product. This is all part of our supply chain solution and it's not only the movement of the product itself, but it's supported by the information flow along from the start that you reach out to the factory, to the point that we may have to liquidate the good. That hopefully gives you a better impression of when I say supply chain, what we really mean, how much complexity is associated to it and why we believe that, that is something we really need to own and need to operate carefully and successfully to support our suppliers and justify and satisfy our customers. Now we do believe that we have the opportunity and the capability to do that superior to what you can find in the market. I already mentioned a couple of those reasons. One of the core reasons obviously, is volume. You need to have volume because logistics is a scale play, right? And we make conscious decisions where we develop our own capabilities and where we actually go with in-house logistics solutions versus where we leverage partnership. As a good example, small parcels. Small parcels, you can ship with FedEx. I would never come up with the idea to operate that network myself. I, for sure, don't have the volume to ship a small parcel like shoebox, a pillow or something like this myself. Competitor -- price wise, I'm not competitive doing that. So I leverage the trust-based relationship with the carrier I have there. But I don't deal with that carrier in a transactional way because I like to work with this carrier in a way that I get even superior support from this carrier. And we have established that relationship over the last years that we can actually confidentially -- we can really say that we are confident that the way we work with a FedEx, the way we work with a Maersk enable us even provide better service than you would generally get from those carriers and those third-party providers. If I turn what I just said from a Wayfair into a customer and a supplier perspective, I think what you see is that customers really, really value what we do because, as I said, we are able to provide cost-efficient perfect orders at scale. And the fact that this is not just something I'm saying here, but it can be measured, gets reflected in what we measure as an NPS. The 3 months NPS means the customers who have bought something at Wayfair in the last 3 months, which we measure, is around 60 and 60 and above, which I believe is truly best-in-class in the industry. And that is true across the journey, and that is also true if you only look at what we call post-order. So from the point the customer orders down to the point when the customer receives the good or has to return it. So we get clear feedback from the customer that they value what we do. And we get the same feedback from our suppliers, obviously, because we also measure the supplier feed NPS, not only the customer NPS. And a couple of points you find here on the page are also the KPIs by which we manage the business. So availability, speed, reliability are the metrics we look at on a daily basis to make sure that we satisfy customers and suppliers. I give you 3, 4 examples so that you see what I say also translate into tangible results beyond NPS. For instance, a good that is shipped out of our CastleGate location on average is 20-percent plus cheaper than if it comes from a drop-ship location. The reason is that we obviously have different price levels when we ship out of our location, then if you ship out from a supplier, reason being that the volume which comes out of our location is higher. You have a consolidation effect again for which you get a price benefit from a third-party carrier or you get a price benefit from your own actually set up, right, for large parcels, for instance. Another example is when we actually do the thing ourself, we are much faster. We are 50% faster in terms of how quickly we can deliver to the customer. There, the reason is twofold, a, we have a system set up that is focusing on the fact that once the customer place an order, it gets immediately into the warehouse and then to the gate. So right now, it takes roughly 60 minutes between you ordering on the web page, us putting the product in front of the gate, so it can be picked up. A supplier takes much longer. And then with the footprint we have, we actually have to bridge a much shorter distance between our location and the customer's location than on average a supplier has because our suppliers on average have between 1 and 2 locations in North America, while we have 15-plus. So we are, by definition, much closer to the customer. And the last point here, I talked about NPS. For instance, in the U.K., we operate a large parcel network ourselves, but we also use third-party providers. And there, we see that on average, the feedback we get from customers is 20% higher for the service we do versus what we do with third parties. This is just a snapshot of what that network looks like that we are operating. It's really a network at scale. We only don't use this network actually in the way that we operate it, but we also use it to continuously innovate. Just giving you 2 examples. One is we have, really, from my point of view, changed the way we operate freight forwarding, the container business. For those of you who are familiar with the way that business works. Usually, you go into the market. At a certain point in the year, you buy capacity from a carrier and then you try selling that capacity. We don't do that any longer. We kind of buy the capacity, the minute we have almost sold it, and thereby, we have significantly derisked the way we actually manage ocean freight. Another example is, for those of you who are familiar with how sortation works, usually, for large parcels, you only have large conveyor belt systems to produce and sort your product in your warehouses. That comes with multiple limitations. And one significant limitation is the fact that you cannot really face how you build those sortations, you really need to frontload your investment. You cannot actually grow that logic with the business. We have right now innovated something which is robotics based and can be really scaled step-by-step in the way we grow with the business. It's a prototype that is live in our European facility right now. And we are very confident that it can significantly change also the cost structure of our sortation system in the warehouses. Having said that, we have multiple initiatives going through over the last 12 months to bring not only down -- to not only further improve the quality and the satisfaction of our customer suppliers, also to reduce our cost base. You have heard about that in several of our earnings calls when we talked about more than 70 initiatives going on about delivering more than $500 million of cost reduction. Those are examples of what we have done to drive those. So for instance, we have significantly improved the returns monetization. We are working heavily further to reduce the incidence rate. And I think what I'm trying to say here, the savings are not coming from squeezing a customer or actually penalizing a supplier. It's not that we have changed policies, now the customer has to pay us more or that we have increased actually prices for our suppliers. Truly coming out of our system, doing the job we are doing better. As an example, we buy transportation services, actually for lower cost. As I said, as an example, we monetize our returns much better. This is enabling us to deliver the $500-plus million, and we will continue to do so. And as I said, we truly believe that we can further unlock value for the business. We do believe that because we will not stop actually expanding our offerings and executing at high quality that will actually drive customer and supplier satisfaction, pull in volume. We believe we can actually continue to unlock value because we leverage what we call profit aware sort. This is our sorting algorithm, which prefers products with low cost, with low incident rate, with high speed. This is exactly the product we have in our facilities, so we will attract more volume into our facilities and to our warehouse. And the last thing is with more scale, with the tech enablement and with the expertise we have and with the CapEx which we have already invested, we can actually continue to bring the cost down and thereby the retail price and enable actually the business price wise to sell more and do better. This is why actually I said at the beginning, we are a tech-enabled logistics provider globally. We truly actually deliver value to our customers and suppliers, and we also believe, I'm convinced, that we will continue to unlock actually value for the business. Thank you for listening. With that, I hand it over to Sanjeev.

Thank you, Thomas. Hi, everyone. My name is Sanjeev Sahni. I lead customer service and sales for Wayfair, and I'm going to talk about those 2 topics to you. I joined Wayfair about 6 years ago and have been part of operations for a majority of that period. I've helped build our forwarding service that Thomas was just talking about. I've now led our service and customer sales teams for the last 3. I came in with 17 years of experience doing service operations, 10 of those at McKinsey, helping clients build service-based businesses and then 7 of those in the industry, actually leading service operations teams. What I want to talk about today though is how we use agents, associates, humans to augment the e-commerce journey that our customers undertake on our storefronts. As you've heard from several of my colleagues, home is a really complex category. Every purchase is really emotional for every single one of our customers. How do we introduce humans in that mix to help guide our customers so that they can make the right choices? How do we set up the products for them so that they can use them? How can we help them protect those purchases so that over the years, if they get damaged accidentally, they're not at a loss? How do we help them do large projects when they are renovating and not just buying a singular item? And then how do we take care of them as they go through this process? As you can imagine, an e-commerce player with a human in the mix, what does that mean? Our journeys on the human side, whether it's phone, text, e-mail, are designed really to augment and support a truly online e-commerce journey. We have over 3,000 Wayfair employees, 14 specialized teams that handle some of our most important customers, customers that spend generally 2x the average order value of our products, customers that tend to repeat more often, 25% more often. Our teams truly work with them to ensure we can provide answers to their questions, help them in the moment, help guide them through choices so that they can really actually make that purchase. In fact, we tend to employ experts that know these categories for years, typically 10-plus years or so, and then train them not only ourselves, but with our supplier partners as well because a lot of the categories that we have on our site, the breadth and the depth of them and the choices that our customers have need to be continuously updated. So we actually train those experts to help the customer through the choices, options, colors and to make their choice so that they can actually enjoy the product really well. And part of that expertise is what we drive towards the sale. But also as we are talking to those customers, we're trying to make sure that the customer understands the interaction with Wayfair doesn't end at checkout. We really want the customer to be able to enjoy the product the moment it gets to their house. right? So it involves lots of delivery options like Thomas was talking about, delivery at their door, delivery inside their house, a full-on installation and assembly, things that we actually provide add-on services for. And in fact, we cover today 80% of the U.S. with those add-on services. We do over 600,000 customer interactions on that space today. We also realized that some of our products are really expensive investments for our customers, rugs that run in thousands of dollars, appliances that do the same. Things that actually if they get affected can actually dent the wallet of our customers. So we actually add on protection services and help them understand how they can protect these for a long time. Of course, that's the benefit and the experience that we want our customers to have, not only buy the product, install, enjoy and make sure that the money is protected. But of course, in that process, we understand some of these services also drive significantly higher margin for Wayfair in addition to the margin on the product. So we make sure we are actually creating that balance as the customers buy from us. We also do large projects, in fact, projects that involve multiple different items through our design services teams, teams that are actually skilled at helping customers design things that can be of significantly higher value than just buying 1 single item, projects that can be over $2,000, projects that actually drive much higher customer NPS. Remember, Thomas was talking about an average of 60. Typically, these services tend to drive significantly higher customer engagement and ability. But as we think of getting these products to the customer, helping them enjoy those products. We also understand sometimes customers have questions along the journey, even after they bought, post-order. Sometimes they actually might have challenges, issues, concerns that actually affect the journey. For that, we look at our service teams. Our service teams actually do 2 types of jobs. One is to act as a safety net for our customers. We want our customers to know that they can have the confidence of shopping in Wayfair because if something happens, there is a service team that will take care of them. We'll be their safety net. We'll have their back. But for Wayfair, those teams are also continuously making sure whatever initially went wrong can be corrected quickly and proactively. And over the longer term, we're also making sure that the customers' expectations of that journey are even exceeded beyond what they would have done if it was just an e-commerce journey. So to that, you can see whether it's being available on all possible channels, available at less than a few seconds capabilities, ensuring that we have proactive resolutions, investments in technology, making sure that our agents are actually aware of what emotive experiences has been for our customers, that's the kind of things I will talk about on the service side in a little bit. In fact, we do it so well that we believe this creates a distinct advantage for Wayfair. In fact, don't just believe me, we do a ton of benchmarking with external players like J.D. Power. In fact, Newsweek and others have given us confirmation of the same. In every single metric that affects our customer service, we achieve excellence above every single benchmark that we measure because we want to make sure that the customer knows there is a safety net when you buy from Wayfair. That safety net is called service. In fact, all of these metrics that you see here, speed, quality, efficiency, our aim is to continuously be the best in the world. But you must be wondering, we spoke about what experience you want customers to have. We spoke about what you measure to know you're doing well. But how do you do it? As you would expect, and I think Niraj has said several times, a lot of that is truly the long-time trust in data, analytics, machine learning, AI that Wayfair has. We've been doing this for several years. And I'm going to use the next 3 or 4 slides to walk you through how all of that is embedded and is getting deeply embedded in every single part of our customer journey. So just to orient you to this slide. On the top, the first row you see is the customer journey, how the customer seeks assistance, customer engages with us and then returns to buy from Wayfair. The middle part, the dark boxes, are the performance actions we take to affect that customer journey and how do you make sure that the customer actually feels special. And at the bottom, you see are all of the data analytics, machine learning, AI tool sets that we embed in every single part of that journey. I'm going to take a few examples and walk you through what they are. What you will see is that for every single one of those tool sets, we are trying to create a special impact on the customer. I'll start with the #2 box on this, the optimal channel routing, and I'll talk to agent tooling and resolution, and then I'll come back to #1, the intent identification because I think that's really something distinctive that we've built. So let's talk to the first one. Think about when a customer is trying to reach us, how do we make sure that we stayed true to having the setup that defines the safety net for the customer? As you are surfing, as the customer is surfing our website and looking at various different pages and clicking on various different options, we have entry point optimization algorithms that run in the back. What that means is if the customer wants to go from this page at this moment to talk to a human, to e-mail a human, to text a human, which human is the best one to answer that? How many of those are available right now? And would it meet our standard of being excellent in the world, the best in the world? And based on that, what you will see in the footer as the options to connect to us will change. And every single customer, depending on what page they are on, what they're clicking on, what they are seeing, is it an existing order, is it a new order, is it a likely cancellation or is it a choice description, the algo is calculating what I have available in terms of people who could help the customer or not. If you go to the next one, which is agent tooling. For the tooling, we've invested in probably the most amount of AI that we could, starting with things like predictive call reasons. Even before a customer can get to speak with an agent. The agent knows why the customer might be calling, which order number which likely reason, which potential step of the customer journey is this likely to have happened. So the agent is aware and can actually start not by thinking and analyzing, but by knowing with confidence that this is why the call is coming in. They also have access to snippets of asynchronous training for each little bit of that reason. So in case that's a call that they have not taken for a while, a small little snippet of that asynchronous training is also available to them right there. And the best part, of course, which is where all of us are moving, which is using the power of LLMs and generative AI to have -- it says agent assist, I call it agent whisperer, which is basically a bot, which is telling them what to say next. So we are predicting and actually analyzing what the response should be to a live customer's request and suggesting what the agent could say. But the agent then determines, based on the order he or she is seeing and the suggested response by the bot, as to what the customer hears or sees. So for us, all of these investments make sure when the actual live interaction is happening, we've invested enough technology to make sure we've simplified the call flow for the agent, we've improved the understanding of the customer needs, we've worked to make sure that the agent is not searching policies by himself or herself. The bot is actually telling him or her, which policy applies, what likely is the answer, so that he can then engage with that empathy to make sure he or she is focused on the customer and not the policy or the research on the policy. Similarly, what good is an interaction if the resolution is not going to be great. So I can have a great empathetic conversation with you, but if I can't give you the answer that you would like, it will go only so far, right? So therefore, we've invested most of our decision sciences, decision intelligence capabilities in things like discount to keep. I'm going to spend a little time on that. Discount to keep is an algorithm developed by our decision intelligence teams, which predicts based on the item, based on the customer history, based on other customers that have bought the same item, other customers who've had similar issues, challenges, damages, defects, concerns on the same SKU, have those customers canceled or returned their order? If they have not, what is the level of discount to keep that we have given them so that we can save the sale and keep the customer happy, so that they can use the discount to purchase again from Wayfair. And live in that interaction, the agent knows that if I give this customer 15% or give this customer 18% or give the next customer 9%, I don't have to choose the discount to keep, algorithm will tell me what's the right answer for this specific customer in this moment for the product and the class that they bought. Similarly, we have algorithms, I won't go into it, happy to chat offline. Predicting is the item lost in transit? Predicting actually the customer I'm speaking to is he or she actually a scamster posing as a customer? So should I actually not give him any discount at all? We've got algorithms for that as well. We've developed capabilities to actually help the agent make that decision real-time. In fact, like I promised, I touched on 3 of these optimal channel routing, agent tooling and resolution determination. Going back to the very first one on intent identification. I think that's where we spend a lot of time in making sure, that predicted call reason I told you, which is the thing that the agent sees, but even before I can get it to that agent, I need to know who is the best agent to solve this. Who is the agent who has given the least amount of discounts to save the sale and make sure that this customer is still very happy in shopping again at Wayfair. For that, we've invested in really leveraging the millions of interactions that we have with customers every year and truly data that only Wayfair has on shopping journeys, on fulfillment capabilities, on post-delivery interactions. In fact, over 600 explicit and implicit signals that we get from our customers, analyzed in typically less than 15 to 20 seconds as the customers on the phone saying, can I talk to Wayfair or waiting for the chat to be responded, to know exactly why this customer is reaching out and which order and what we should do, then to do it. In fact, we actually feel that this is such a distinct advantage that we have a pending patent application on this intent prediction algorithm itself. Again, like I said, all of this to truly excel in this entire customer journey, and make sure we are using the long history of Wayfair in actually making this right. To summarize it, though, I want to bring us back to where I started. All of these humans in the loop, humans that help you with sales and service exist so we can improve our e-commerce platform. In fact, every single interaction is used to improve product experience, to improve the storefront or the website experience and to reduce delivery and incidences that might happen -- delivery damage incidences that might happen. In fact, all of those humans are in the loop to continue to improve the platform that is Wayfair. In fact, that platform that is Wayfair runs on the technology that we've developed in-house to actually excel in it. And with that, I'm going to ask Fiona to come join us and talk to us a little bit about the technology. Thank you.

Thanks, Sanjeev. All right. Thank you, Sanjeev. My name is Fiona Tan. I am the Chief Technology Officer and really thrilled to be with you today. As my colleagues have already talked about, and I think you've been hearing, we're a digitally native retailer and our tech platform is really the bedrock of our growth. So today, I'm going to highlight how we, Wayfair, leverage data-driven insights, artificial intelligence and machine learning and other emerging technologies to create a highly personalized and engaging shopping journey for our customer and a seamless experience as well for our suppliers. So let's jump in. At the core of everything we do is the tech platform. And this has been custom-built to enable our end-to-end customer journey. I want to touch on our tech transformation that's currently in flight, and it's imperative to our goals to scale revenue from where we are today to $800 billion business. Our tech transformation encompasses both organization and technology improvements, and we want to make sure that we're going to be able to build a world-class platform while creating an environment where our teams can do their best work. Having a scalable and flexible platform gives us the runway that we need to support our growing business. We've made significant progress, including decoupling and migrating from a monolith to cloud-native market services. Our transformation efforts also enable us to deploy and scale capabilities faster that are also easier to maintain with the end goal of improving our customer and supplier experiences. You've already heard today about how technology powers the business at every step of our customer journey and how our tech platforms and capabilities influence the customer experience. I want to bring all these threads together now and get under the hood a little bit more and talk about how we are doing this with technology. Again, our platform is built, custom-built, purpose-built for this industry, offering us a significant competitive edge. We persistently invest in it from undergoing the tech replatforming effort that I just spoke about and all that to harness the benefits of the latest cloud capabilities, to integrating machine learning from the early stages of our business. This ensures that our platform is uniquely tailored to serve the home category and is prime for scalability over time. So I know we've heard a lot about artificial intelligence, machine learning and generative AI, especially of late, and they are closely related. So if it's helpful, here's a way to think about it. So AI, artificial intelligence, is the overarching discipline of emulating human capabilities with machines. Machine learning is arguably the most well-known and probably the most deployed subset of AI, and it's really focused on developing algorithms and models that can automatically learn patterns, to make predictions or decisions based on data. And an important tenet of this also is that it will improve as it is exposed to more data and more time. So that's machine learning. Now generative AI on the other hand, it's a broader concept or an extension of machine learning now -- where it encompasses models that are not just going to be used for prediction and classification tasks, but it can now focus on producing entirely new and, usually, human intelligible output. So ChatGPT clearly, is the most famous example of gen AI, which produces new text content. But important to note, too, that generative AI can also produce new imagery, video, code, et cetera. So earlier today, you heard Paul Toms talking about Themis. That's our proprietary attribution measurement platform that we use in marketing. And just to give you a sense of that, that leverages over 4,000 machine learning models, and it's been built up over the last 5 to 10 years of our history. That is just -- but that's just one of the many areas of our customer journey where we've been applying sophisticated machine learning or ML techniques, whether it's marketing, personalized recommendations, search, product understanding, predicting future winners, forecasting, et cetera. We've explored and implemented scalable machine learning solutions over the last decade to efficiently increase the customer and supplier value. So I'll cover a couple more of these examples. So we leverage machine learning heavily throughout the customer experience. We've been personalizing content in e-mail and on our site to customers using advanced machine learning methods, commonly used at Netflix, Amazon and other big tech companies. So for example, in order to personalize which products we show through a given customer, we apply machine learning to sift through the vast amounts of data that we have based on past customer conversions and purchases to predict which product and styles will best resonate with a given customer. Searching for home furnishings, as you've heard throughout the day, is also quite different than searching in other categories. So to help with that, we've transformed our search from electrical search. And by that, I mean, when you search for a red sofa, I go through my catalog and I string match red sofa and show that to you. So that's lexical search. We've transformed it from lexical search to semantic search. So in this case, when you search for a red sofa, I'll also show you a burgundy couch, right? And this is particularly important in our category, and we found that it gives you much better -- it meets the customers' needs a lot better. Just as a side note, we leverage Google's BERT large language model to use in our semantic search. So being able to do that well is especially important in a highly style-based and emotive category. As Liza mentioned earlier, a lot of times, our customers aren't exactly sure what they're looking for and even when they are, it's really hard for them to articulate what they're looking for. So being able to do these searches are particularly important. We've also heavily invested in browse filters, again, something that's very important in our category. And we do that by -- and that's very much informed by the aggregation of all the past data, past browsing data that our customers have. And we also use that alongside human input from our curators. So as you can see, there's a considerable amount of ML that's powering the customer journey. So now for our suppliers, we also have several applications of ML to help our suppliers. Partner Home is our supplier-facing platform, where we offer the experiences, the tools and automations to our suppliers to help them manage their catalog, pricing, inventory, merchandising and also the post-service needs. Creating and presenting products in a consistent way across a large catalog is something that's very important in our category, and it's very critical to our ability to effectively match up our customers with the best products for them. Historically, this would rely on us asking our suppliers to provide us a lot of high-quality information. And this was a heavy burden on our suppliers and also was susceptible to inconsistencies and sometimes inaccuracies or missing information. So instead, by using machine learning, we're actually able to extract, augment and correct the information that we get from our suppliers to reduce what we call a product graph. This product graph represents our understanding of products in our catalog, and it enables us to provide rich and accurate product information to our customers on behalf of our suppliers. It also powers some other important capabilities like the ability to predict future winners, duplicate detection, similar and substitutable products, et cetera. And this has allowed us to not only reduce the burden on our suppliers, but it also helps them improve their success on our platform. So now that I've shared a lot about our long history and continued investments and use of machine learning, I want to talk a little bit more about generative AI. So we've heard a lot of about generative AI of late, and I'd like to share how we are approaching it. I'd like to think that we're looking at generative AI in a very pragmatic way, specifically, how will gen AI make us more productive and also provide a better experience for our customers and suppliers? So while it is still early days, we've developed a two-pronged framework for our investment in generative AI use cases at Wayfair, largely framed around whether or not we expect to have a human in the loop to evaluate gen AI output before pushing it off to a customer or a supplier. So we have some interesting proof-of-concepts that are currently being tested. You heard actually Sanjeev talk about some of this. In the customer sales and service area, we are testing out use cases that provide agents with generated response text based on the customer intent, context and preference. Our early results are showing that we have a reduction in call resolution time as well as an improvement in agent productivity and customer satisfaction. So we're feeling pretty good about that. We're prioritizing these use cases, example of this agent co-pilot, or I guess Sanjeev called it agent whisperer, service assistant, amongst others, while maintaining a human in the loop, our agents, in this case, who can check -- do these quality checks to prevent against hallucinations. So hallucinations is the term that is the phenomenon where AI algorithms fabricate stuff essentially where it doesn't really make sense, right? So we want to protect against that. Another area where we've been looking at generative AI, one I'm particularly excited about is from within the technology organization, we've been actively piloting Microsoft's GitHub Copilot as well as Google's Duet AI. And we are excited about how some of this code completion and generative code can actually help accelerate our tech transformation efforts that I mentioned earlier. And finally, in our marketing group, copy generation, current use cases we are targeting include PLA product descriptions, SCM ad copy and SCO use cases, again, to help drive copywriter throughput. On the experience side, we feel positive about the role gen AI will play in customer design experiences and are testing these customer-facing experiences in a controlled environment. I'll share that shortly after this. And then maybe before I get there, there's just something that I do want to touch on. We believe that some form of conversational search or AI-guided assisted shopping will become prevalent in the next couple of years. So our goal is always to make sure that our search experience is the best in the home category. So customers come to us first and come back whenever they want to search for something for their home. So we're looking at how gen AI and combinational search can be incorporated into our search experience and building up our own capabilities as well as working with partners like Google to ensure that we're in an optimal position when it comes to search offline as well -- off site as well. So I mentioned a new customer design experience, and we're excited about our new website application that we just launched a couple of weeks ago called the Decorify. So Decorify offers shoppers a new way to imagine their spaces and hone in on their style preferences. It uses a pilot technology. I mentioned before, ChatGPT is a text generation -- generative AI. This actually uses a text image generative AI model that creates shoppable, photorealistic images. And it enables our customers to envision their own homes in new styles by simply uploading a picture of their space. So how this works is that a customer can upload an image of their own space, a room in their house, and it prompts the system to reimagine it in different styles, whether it be Bohemian or mid-century modern, industrial or even inspired by the Barbie movie with a perfectly pink filter, which I think is pretty cool, which is why I should probably keep my day job. Decorify presents images of the customers' own room, redesigned to reflect any of these styles. And customers can browse various rooms in these designs and more importantly, too, product and make purchases from Wayfair with embedded links directly from the application. So maybe I'll play the video and show you. [Presentation]

So this really, I think, exemplifies how we are thinking about incorporating generative AI in a pragmatic way. We want to help our customers find what they need, and this is a new way in terms of helping them hone in on their style preferences. So kind of in conclusion, we believe that we have multiple distinct advantages when it comes to our ability to win using generative AI. You've heard many of us talk about is we have a very large, rich and proprietary first-party data set that is unique to us. And it can be used to fine-tune and train these foundational large language models for outcomes that are very specific to our use cases. The size and quality of our first-party data is really differentiated by all the solutions that you've heard us build over many, many years. So for example, imagery data, the customer service chats, our product catalog data. Secondly, we have the benefit of years of experience deploying ML and AI solutions at scale across every aspect of our business, and we have a very strong record -- track record of figuring out what are good use cases for ML and AI. And this is especially advantageous with generative AI because I think what we see now is the evolution of the models, the LLMs and stable diffusion, et cetera, has been going much faster really than the evolution of the use cases. So our ability to figure out good use cases for this capability, I think, is going to be important. We can also do this in a cost-effective way by leveraging as-a-service pretrained models that we can tailor to our use cases. This process usually requires less data and training time compared to training a model from scratch. And last but not least, I think another thing that sets us apart is our approach to experimentation and adoption of new technologies and techniques. I think we are able to hit that sweet spot between core engineering, applied R&D and far future R&D. We can quickly take things from an idea stage to in production and hit scale in a very short amount of time. I think maybe Decorify as an example of that. So finally, in summary, as you've heard throughout the day, every component of our model is enabled by proprietary purpose-built technology that we've deployed over decades of operating in the space. We continue to refine and build on this technology. And we're excited about how we can scale our data and existing infrastructure that will help us continue to evolve our business and generate ongoing growth. So thank you all. I think there's a break next, yes? All right. Thank you.

All right. Thanks, everybody. Hopefully, that was very helpful. We are going to take a 15-minute break and reconvene about 5 minutes after the top of the hour. Thank you. [Break]

Okay. Great. We're going to get started. Good afternoon. My name is Adam Sinoway. I lead category management. I've been with Wayfair just over 10 years. As you know, our supplier partners have been a really big part of our story, of our history, a big part of our success. So we thought it would be great for you to hear directly from some of our key partners this afternoon. So I'm joined on stage today by Satya Tiwari, Bruce Greenberg and Dave Berry, and we're going to just have a quick roundtable conversation. Before we kick it off, I'm just going to turn it over. It would be great if each of you could just give a quick bio for the group. Satya, maybe we'll start with you.

Thank you. So I'm Satya Tiwari, I'm President of Surya. Surya is a family business. We do predominantly rugs and home accessories. And we've been working with Wayfair since 2005.

Bruce Greenberg, Founder and President of Aeon Furniture. Working with Wayfair about 12 years now. Categories are kitchen and dining, bedroom and upholstery.

Great. And hi, everybody. I'm Dave Barry, EVP and CFO at Fortune Brands Innovations. We are a brand innovation and channel leader in the home products and security space. And our brands -- most of these brands are Moen, House of Rohl, Master Lock, Therma-Tru and a handful of others. And we've been working with Wayfair onwards of 10 years, really started with Moen when Wayfair got into home improvement and have deepened that relationship with Perigold and House of Rohl and then on to [ B2B ]. So look forward to talking about that today.

Great. Well, I really appreciate you all being here. This will be a great discussion. As you can tell, we have a wide range of product categories represented here from furniture and decor to home improvement, up and down the price ladder. Household national brands is in Moen and House of Rohl as well as products that are sold under our flagship brands and through our other specialty retail brands.

So let's get into it. Satya, first question is coming to you. We've been working together a long time now since 2005. It would be great to hear how the relationship has evolved over time. What are some of the things that are -- look the same and some things that have changed over time?

Awesome. So yes, so we -- I joined the family business in 2004, and I was very lucky to meet Niraj and some of the early folks in 2005. And as an entrepreneur new to the business, we're always looking for a platform that we can grow. Now Wayfair in the last 18 years, it's a much different business. I mean, it's from -- in the early days, we looked at e-commerce as we built a product there, and hopefully, it will sell. Now today, we see Wayfair as a platform where we can try new ideas. As an entrepreneur, I feel like when we see great designs, we have a platform that we can start working together. What hasn't changed, and I think it's very unique here, we sell to hundreds of customers, where this is very unique where we collaborate together. We work with the buyers. We work with all our managers to make sure we partner together to create business. And I think the flexibility of Wayfair has been amazing. And since we don't see Wayfair just as a customer, we see as a channel to get into the entire U.S. consumer base. So we bring products from all over the price and lifestyle spectrum. It has been an amazing journey for me.

It's great to hear. Dave, I'm going to toss the next one to you. Similar question, for someone who's representing national household name brands, what are you looking for in your retail partners? And what would you say really sets Wayfair apart?

Yes, sure, Adam. So our focus really is on consumer brands and consumer-backed innovation. And so as we look to channel partners, we look to find those that are a natural extension of that focus. And Wayfair has proven to be a really strong advocate for brands. And so by partnering with Wayfair, we were able to target the consumer at various points along their journey. So from inspiration to education to search to ultimately purchase, we're able to target our investment and the focus of our brands and really meet that consumer where they are on the journey. And I think what's really unique about Wayfair, their ability to reach a wide audience, whether it's consumer or Pro wherever that audience is along their journey and then target them specifically with the styles, the designs, the brands that really make sense.

Great. Thank you. Now I want to change directions a little bit. Talk about two hot topics, one being inventory levels, another being pricing levels. Bruce, this one's going to come to you. So it's been an interesting couple of years.

We did that, yes.

It'd be great to just hear what your view has been, what your experience has been over the last couple of years, what you saw related to inventory and pricing? And then how things are starting to normalize now?

Right. So for us, bringing in such a wide range of furniture products, we normally kept quite a large inventory. Well, with the start of COVID, the sales spiked, the inventory dropped. We rushed to bring new inventory in, but with the hindrances of COVID in Asia popping up at different times, it led to a tremendous inventory imbalance. Sales were hurt. We also had to then try to run through the problems of getting merchandise at an enormous container cost. Now part of that was mitigated because we had an ongoing ocean free contract with CastleGate that allowed us to bring the majority of product in, in a timely manner at a very reasonable and fair price. Towards the end of COVID, we found that the new contract rate was much higher. We had to raise costs that again hurt sales. The good news is it didn't last long for us. We were able to lower prices just a number of months, 3 or 4 months after we raise them because container prices are starting to normalize. And I felt that the way to move forward was to keep the prices at pre-COVID levels, build market share through the Wayfair chain. And we now see at least for the next 6 to 12 months easily that container price is going to stay low, the growth trajectory is back on the plus side and we really see things normalizing out to where it was before COVID with a normal increase through the rest of 2023 and on through 2024.

That's great. Thanks, Bruce. And so what you're saying is that the pricing levels that you're able to offer in the market now reflect your sustainable cost structure?

Exactly. For us, we see no upside in raising price and hurting demand. We have an easy container flow, the factories in Asia are longing for business now. The delays in any kind of production is totally gone. We can get merchandise out of almost any factory in under 30 days now. It can get on a container in less than a week, where it was such a hindrance before. So we're able to keep up that level of sustainability and price. So there's no need to raise it. If anything, that might come down if container rates really do stay this low over a long period of time.

Yes. Great. Across different product categories, but similar question for you, Satya, it would be great to hear sort of your view over the last couple of years where things stand now?

Very similar to Bruce. I feel like the prices we have today is sustainable. And I think a lot of ups and downs have self corrected. And I think to Bruce's point, COVID did one thing good for growing companies like ours. A lot of factories have increased demand during post-COVID. They build more factories. They have more capacity ports are bigger. So I feel like what we have now is sustainable. And if anything, as things stabilize, we may even have better pricing going forward.

Definitely.

Great. Appreciate that, guys. The -- so I want to stay on just on this topic of supply chains for a minute. Bruce, you leverage CastleGate, do boarding and fulfillment. It'd be great to hear from you your experience, leveraging CastleGate, what that's opened up for you?

Right. So for us, CastleGate has really been a wonderful addition to the way we run the business. We were a proponent of bringing in as much merchandise as we can, given the fact that they're able to put product in their dozen or so warehouses within only a day of almost every consumer in the United States. I have a warehouse right in New Jersey, but I wasn't able to cover that much ground. And now with the advent of the Asia consolidation, our factories deliver right to their consolidation center. If I have 5 factories delivering, they'll take those 5 factories products, divide it up into containers going to each of the 12 locations and get it on the next ship out. That saves a lot of money in inland costs in America. It's much cheaper to get it done in Asia. It makes it more convenient for the customers to see products flowing more frequently to every location. And it really gives us a way to expand our footprint in everything that Wayfair does. We've -- we're now bringing in almost 90% of our product through their Asia consolidation centers and into every one of their warehouses. And it really has shown a growth for us that we could never have gotten on our own.

That's great. And so you're manufacturing in China, consolidating...

China, Asia -- many different Asian countries, they all go to consolidation. The only time it doesn't do that is if it's a special project view or something that needs to go direct more quickly because it does save a week if I send it direct, but any transit time in America would eat that up easily.

Yes. So then the net is that we put the right items on the right containers board position goods across the U.S.

Exactly. You know by your clicks where it needs to go. I don't. You direct it. I give you free rein to do that, and it's worked out remarkably well.

Yes, brings cost down because outbound ship is lower, fewer touches, speed to the customer goes up, damage comes down. So it's been great.

For us, it's really been a win.

Okay. Great. So now I want to change gears. We talked a little bit about wholesale costs and inventory levels, relationship in general. Let's talk a little bit about driving exposure on the platform. So Dave, this one's going to come to you as you think about driving exposure to Moen and Rohl, how do you think about what you want to see in advertising products? How do you want to tell your brand story on a platform. What's important to you?

Yes. And I think I'll share a good example with the group, which is our partnership on Perigold with the House of Rohl. And so as we develop the House of Rohl, which is our luxury kitchen and bath platform over a period of a few years. We actually did not have an e-commerce presence. And that was a purposeful strategy because we felt at the time, we have the inability to control the brand story and messaging online. It kind of just went on to the digital shelf and got lost. As we learned about Perigold and the capabilities that they had, we knew that would be a perfect fit for the House of Rohl to start its online journey. And so what Perigold offers in terms of a luxury marketplace that's really focused on allowing that consumer and designer to curate their rooms is very unique, and we've seen a lot of value for the House of Rohl being on Perigold. And if you went to perigold.com or on the app and you search for Rohl, you're actually taken to a branded landing page where we have the Rohl story. There's a nice video behind the providence of the product and then the collections are all merchandised in a way that makes sense to that consumer and designer to ease shopping, and it stays true to the brand essence that we're hoping to achieve with the House of Rohl business.

Great. Similar question, but again, different product categories. So you're looking, Dave, to tell really strong brand stories. Satya, you're looking to drive exposure and volume to your items and have them really stand out on the platform pretty active with our advertising products as well as promotions. Talk about these levers, how you think about using them, when you use them?

Yes. Great. So obviously, one of the difference in my business, we're very SKU-intensive. I have about 60,000 SKUs across different lifestyle, different material. So for us, we love the Wayfair platform because we can target using promotion, how do we launch new SKUs. Sometimes we look at seasonality, how do we get into the outdoor business, capture market share. So there are twofolds we always look at, how do we reach zillion things home, you have to really curate and use the right levers. And in some of our other channels, we don't have the levers. We feel there's a lot of biases the retailer dictates, oh, this is not for our customer. This is not our product. With Wayfair, I feel like we don't have those biases. So we use all your levers. And promotion and advertising are two critical ones to create more eyeballs to our product. Some could be launching newness. Some could be -- as you guys know, forecasting is never perfect. So we may be -- we have too much or too little, how do we make sure we use the lever to self-correct the inventory. And more importantly, I think how do we use these levers to get the right product for the right customer with the wide catalog that we have.

I think you brought up some really interesting points there around the fact that you're an entrepreneur and you have the tools to really run your business. And that there really is no one size fits all necessarily, that there's different use cases for different items that are at different life cycles. You may have a new item that you have one purpose for. You may be over inventoried on another. And so it's interesting to just hear you talk about how these levers enable you to really be an entrepreneur on the platform.

I totally agree. And also, I think like we feel like we own our destiny at Wayfair. So what -- the input drives the output. That is not true in a lot of other platforms, a lot of other retailers we sell to, which empowers our team to do more because we can control the outcome.

Yes. That's great. So one way of driving exposure is by pulling these levers, advertising or promotions. Another opportunity to get more exposure and drive volume is by accessing incremental customer bases. So David coming to you. It would be good to talk about how you think about the different platforms in Wayfair, whether it's Perigold or B2B business, Wayfair and what that opens up for a business like yours?

Yes. I think as I mentioned at the beginning, I think Wayfair is unique in that you're targeting that consumer or Pro along the journey. And so as we look at our brands, we have Moen, which I think now is fairly ubiquitous across the Wayfair platforms. I think it's pretty much everywhere. You have House of Rohl that's very targeted within Perigold and then more recently moved into the B2B space, which for us, Moen is the #1 brand with trade professionals. And so we're able to leverage that strength and then partner with your e-commerce capabilities that are now focused on B2B. And I know our associates spend a lot of time with your B2B associates on training to make sure the right product offerings are understood, the right technical specs are understood, so that they can provide that white glove, high level of service to the pro, both presale and post sale because it's a necessity to win in that marketplace. And I know we've had really great partnership and success there recently.

Yes. That's great. And Satya, you also sell across our family of brands, particularly, it will be interesting to hear your thoughts on our flagship brands on Wayfair, Liza talked a little bit about them earlier. What's your experience been with flagship?

Yes, great. So being a good, better, best as a company, so we as a company make a very value product to a very high-end product. So I think SRBs and the flagship brands have definitely helped us target those products much more in a direct way. Wayfair.com, we have a much wider strategy. We try lots of new designs. We experiment all day long. But the consumer that comes for flagship brand and SRBs, I feel like they are a lot more targeted. So we use some of those learning from other channels and apply it here. And one thing for us, I mean, Perigold, we talked about, we had meeting today. So we made very high-end rug. So that strategy for Perigold is very different than someone who just graduated college and wants to get a good value rug. So I feel like this gives us a wider -- many levers to get to that customer. And with zillion things home, you can get lost. If you don't have all these the brands, it's harder for us to get to that customer. So it has been a blessing for us.

Yes. That's interesting. And has this -- have you taken our different family of brands into account? As you think about product development and who you're designing for and how you're designing, do the different brands and the target consumers, do they play into how you're developing products?

Absolutely. We -- if I'm in India or in Turkey. When we see rugs, we say, this is all modern rug. This is going to be a perfect birch rug. So I do think that it kind of focuses us more. So it's not a generic anymore. Definitely, I mean I think over the years, these brands have defined themselves pretty well to us. So we, as a manufacturer, we understand these brands a lot better, and it definitely guides us in making product and putting the product in the right place.

Yes. Great. Bruce, next one for you. While we're on the topic of specialty retail brands, we do a lot of business on AllModern together. It'd be interesting to hear about your experience there.

Well, I've had a great experience in AllModern and also flagship brands. One of the things that I've learned through the many years I've been in furniture, is that I can sell and do so many other e-commerce sites but Wayfair has been the only one to give me all the vertical information I need to succeed. So it starts with the right type of products or the categories they're looking to fill. It goes right to the projections they give us when they're going to run sales with some of our products in there. So we can adjust what's coming in at the right time to the right locations. It really has given us a partnership. They believe that my success will lead to more success for them. That's really the only e-commerce customer I've dealt with in the many years I've been doing this, that feels that way. I truly believe that it's a true partnership. They put a lot of resources my way to make me successful to help them grow in whatever categories we're in together. And in saying that, we really have been able to find a wonderful niche for ourselves to make things that they need at a price that most consumers can afford. And we're able to keep it low because of all the things we do together. I don't need to keep excess inventory for things that don't sell. I'm able to use the CastleGate system to keep my freight rates lower, the drayage becomes lower. It's more uniform. We now even do products -- we sell products that are still on the water. They're not even arrived yet, we presell. So we do a lot of different things with the company that we don't have access to with any other company we've ever dealt with. And for that, we spend more money and time working with them to grow these different fields to make sure we can be successful and they can be successful.

It's great, Bruce. And I think just double-clicking on like some of the back and forth that you have with your partners, at Wayfair. I think -- just walk us through what does that look like? How does that play out?

Well, for instance, we're now talking about what should the colors be on some of the models we do for 2024. With the advent of certain performance fabrics, we're moving into them now because customers want them, and it's something else we can put in a bullet point to help us both sell more. It could be as simple like that. It could be, let's change the frame styles because this has been done for a while. Let's change the color on something that's been done for a while. They give me the ability to succeed because they're telling me or at least they're giving me their opinion on what the future might be. And I'm able to get there before everybody else does. And that's just, again, the people, the difference that the people I work with.

Yes. That's great. I think one also -- you mentioned a lot about the feedback loop back and forth right? And some of it is around -- on product development or on styles or opportunities. But we also try and pride ourselves on feedback working both ways, right? And I know that with the partnership, you all also share a lot with us around things that we can do to get better, right? Just how our tools can improve or where there's areas of opportunity. So maybe, Satya, if you could just talk a little bit about that, right, like how that relationship works and how you've seen that sort of evolve and play out over the years?

Great question. So one thing I think we've built, in Surya and me personally working in this account, we build a relationship, we can push our buyers. We can push our partners. So we don't see -- that's not always common, some of our customers -- we can't have a honest dialogue. It's a very -- the relationship is very one-sided, and it's very transactional. I feel like at Wayfair because we have invested with each other that we can push for the data that we need to make our business success. And every time the request is not like -- they truly believe that the better data we have that we'll do more business together. So I think it's a very unique situation we have. And with thousands of customers that I deal with, there are very few that we can have honest dialogue and two-sided dialogue where we can really push each other which has been amazing. And a lot of -- even today, last 2 days, I was here working -- I want to maximize on this trip. So I did some work with buyers. Any ask we have, it's not like another task that we're asking, they generally want to understand the need why and give us prioritize those tasks. So we have more information to make better decision to grow our business together.

Yes. That's really great. I'll turn the same question over to you, Bruce, because I know you're usually short on feedback.

You know. I've been involved in a lot of beta testing. -- through the good and bad of partner home coming up and running and changing along with the people. I think that when you really have a partnership, you can talk honestly with them and they take the feedback and they bring it back. Many of the things we talk about at some of our meetings or even some of the shows that we all visit together. A few months later, they're now part of the new way things are going. It's a great feeling to know that you can be heard if you have a point of view that's right or that you feel is right. If not, I get the feedback again. And I'm willing to take that because I want you to succeed because you're going to bring me along, right, if I'm partnering with you, as you grow, I'm growing organically. If I can do better than organically, I'm definitely going to try, but I want to be at least the same growth pattern as you guys have.

Great. Great. Well, that's toward the end of our questions. Is there anything that we didn't get to cover that you guys wanted to share? It felt like we covered it all.

Yes. I mean, for me, it's like -- I mean, we're very lucky to I remember the story that I told Adam while we're waiting outside. When I graduated college, I took a job in New York City at DLJ. I wasted a day of my life taking a shuttle from Port Authority to go to IKEA, buy some furniture come back, I wish Wayfair was around then. And now if you think about the retail today, has been set for limited option, but operational excellence. If you've got IKEA, you're going to get 10 rug option. Today, the consumer wants hundreds of options, thousands of option. So I feel like the platform that we have with Wayfair, we are -- we have grown probably 300-folds in the last 18 years as a business, but it's because of this partnership and the levers that I have, every input, I have a very clear path of creating success because wafer helps me get to 300 million U.S. consumers in a very targeted way, in a very efficient way, which is something that it's just -- it's not out there.

And Adam, I'd second that. I mean we have a really strong partnership with our brands and with Wayfair. The consumer has a lot of different avenues to shop. I think what you all bring is a unique platform where you can target the consumer with the right product at the right moment in time. And I know we've -- in the 10-year history of working with Fortune Brands, we've expanded and we're continuing to look at expanding into new markets and beyond. And there's growth for us ahead which we're excited about.

Great, as are we. Well, Dave, Bruce, Satya, again, really appreciate you being here with us. Enjoyed the conversation. I'm going to turn it over to Niraj and Jon and look forward to seeing many of you at the cocktail hour later. Thank you.

Great. Well, next step, we're going to take you through a section where one of the things we want to touch on is all the different things we have underway in the business. All the different ways we have to grow, the different lines of business we have and how we think about the full TAM and all the things we're doing that give us ways to penetrate it. Before we launch into that, I also just want to introduce you to Jon Blotner. So Jon has been with the company, with Wayfair, for a number of years, like 8 years, I think.

Almost 8 years.

8 years. But recently, we announced that he's moving to the Chief Commercial Officer role. And this is something that we've done over the years is that we've always invested in having a great bench depth of talent. And so that when an executive is retiring we are not necessarily having to go outside to find something, but we have folks who have kind of worked in a number of different areas inside the business, and they can then take on more. And this kind of more dynamic model we've had encouraging folks to take on more and rotate around the business. We feel like it's served us really well. And as we talk to you about all the different things we're doing to grow, you'll get a real feel for like the breadth of everything we're doing. And so in order to do that in parallel, you obviously need to have a very strong team, you need to divide and conquer. That's something that we've been really proud of how we've done it. Before we dive into the detailed content, let me just give you a feel for how we framed out this section. The TAM is huge, as we've talked about, right, $800 billion, grow to $1 trillion with that 4% CAGR by 2030, but that's just a big number. Like how do you contextualize that? How do you think about that? How do you think about what you're doing to actually get meaningful pieces of that. And so what we're going to do is we're going to take you through how we're thinking about it in kind of 5 sections. And you can see 4 of them number here. The first is are different brands. How do our different brands sit together where -- what piece of the market does each one go after? Why do we have these different brands? What does that mean for us? The second is, we'll touch on it from a geographic end point. We obviously are in different countries each 1 obviously represents a different market. There's real leverage we get from our tech platform and some of the things we know how to do broadly. And then we have the ability at a relatively low cost to add nuance in each country, we'll talk about that. Third is, we have a B2C business, which is what I think everyone is probably the most familiar with, but we have a business called Wayfair Professional, which is a B2B business. We'll go through that. Last, we've talked about how we are investing in a brick-and-mortar source. We'll talk about how we see the physical retail opportunity, what we're doing there, how we think about that. And last, it's not necessarily -- you wouldn't necessarily put in the context of the TAM, but when you think about, hey, how can an online platform like Wayfair be profitable over time and not just to be profitable, that's sort of the level we've shown you so far, but increase that profit every year while still investing in all of these things. There's things we can do in our business that drive margin that is a little different than what maybe a brick-and-mortar retailer thinks about. And one great example of that is what we're doing on supplier advertising. So we'll have a section where we'll touch on that. And I think if you kind of think about all of these things, you can start to see how the business can grow dramatically how the profits can continue to increase while we actually pursue all of these things. So with that, let me turn it over to Jon.

All right. Thank you, Niraj. So excited to talk to you at the first section about our brands. So I think overall, it's pretty clear when you look at Wayfair, and you go to the slide that Niraj just showed you that our overall penetration in the market right now, despite our position of strengthening, growing strength is still pretty small. So when you think about the headroom we have as we continue to grow and take share, it's pretty exciting for us. And when we think about that $800 billion total addressable market, we'd like to think it will be broken down in the 3 different ways. So we've got the $500 billion to $600 billion mass market today, which Wayfair has about 2% share. Then you've got a $100 billion specialty market and a luxury market that's about $100 billion to $150 billion. Our Perigold brand today operates in that luxury market and has really grown quickly since launch. On an orders basis, it's grown since 2019 about a CAGR of 40%. But despite this fast growth, if you look at those 2 subsegments, specialty and luxury. Today, we only have about 0.5% of that market, which makes us incredibly bullish about future growth given what we can bring to bear. So I think all of you have seen this slide -- a version of this slide, it's at almost every investor presentation. So I'll spend a little bit of time here not much. But on the left-hand side of this chart, you can see Wayfair plays up and down the price and quality ladder. So serving customers making $60,000 or less all the way up to the customers in the luxury segment making about $175,000 and more. Despite that and despite Wayfair's broad assortment and relevancy, we know that a lot of customers in the upper mass and luxury markets still want a differentiated shopping experience. Despite spending a lot of time on Wayfair, buying a lot of things in Wayfair. For certain considered purchases, they want a different experience. And because of that, we have a brand that can help them. So we have 3 specialty retail brands AllModern, Birch Lane and Joss & Main in Perigold, our luxury brand. These brands ensure that we can be relevant to these folks that we can capture incremental revenue and share of wallet and that we keep all of our customers within the Wayfair ecosystem. And when you think about our right to win in this space, we feel incredibly confident because we're able to leverage the massive scale platform of Wayfair as long as the historical investments that Wayfair has made in this space. And we feel that it'd be incredibly cost prohibitive for a competitor to sort of do what we've done. So in the specialty retail brand side, we're able to leverage the scale we have with our suppliers to bring to market that same specialty quality curated assortment to our customers but at much better value. Additionally, because we list our specialty retail brand items, not only on their own websites, but on wayfair.com, we capitalize on Wayfair's reach as well. On the Perigold side, we leverage our home expertise, scale of suppliers to bring what we think is sort of a novel thing, which is direct-to-consumer access for a massive assortment of the best quality items out there. Historically, if you wanted to buy a luxury item, you typically go to a small one-off retailer, small assortment. If you want access to a bigger one, you've got to go through an intermediary, a designer. Because of how parable was developed, and how fast it's grown, it has quickly become the leading platform in the space, competing with a highly fragmented market against a lot of subscale competition. In addition to those advantages, these brands gain access to a lot more leverage from Wayfair. Across marketing, operations and technology, on the marketing side, these brands leverage, as you would expect, Wayfair's massive customer file, ensure that we acquire customers can do so efficiently. On the operations side, these brands rely on our proprietary logistics network, CastleGate network to ensure that we can deliver items quickly with high quality but also give customers access some pretty cool things like consolidated delivery. On the technology side, we've got thousands of engineers at Wayfair who are also working on platforms across both as well as on these brands, making sure that our site experience, our supplier interfaces are all top costs. I want to go quickly through these brands, but AllModern, as you would imagine, focused on customers looking in the modern space, highly curated, design focus. Today, we have 2 physical retail locations. We're opening a third soon. You look at Birch Lane, traditional classic style, we just underwent a brand refresh here, and the way that customers are reacting have been quite exciting. And finally, Joss & Main, we'd like to think of this customer as really being into what we call the art of the mix. So someone who doesn't feel constrained by a style, they want to shop a little traditional rustic classic, modern, all mixed together. And today, we have 2 physical retail locations. Finally, I want to talk about Perigold. We have designed this brand to truly be the destination for luxury items. This brand, as I talked about before, offers unmatched selection and breadth of selection of the world's finest items of brands. Today, we have more than 400,000 items on site that's growing. In addition to that assortment, this brand is also focused on ensuring that our customer that she can feel really good about buying online. We offer free shipping premium customer service, design help from our in-house designers, everything she needs to have a great online experience. And our investment in these brands has begun to really pay off. I'll give Perigold as an example. I mentioned that 40% CAGR in terms of order. The other thing that's really exciting on the far left is that when you think about the idea of the incremental share of wallet. The Perigold customer is spending 2 to 3x on average order value to what our Wayfair customers. And the site and the brand is really resonating. We're getting about 4 million monthly visits. Over the last 12 months, we've generated and acquired more than 150,000 customers, and it's still incredibly early in this journey. All right. Niraj, I'm going to turn it back over to you. I've been talking to international. I see you guys in a little bit about advertising.

Thanks. So similar to how Jon helped you kind of dimensionalize how the TAM breaks down by the different brands and different market spaces that we play in. Here, we kind of take a look at it by the geographies we're in. Obviously, we're the largest and the best known in the United States. The United States is the majority of the TAM. But we play in some other very large markets. Canada is a $30 billion to $50 billion market. And Europe is $320 million to $350 billion market. In Europe today, we're in 2 countries. We're in the U.K., and we're in Germany as our main forays. Those 2 together add up to just under half of that TAM. And today, our focus in Europe is really on those 2 markets. Let's zoom in a little bit. So first, let's talk about Canada. So Canada, obviously, with its proximity to the United States, the fact that most of the folks live very close to the United States border gets a lot of leverage from the U.S. So think about the vast product selection that's available in the U.S., the vast product selection that sits in the CastleGate network. These are things that basically help the Canadian business have a differential advantage. But we also do some things specific to the Canadian customer. The promotional calendar focuses on the Canadian shopping holidays. The site is in both French and English. In Canada, we have also similar to what we've done in the U.S., we've built a household brand over time. So Wayfair has that level of awareness throughout the country. And as a result, in Canada, we've been taking market share. And so one of the things we've talked a lot about in the U.S. is that even though the macroeconomic environment right now is not ideal, right? It's been tough for home goods since the spring of '22. Well, that story, you'd say, okay, well, that's going to make it tough to grow. Well, we've had our recipe working our flywheel working, we're taking share. Well, that's the true mattress in the United States. For example, it's also true in Canada. Now if we flip over to Europe. Europe, obviously a much larger TAM, many different countries. Well, how do we think about approaching that? So first, we started in the United Kingdom. In the U.K., you have the benefit of the language being consistent with the language rate we all know from the United States, English. In the U.K., we also similar to Canada, we have a household brand. If you look at our performance this year, we've been taking share. And so that same recipe and playbook that we know very well, it actually is the same one that we use in every country. Every country has a nuance, but the nuance is in the small aspects of the business, not in the core of the offering. Customers want access to selection, they want great value. They want fast delivery, they want great service. Those things are true in all of these markets. So now the core of what we do, it's highly consistent. And then think about some of the nuance of what you might need to do, what language is it in? Are there specific payment methods that are a little more popular, a little less popular. Those are where we need to customize. And so our technology platform, which gives us a lot of leverage is something we can use everywhere we operate. The core understanding we have the business is the same. The way in which we can flow goods from Asia and from production locations is the same. The way in which you need to handle these items is the same. And yet there's also nuanced differences, and this is why we have dedicated teams. One of the things we did for the European business, we -- in January of this year, we announced a plan, we've been already working on it at that point for 5 or 6 months. But we said, hey, we have this plan that affects about $1.4 billion of cost in the business. Different things we thought. We could optimize either reducing costs that we found were excessive didn't make sense inefficient, things we could do to improve our operations, take costs out that, that could either go to margin or go to profits and some advertising costs where we thought that we were leaning in too heavily and too speculative of a manner in some of the kind of R&D buckets of marketing, which Paul talked about earlier. Those sets of cost actions, which we've aggressively moved on, you've seen, obviously, we've had dramatic effects on the P&L. We think what it's actually done is also set us up for success in a lot of our smaller business lines better. Europe is a great example of that, where we have a dedicated team in Europe who are working very hard at that core recipe. That's how we see our success everywhere play out. At the same time, we trim the advertising cost to really focus on where we were getting payback and limit the R&D spend to be a modest piece of the budget, something we did in every country we're in. We also make sure that the unit economics when you think about the gross margin and what the unit economics are of a given order, we're in a range that we thought we could get to the margins we want on a straightforward glide path versus needing to raise them more aggressively down the road. Those things, as you could imagine, impede your near-term growth, but actually increase your near-term profitability and also set you up for better success over time. So we're very happy with the progress we're making in all of our business lines, and each one is in a slightly different place based on the changes we've made. But in aggregate, we're well poised for growth overall. Next, I'm going to talk about our B2B business. We talk a little bit about our B2B business from time to time, but I think it's one of our -- pieces of our business that's probably the least well understood. And the reason is unless you're a professional, you don't have direct access to use it. So how does the TAM breakdown here? Roughly 3/4 of the TAM is on the consumer side. Those would be all the websites and brands that you're familiar with that you can just pull up and visit but about 1/4 sits in the professional side. Now our professional business today is about a $2 billion business. So I wouldn't say it's small, but at the same time, it's around about 1% of the TAM, which I would say is small. So again, if you think about that concept that we were talking about earlier, to do a lot of the things that customers want in this business requires scale, well, we have the scale. On the other hand, how can we grow if we're so large? Well, we're not that large. We're 1% of the TAM. So this is how you can think about the opportunity being in front of us. So first, I was saying Wayfair Professional, what does that mean? Well, think about this. I'm going to take you through in a minute what the verticals are we focused on, but these are all Pros who either use Wayfair Professional as a solution for themselves. So this would be like one of our segments is small business customers, for example. They might use it to outfit their office, things like that, or their folks who use it for their clients, 2 verticals there would be contractors and interior designers, for example. So think about that they're using Wayfair Professionals a resource for their business, either for their own business directly or to service their clients. The 7 verticals we focus on here, the 3 largest are contractor interior design and office. And the other 4 that we also have efforts underway on are accommodations, food service, education and property management. Now why do we focus on vertical industries? Well, we focus on vertical industries because to really make the offering very pertinent to that customer, what you really need to do is make sure you have that expanded product selection that they need that you may not carry just if you cater to consumers. There are different services they may need that you wouldn't build for consumers, but you might build for them. What's interesting, though, is the way this business started is because these B2B customers, we found that they were shopping on Wayfair. And we wouldn't actually, "Well, hey, someone just bought 50 faucets, someone just bought 100 television stands." And you say, "Well, that doesn't make a lot of sense." And you try to figure out what's going on, what you realize is that these customers are so underserved, the consumer sites where sometimes they're best resource to get access to selection understand what was available for fast delivery, find good pricing, decide what to buy. But then you say, okay, on one hand, they're buying from us, we're just fantastic. On the other hand, we're highly unoptimized for them. We could do a much better job, that was the originations of the business. Now over the years, we've added a lot of finesse to it. One of the forms of finesse is that we don't just let anyone join the program. You can enroll and say, "Hey, I'm an interior designer." You can roll say, you're a contractor, we then credential you. So we confirm are you really an interior design, or are you really a contractor? And we do that because there's a series of benefits you get, which don't make sense to sort of offer to consumers necessarily. And some of these are trade discounts, some of these or other types of logistics services is also an experience that it's optimized for the vertical, not necessarily for the consumer. But once you are credentialed, you have a login, so you won't come to wayfair.com, but once you log in, you would see different navigation. You see incremental product selection. You could see bulk pricing and discounts. And so the experience starts to change tailored to the vertical you're in. Some examples of -- so just to bring that to life, what are examples of things that might change for you. One is we have this 60-day net terms financing product from Capital One that we offer, that's very focused on the type of financing product a business customer would want. And we have great consumer financing products like our Citibank, Mastercard and other offerings, we purposely don't market those to the business customers. We purposely don't market the business financing to the consumer. We have a business solutions team that helps our customers with things, if they want to do lighting design, if they want -- if they need to help with office layout design. This helps them with large projects where there might be installation. And so we have a team that can help manage large projects. Bulk pricing is probably quite intuitive, but as you can imagine, it's more economic for both our supplier and for us to execute an order of 50-or-something or 100-or-something, well, that can manifest into offering the customer a better price. Consolidated delivery also pricing is quite intuitive, right? For a project, a tier design or contractor says, "Hey, I want all these things to arrive at the same time on the same day." That's traditionally quite expensive to do because you need to pay a third party, where you can stage it, they then need to charge you to deliver it. If you think about the logistics capabilities we built, we have the ability to really change how that cost model works because of the assets we already have. So there's industry services that we're able to offer to these verticals to really make the experience better. The net outcome is, these customers spend currently 3x as much over the first 2 years at a B2C customer. We have over 9,000 that are spending $20,000 a year or more. That's actually growing at 20% year-over-year. But what is really exciting to us as well is this is not a business with revenue concentration. This is not where we get a $100 million contract a year and a $500 million contract there, which you say sounds great, but it sounds great as long as you can keep it. This is a highly fragmented market. Our top 100 customers were a little over $70 million of revenue in 2022. So on one hand, they add up on the other hand, there's quite a few of these customers. We're in 10x serving them getting more of their business. We also enjoy the fact that there's quite a few of them. To help us come to life, we just want to play a quick video. [Presentation]

Great. And now I'm going to touch on one more area of the business before I hand it back over to Jon, which is physical retail. Everyone talks about there's a transition from off-line to online. But what's interesting, today, the home category, roughly you'd say, 3/4 is offline, brick-and-mortar, 1/4 is online, something like that, depending on whose numbers you use. And it's very clear online is taking share as the years go by. But if you look at more mature categories that you say are natural online categories, categories like office supplies or consumer electronics, you also find that they found a level where they've assented it out. And again, they're slightly different numbers, but let's for the sake of it, call it, 50-50. And what's interesting in this category is there's really strong online benefits, breadth of selection and ease of shopping when you want. There's also really strong benefits to doing it in person, tactile visualization, work with someone in person. So our belief is that as -- in this category, let's call it 50-50, we think it's going to be somewhere in there. And we think we're in a great position to participate on both sides of that. So let's just touch on -- when you think about, hey, to be a physical retailer brick-and-mortar retailer, what would be some of the things you need in addition to the store? Well, you need to have a brand that people could understand what you offered you need to find a way to find customers and build a customer file. You need to develop what your offering is, what you're going to merchandise in the store. You would then need inventory of that in some sort of supply chain. And then you would need, if you're going to sell these types of goods that we sell these bigger bulkier, you need a delivery capability to deliver them. And so then if you think about what I just said, we actually have everything I just said without having stores. So we had to have -- develop everything I just said for the business we already have, the very large online business. And so we're in a very unique advantage position where we need to develop the store itself and the offering, but we have curated cuts of our catalog already. Earlier, you heard about our print catalog as an example. We have that delivery capability. We have the customer file. And so this is an opportunity to design a store format, which talks about the breadth and depth of what we offer, all the categories, but also not just what's in the store, but the depth of the catalog past that, work with the customer in person, whether that be a designer working with the customer, whether that be consumer financing, whether that be a customer who's a little more interested in the tactile field for a certain category while taking advantage of all the assets we already have. And so we believe that the combination of the 2, online/offline create a benefit that's larger than each piece individually. You've heard about this from any retailer. So they talked about the halo that gets created in a geography when they were perhaps an online retail in the geography already, then they add stores. The net outcome is not just the revenue generated in the store, but they actually see the off-line revenue increase. And we have -- today, we only have 5 stores open or we have 4 stores open. We're about to open our fifth, but we're already seeing promising signs, and we're pretty excited about where we could go over time. The first stores we opened refer or specialty retail brands, and these are easier stores to open. They're smaller in format, 8,000 to 12,000 square feet, you've been in perhaps our stores, but if not, you've been in competitor stores. And you kind of have a feel for what these are. The first one we opened was in AllModern store. We have 2 now in the Boston area. The third one opens in September in Austin. And here, we'll take a quick look at a video, take a peek inside this first one. [Presentation]

The next store we opened was for our specialty retail brand, Joss & Main. We have 2 stores for Joss & Main as well. We have one that's in the Boston Metro area, in the Burlington Mall, the other one is in a suburb north of Chicago. And so we've been kind of developing these stores for each of our retail concepts. This is a peak inside the Joss & Main store that's located here just outside of Boston. And then what you heard about earlier from Liza is the work we're doing on our first Wayfair store. The Wayfair store is quite different. It's a much larger format. It's a 150,000 square foot store. The first one that we're opening will be in Wilmette, Chicago as a suburb north of Chicago. It's right alongside a highway where it gets significant traffic. And the specialty retail lab is where we can actually set up all the vignettes that do all the space planning and layouts of what we're planning to do, not just in a theoretical way, but then actually physically set it up, make sure we're very happy with what we're going to do. We have a retail lab for our specialty retail brands as well, just outside of Boston. And we're very excited with how things are coming together. The store will open in the spring of 2024. These renderings are of what it will actually look like. Construction is well underway. And so that's an interesting point I just want to highlight. Because when I talk about all these different things we're doing and they sit inside the P&L, while in fact, the profit you're seeing will go up each year, as you can imagine, the store generates 0 revenue, but obviously, we're spending CapEx on it, right? So you can just kind of start picturing, hey, we have teams on these different things. We're spending money, and this is an easy example because, obviously, there's 0 revenue. When you go inside the store, it obviously features all the furniture and the larger items, but there's also the decorative accents, the textiles, all the categories, which will be cash and carry as well. But again, this is inventory. Think of it as a forward CastleGate position it gets replenished. We have a CastleGate facility, for example, in Romeoville, Illinois, which is about 70 miles away from where this ore would be. And so we're in a position, again, to use one network we have, one supply chain using the inventory our suppliers have put in that network to sell online, to deliver, to sell in a store, we want to service the customer wherever they want to be. We'll just flip through a couple of quick more shots at the interior and then let me hand it over to Jon. This is a category, for example, that we're not as well known for large appliances. Large appliances a category is very selective in who they carry as retailers. The retailers, the mass retailers who carry large appliances, Home Depot, Lowe's, Best Buy, there's not very many. And the ones who carry them, they really don't primarily focus on our core customer, if you think about who our core customer is. So it's a great opportunity to service the customer in the way she wants to be serviced, which might be different than perhaps how a builder thinks about visiting a Home Depot. And so we think there's opportunity in these spaces. This is a great way to raise awareness of the things we're doing and that we do today. And then last thing I want to touch on is the concept of services. There are services we provide. We provide a lot of them online and over the phone today, there's also services that are much easier done in person. This is, for example, a section that will be in the Wayfair store called the Design Studio. You may have seen in the AllModern video. We obviously have that in the AllModern store as well. Well, in the specialty retail brand space in the luxury space, the customers expect that interior design services would be offered to them. But when you talk about the mass space, no one offers these types of services to customers. They haven't figured out how to economically offer these services in a way that's profitable and makes sense and in a way that doesn't scare off the customer from a worry about it getting too expensive or perhaps out of reach for them. And so we think there's a lot we can do that takes advantage of how we work with customers already that makes us quite unique and will allow our stores to actually be quite differentiated. And so hopefully, next spring, when we're open, you'll visit us if you're in Chicago. And with that, let me turn it over to Jon to tell you about supplier advertising.

All right. Thank you. Excited to come back up here again and talk to you all about the recent developments in our advertising offering. And how do I go back. There we go. Okay, so as we think about our investment recently, we've sort of made a more concerted investment in our advertising for suppliers and have really built out a full suite of advertising tools to help these suppliers drive exposure for their brands and their products throughout the customer shopping journey. So from discovery to consideration to conversion, and as we think about this, like the tools that we've built out for these are the key tools that I think you'd expect to see at other platforms, but in a way that is sort of much more deliberate about the home space and the way that people shop for furniture and home decor. So starting on the left-hand side, moving counterclockwise, a lot of these are familiar event sponsorship, display ads, off-site marketing, whether it be e-mail, social media, sponsored shops, which is a somewhat unique CPC offering that allows suppliers to both drive brand awareness by also driving traffic to a curated set of items that they're trying to drive and then finally sponsored products. And if you think about what's powering all this, it's Wayfair's proprietary first-party data about our customers. We know a lot about our customers, we are very deliberate about how we drive advertising. The last thing we want to do is do anything that harms the customer experience. Because of that, we've taken a different approach than some other folks in the market. But if you look on the left-hand side, and as we think -- and sorry, use it priority data, also obviously ensure our suppliers are getting very high returns. If you look at the left-hand side of the graph or the chart, what you'll see is different ways we do that. So as we know about what our customers are shopping for the brands they have affinity for, the classes they're looking at, we provide that suppliers and our tools to make sure the ads are relevant. We know so much about the life stages of our customers whether they just moved in, had a baby. We use that to ensure relevant ads are served up not only for customers, but that the ROI for suppliers is high. This proprietary first-party data ensures that our product we're targeting, so for a customer who might be looking at an item, it's in cart, but she's still thinking about it, how do we serve the relevant ads there, conquesting, ensuring our suppliers know what competitors to advertise alongside. And then finally, we also build proprietary and custom audiences for suppliers to advertise against. And again, as we think about the investment we made in recent times, and we've seen some pretty good momentum. If you think back in 2019, our advertising offering was about 0.3% of overall revenue. It's grown today, it's about 1%. And as we think about the future state, we like to think of this target being about 3% to 4% of overall revenue. Now if you look out there in the marketplace, you'd say, when I think we would agree somewhat conservative. So there's some upside there. But I think the thing that gives us a lot of hope and excitement is that when you actually talk to our suppliers, the customers this offer, they cite just how helpful this has been. It really impressed the momentum. The tools we're giving them, the ROI that we're getting from this product has been really high. And then as we also test this, and we are pretty rigorous about testing because we're -- the last thing we want to do is hurt the customer shopping experience. Not only do customers appreciate that, but so do suppliers. So I'm going to turn it back over to Niraj and feel free to grab me at cocktail hour to talk more.

Thanks, Jon. And so I'm just going to take a couple of minutes here, pull this all together for you as you think about, hey, what are the growth prospects for Wayfair over time. Then I'm going to hand it over to Kate, who's going to take you through kind of the financial lens and how we see the financials playing out over time and how we think about it. So let me just talk about kind of the growth aspect for a minute. So one, we talked about the category growing at like a 4% CAGR. That's not really a number we made up. That's sort of like what people expect the category to grow at. So obviously, if you stood still and you held your share, you didn't do anything, that would be perhaps what you grow at. Now the online piece is taking share from the offline piece, and that has been kind of like a steady thing that happened over time. COVID had a little bit of a distortion, but it looks like it's right back on track from what it was doing before. If you do the math on that, that would again add another low single-digit percentage share growth rate on the online piece. And as you can imagine, today, we're effectively 100% online today because I mentioned we have those few especially retail stores that doesn't comprise very much of the revenue, right? So that sort of gives you kind of a base layer of growth. Then the question is, hey, are you doing anything that lets you take share in any of the segments past kind of the natural rate of growth? And the answer is we're doing quite a lot. So if you think about what we just talked you through, well, first, there's that core recipe. So think about the sections we did before the break earlier in the day. All the things we're doing to improve the experience and make it easier for customers to buy and drive up conversion and loyalty. So there's all the things we're doing there. Those improvements for the core recipe should let you take share. Then we've talked about categories we're in that today, we're just very, very small share owners of. I touched on large appliances for a moment when we talked about the store, so you think about those categories, and if you're like super small on share, and you do a good job, those should help you grow at a faster than market rate. Then Jon touched on the specialty retail and luxury opportunities. And he mentioned we have less than 1%. He said we had 0.5% of that TAM. And we're describing what we're doing, whether it be print catalogs or what we're doing with the merchandising there or the physical retail stores or the way we're really helping those brands come to life and we have a unique advantages on the delivery experience we can offer, the technology we have. And so we believe we can take share there. Next, we talked about Wayfair Professional. I mentioned that was a $2 billion business. We have a 1% market share there, touched on all the vertical industries we're in and some of the types of bespoke services we provide there, the argument is that we should be able to get more than 1% share over time. So we should be able to take share there. Two more, right? I'm just recapping all the sections basically. But obviously, we talked about the international geographies we're in, how we're approaching them, what the current status is of them and the opportunity there is quite large because the one we're the largest in would be the Wayfair brand in the United States and that only has 2% share. And obviously, everywhere else we're in, I'm saying as generally less share than that. And last, physical retail, where we effectively have a 0 share today, that's 3/4 of the market. In the future, we said perhaps it will be half the market. It really doesn't matter whether it's 40% or 60% of the market in the future. The point is we have 0 share. but we have inherent advantages with the delivery logistics, with the selection we have with the customer file we have with the household brand, arguably, we should be able to take share there. So the question, what does that add up to? And so you can do your own math and decide what you believe, we would say that's like a mid-teens to high 20s sort of opportunities. So if you add it up, you're going to get a meaningful double-digit compounded annual growth rate, and to be honest, it would need to be something like that. Because if it doesn't, if it was like a 10% growth rate or something like that, it would mean that quite a few of the things we're doing aren't working. And honestly, if they're not working, we would then want to stop investing in them. So the profit level that we're showing you now, last quarter was around about 4%, which we said is going to go up every year, and we said we're making fast work on that while investing in all of these things. What you're going to see is that these things should contribute a lot of growth while the profit rate keeps going up. And honestly, if one of these things is unable to work to the point where we do not think it's going to work, and you could argue sometimes where maybe 2 patients, but we don't have infinite patients. If it doesn't work, we'll stop doing it. All that would mean is there will be more profit, right? Because obviously, the investments we're making in it, we would cease to make. And so when you think about it, you're like, okay, you've got a business which can have increasing profits with a lot of waste profits can grow and supplier advertising is like another dimension of how profits can grow, while you should be able to grow at a meaningful excess to market rate. And honestly, you could tell me that you think a couple of the things on the list I told you it wouldn't work, and you should still get a pretty high growth rate. And obviously, if they all grow, you get quite a high growth rate. And you'd have to tell me quite a few of them failed for it to get down to the growth rate like a 10%. And in that case, obviously, you would think that we would, at some point, decide to abandon that effort. So we think there's a really exciting opportunity where we can steadily keep marching up profits, and we don't plan to go on like binge bus cycles there. We're just going to steadily march up profits while pursuing the efforts we've had underway where we have a meaningful position, a reason we should win, and we'll continue to pursue those efforts. So with that, let me turn it over to Kate, who will take you through the financials, then we'll all come up for Q&A.

Thank you, Jon and Niraj, and good afternoon, everybody. We're coming down the home stretch. So thank you for bearing with us. It is wonderful to have you all here. I know mostly you spent time with James, Niraj and myself. So I'm particularly pleased that you've gotten to meet some of the rest of our leadership team here. As Niraj just mentioned, I'm going to sort of recap some of this in the financials. I'll walk you through where we've come from and a bit about where we're going. We can start with our revenue. You just heard from Niraj and Jon, we have a number of exciting growth vectors ahead. And I do think that this is a case where the past is predictive of the future. Throughout our 20-year history, we've been a very strong and reliable grower, taking significant share in our category. That share has been entirely organic, and it's been driven by a number of factors, expanding the categories that we offer, as Niraj mentioned, expanding into new customer segments, like with the luxury brand, a Perigold or a specialty retail brand and expanding into new geographies. In our 20-year history, that's taken us to the scale that we're at today, and we're very excited and confident about our ability to continue to grow like this going forward. And I want to walk you through a bit of our unit economics and our key financial metrics. Many of you know our business, but for those that are newer, I'm going to start with the gross margin. As you can see today, we have many of the best qualities of a marketplace as well as some of the qualities of a retailer. Accordingly, the gross margin that we report our cost after the wholesale cost of that product and the cost to deliver it to the end customer. What I want to orient you to on this slide though is the significant step-up in gross margin from that pre-pandemic period during the pandemic and after, so north of 600 basis points of gross margin. We've spoken to you all a bit before about some of the drivers of this. So it's a combination of factors. Part of that has been our wholesale economics and our merchandising mix improving. Part of that has been on the add-on of supplier services. You heard Thomas mention CastleGate earlier. Obviously, Jon just spoke about our emerging business and advertising sales. And a significant portion of this has also been through the optimization of our logistics network and ongoing efficiencies there. So if we focus just on the last 4 quarters, where you see margin expansion while we also had revenue compression, somewhat of an unusual combination, that's really been driven by those opportunities in operations and logistics and the cost efficiencies that we've been driving there. After our gross margin comes our customer service and merchant fees and our advertising expenditures. So another poor metric that we look at is the margin after these 2 cost items. Same with our gross margin, you've seen a very significant step-up here from 2019 to the pandemic period and then, in particular, significant improvements over the last 4 quarters. As I'll touch on in the next slide and several of you know, we created a plan about 12 months ago to return the business to profitability and what you're seeing flow through here some of the options of that plan. So on our customer service line, you see some efficiency due to cost takeouts on that team. And on our advertising line, you're seeing some of the efficiencies and the ad spend show up that we've been talking about. So that brings us here. Some of you may recognize this slide. We shared this initially about a year ago when we outlined our cost action plan that we ultimately totaled at $1.4 billion in our January update. And we're really excited to have hit this step 1 very solidly, achieving that 4% adjusted EBITDA, so well north of breakeven. That was really driven by these cost actions we spoke to. So first, that $500 million that you see in the gross margin line starting to emerge there. The $750 million in labor cost takeouts, that's what impacted that customer service line, our SOTG&A line and actually our stock-based compensation, which hits below our adjusted EBITDA line. And then other operating and cost efficiencies up and down the P&L, combined to get us to this first step. We're now making rapid progress towards the second step, which is the sustained mid-single-digit adjusted EBITDA margins. And from there, we see a very clear and improving path to north of 10% adjusted EBITDA and accordingly, with that, of course, strong free cash flow. I want to focus for a minute on step 2, getting to the sustained mid-single-digit adjusted EBITDA. And I'll do that in the context of the guidance that we just shared last week. The key thing I want you to take away from this is that getting to the sustained mid-single-digit adjusted EBITDA doesn't require any new action from what we're doing today. It's really just the culmination of all the cost plans that we've already put in place and seeing the pull-through of those actions. From there, I can click forward, we can look at what gets us to comfortably north of 10% adjusted EBITDA margins. So we believe the mid-single-digit adjusted EBITDA were really just around the corner. And therefore, we intend to start making progress against this getting to comfortably north. As a reminder, I see people -- this is obviously the exciting side, I see people taking photos. This will all be up on the website. So don't panic. I'm going to move on, but you'll be able to go back and get it. Don't worry. And as will my recording be? So let's talk about this slide a little bit though. So how do we get from those mid-single-digit adjusted EBITDA. Let's start with the gross margin. So we're obviously in the low 30s gross margin today. We see over 400 basis points of gross margin expansion opportunity to get to this mid-30s gross margin that we've talked about. The single biggest driver on there is supplier advertising, and Jon just framed up for you a bit about what we're doing there. You can see this 2 to 3 points suggest meaningful growth from where we are today. But it actually is relatively moderate when you compare that to what peers are doing in the space. And given the changes that we've made and how we operate that business, the inventory that we've expanded there, we feel that this is very achievable. So that adds about 2 to 3 points. Next bucket is logistics cost savings. Thomas, I think, spoke to you all about the number of initiatives that we've had there that have driven these cost savings over the past year and building to that more than $500 million plan. This obviously comes on top of that. As we continue to grow and scale, we'll get leverage on that line item, and we expect to unlock ongoing cost savings there. The final bucket on the walk to gross -- mid-30s gross margin is really a combination of wholesale economics, merchandising mix. So for example, John and Niraj spoke about our specialty retail brands and Perigolds, these operate at meaningfully higher gross margins than the business as a whole. So as those continue to flow in, that obviously helps from a mix perspective. As our flagship brands that Liza spoke to you about, continue to grow, that helps from a wholesale economics perspective. From mid-30s gross margin to this comfortably north of 10% adjusted EBITDA margin, there are 2 key pieces: our advertising line and SOTG&A, which is our complicated term for OpEx essentially. On advertising, Paul spoke to you this morning about some of the work that we're doing there to drive ongoing efficiency. One of the things he mentioned was our brand building work. That brand building work improves the efficacy across all of our channels, importantly, on our free traffic channels. We also continue to grow share of wallet with our customers. And as we grow share of wallet with them and they come and spend again, reacquiring them obviously is less expensive. There are also fixed cost like portions of this spend like TV that get leverage over time. On SOTG&A, we spent a lot of focus on that in the past year. You've seen significant cost takeouts there. I think what's important to understand here, and Niraj touched on this quite a bit in when he just spoke is that the investments that we're making that are driving this go-forward growth, much of that actually sits in this line item. A number of you have actually said to me that it's kind of hard to disaggregate in our P&L. What is the P&L for the business today? And what are the investments for the business going forward? And I empathize with that because most of the cost is actually in head count and teams, right? It's the tech team that Fiona spoke to. It's the physical retail team that Niraj mentioned that's planned against stores that are yet to produce revenue. It's the B2B team, the Perigold team. Those teams exist, we're incurring that cost now, and we intend to get leverage on this line item as our revenue continues to grow. Over time, obviously, that manifests in this north of 10% adjusted EBITDA. And the path from the mid-single digits adjusted EBITDA to that north of 10%, you should see margin expansion consistently along that path, particularly as our top line returns. So that brings us to free cash flow, right? Part of step 3 is getting to maximizing free cash flow. If we start with our 10% plus north of 10% adjusted EBITDA margin, I think most of you know this, but our business operates on a negative working capital cycle. We don't acquire the inventory from our suppliers until we've sold it to our customers. So when revenue is growing, working capital is typically a source of cash. Getting from our operating cash flow to free cash flow, we have our capital expenditures. As Niraj mentioned, we're investing today on businesses that have yet to yield results. The CapEx historically has been about 2% to 4%, and that's a reasonable number to use going forward. So that brings us to over time, maximizing that free cash flow. And ultimately, what we're trying to drive is free cash flow per share. So I'd like to touch for a minute on dilution and how we think about our capital structure because that's an important component to minimizing dilution over time. Historically, the convertible debt markets were one of the primary sources of capital available to us, and they presented an attractive alternative to follow on equity issuances. Accordingly, we did tap those markets and you've seen a number of convertible note transactions. However, our business has evolved, we're in a different position on our P&L as our economics have strengthened, and as we've matured, we believe that additional forms of debt are available to us now. So as we look ahead to the management of our existing capital structure, we're focused primarily on managing that 2025 convertible note. That's a sort of fall of 2025 maturity. And we believe that we'll be able to do that through a combination of cash. As we've spoken to you before, we're now maximizing and generating free cash flow that will intend to grow and compound over time and also through other forms of debt that are new to us. Beyond that, we intend to continue to manage down our leverage ratio over time as our cash flow builds and that ultimately takes us back to the original intent of this slide, maximizing that free cash flow while over time, minimizing dilution. So before I hand this over to James and bring my colleagues back up here for Q&A, I want to take a step back. What I just went through was sort of the financial culmination of all of the activities that we talked about today. That's how it all rolls up together and how we expect it to play out over time. But I want to return us to the slide that Niraj and Steve shared at the beginning of the day is these are the 4 key takeaways we hope you walk away with. The first is that the core recipe is intact, it's the strongest it's ever been, and that's yielding share gain for us and will return us to ongoing share gain in the future, and you've seen that play out over the last several quarters. The second, and what I think you heard from my colleagues that spoke up here earlier is that this category is unique and requires custom and purpose-built solutions. We believe that at each step of the journey, we've created category-defining capabilities that enhance that customer experience. And that's underpinned by our more than 20 years of experience and data or proprietary technologies and as you heard from our suppliers, our deep and enduring supplier relationships. All of this helps lead to ongoing significant growth. As you heard from John and Niraj, we have a number of different growth drivers, and we're already investing against those drivers today. So the combination of all of this is that we can continue to grow and we can continue to improve profitability while maximizing our free cash flow. The model works, and we're very excited about the future. With that, I'd like to invite my colleagues back up here. We're going to take just a minute to get everybody situated and then we'll turn it over to you guys and take Q&A. Thank you.

Okay. Well, thank you, everybody, for being here. We're so thrilled to be at this part of the session, where all of our speakers are now available for Q&A. Again, just a quick housekeeping. Please raise your hand. We have mic runners who will come to you. Please state your name and your affiliation. And then I will -- and ask your question, I'll repeat the question for the benefit of and then direct it to one of our speakers. Ygal from Citi is eagerly waiting. Please go ahead.

All right. I guess you stated my name and affiliation. I guess the first question is probably for Kate. I guess the thing on everybody's mind is going to be the walking through the path, the 10% plus is really helpful. But is there a time line that you can kind of put around that and help us think -- around the time that we get to that? And then the second question on the growth drivers for whoever. But as we think about this mix of online and offline and building out the retail stores, can you help share a little bit more about what that strategy looks like? How many stores is the right amount of stores to have? What kind of mix do you think you'll get over time? Is it 50-50 the way you think the market breaks out? And just what does that path and investment look like?

Sure. So just to recap for the webcast. The first question is in regards to the north of 10% EBITDA margins. We talked about what's the time line on that and then a little bit more detail on the physical retail strategy. So Kate, why don't you kick that off?

Yes. So the way I'd frame that, Ygal is, the first step, obviously, is to sustain mid-single-digit adjusted EBITDA. That's obviously relatively near in, just around the corner, I think, was the exact language that I used a minute ago. And as you think about the path from there to the north of 10%, I'd think about us building on that sustained builds consistently over time. The speed of that will depend a bit on the top line. So as you think about that double -- more than double-digit growth on that top line, how quickly you build that up and how fast that goes, that will impact the speed to the north of 10%.

And then just to chime in on the second part of your question, which is just the growth drivers and how do you see it playing out over time. The way to think about it is like the store that's going to open in Wilmette next spring, that effort started 3 years before that, 2 years ago. And part of that -- this is our first store, but even for following locations, which we're looking for now, that it's about a 2-year time frame from the time you have a lease, then you have to get it permitted, then you have the construction. And so this is something that we think could be incredibly meaningful, but it will play out over time. Some of the other growth drivers are businesses like Wayfair Professional, we're talking about a $2 billion business, 1% of that TAM, but we have all those efforts well underway. So that's something that maybe doesn't play out over -- meaning, it can grow faster in the near in years than perhaps the stores can, but it can keep going. The store -- so all these things will add together over time. On stores, I'd say, it's highly premature to tell you the number of locations in the like because there's a lot we would figure out over time. If you look at the Boston Metro area, for example, there's 15 Home Depots, but a lot of -- we sell about -- if you do like a store map of a Home Depot, you color code aisles, we'll sell about half of what's in there, vanities and lighting and artificial Christmas trees and patio furniture and large appliances. And there's about half of it building materials that we don't sell at all, and we have no interest in selling. But they have 15. Well, the reason they have the 15 is because of the building materials. Contractor isn't going to go very far for building materials. You look like at Jordan's Furniture, they have 3 stores in the Boston Metro area. So you can make projections on how many would you have if you want to saturate Boston, but it's very premature. So I would say that the way to think about it is, over time, we're going to hone the concept, we'll then scale the concept along the way, we'll figure out what saturation looks like for tertiary markets, secondary markets maybe you need a smaller design. So there's a lot we'll figure out over time. So we're not going to kind of go ahead first and do it on some assumption and maybe get ourselves upside down because we did something that didn't make sense. It will play out over time, but it's a very big, big opportunity. And as Kate mentioned, you're going to see that EBITDA keep inching up. Kate talked about free cash flow. We're really focusing on maximizing free cash flow per share, we care a lot about dilution, but we think we can do that while also investing for the future. So you're going to see that balance.

John Blackledge with TD Cowen. Just a couple of questions on the advertising and potential point leverage there. Could you walk through the cost of the repeat customer versus acquiring a new customer? And second question on ad spend is the mix of ad spend between DR brand and R&D and how that should kind of trend over time?

Sure. So just to recap the question, it's regarding customer acquisition, repeat versus new, and then how we disaggregate the 3 buckets we talked about on the advertising line between performance brand and R&D. Maybe Kate, I'll pass to you and then invite Paul to join as well.

Yes, why don't I touch on repeat versus new, and the cost to acquire and Paul can speak to the R&D. Love the question, I'm not going to answer it directly. So I think the way to think about that is there's different levels of repeat customers, and there's customers that are regularly engaged with us. Obviously, the cost to acquire those is quite minimal and they largely come in through 3 channels. And a lot of our work over time is how to build that ongoing loyalty and grow that share of wallet. And I think you heard about a number of those pieces today, right? So the work that Liza spoke to on the merchandising and the flagship brands, how we continue to access them, how we build the brand overall to have that be sort of front of mind for her and so as a customer gets consistently engaged with us as we grow that share of wallet, we've articulated before, we have about 2 out of every 8 purchase occasions in a given year of our customer in this category. You will see leverage on that line item because the cost to acquire those customers become significantly less. I'll hand it to Paul to speak to how we think about R&D.

Yes. And I just want to make sure. Can we -- can you clarify the question. I want to make sure that the answer is essentially helpful.

I think the question was, Paul, you described the advertising are 3 buckets of money and R&D was the third bucket. You talked about brand, talked about performance. I think the question is like, what's the relative mix of the 3, from a percentage of 100, that kind of mix?

So R&D will be small because R&D is really intended to be a small portion of the budget that we're always rotating through and trying new things and either quickly finding ways to scale them or to move on from them. I think -- the way that I think about brand versus performance and our movement through that space over the years is that performance is something that we've been in for a much longer time. It is a market that is quite large and that we've been participatory in for about 20 years. Brand, I think we will -- we are growing and we are continuing to grow, I think, more quickly, our investment in that area. It is an area that we have not fully cracked. But I think over a longer period of time, those should be sort of size similar to what the market would be for just sort of what the broader market of, for instance, television advertising would be relative to Google advertising relative to meta advertising and then the differentiators within that. I would say, over a longer period of time, we see ourselves being pretty evenly distributed across the market of media.

Got to Maria next.

Maria Ripps from Canaccord. Maybe just following up on the prior 2 questions. First, I wanted to ask about marketing. And Paul talked about investments in brand and TV, in particular, so I think there is a very clear shift happening from linear TV to connected TV, which in addition to delivering on brand building also adds a level of measurability. How does this sort of channel influence you thinking about brand invest -- brand building?

Sure. So just to summarize, Maria questions about our marketing channel with regard to brand, how are we leveraging linear TV and the measurability that we get from that?

Shift into connected TV and the measurability?

Absolutely. Paul, why don't you continue?

Sure. I think -- on linear versus connected TV, I think there's puts and takes in different areas. The good news is, actually, as we've come up the curve, we've learned how to measure ourselves in both in ways that we feel quite confident in. And so I don't know necessarily the trackability or the measurement is actually all that different between those channels. And instead, we look at them more just from an efficiency standpoint, which is what does the market look like and how are we seeing that sort of generate an ability to be in front of the customers that we want to be in front of and then how are they sort of flowing through on to our brand after that. So actually I understand the spirit of the question, but I don't think we really see that as having -- the difference between those 2 as having a material impact on sort of where we're going to spend and it said it's more, I think, market dynamics that will dictate where it will show up.

Great. We'll go over here.

Hi, everyone. It's Peter Keith with Piper Sandler. Thanks for all the detail today. I wanted to dig into on the supplier relationships. It's been my impression. I think Wayfair has been very sophisticated operator and perhaps exceeded the sophisticated capabilities of your suppliers. They're largely family run businesses, they're smaller. So maybe if we look at the advertising opportunity as one of the key margin drivers, what's the accelerant? That's been around -- advertising around 5 years, it's 1% of sales today. What's changing to help suppliers understand the ROI and leverage into this initiative more so?

Yes. How do we think about supplier advertising for our customers and how are we intending to grow that? John, I think you would be great to answer that. Maybe, Adam, if you want to join as well, I'll talk about the supplier perspective.

Yes. I think from internally, we've been working on advertising for some time. I think a couple of things. One, we've been really cautious about impacting the customer experience. If you think about the furniture and on the space we're in, it's such a unique way that customers browse, there's not a lot of brand recognition in the differentiated space. So been really cautious about impacting that customer search and how she finds the items. We were on a good path, COVID hit, I think that slowed us down a little bit. And what's happened over the last, call it, 2 years or so is we've rebuilt the team, we've rebuilt the technology stack underneath it. And we found that, I think, a pretty sophisticated way to work with our suppliers to explain to them even if their brands aren't the thing that are front and center, how do we help them drive exposure. And that's been a learning process for us. The team has been out working with suppliers. And I think -- and you've also got a market where suppliers typically in this space might not be as, let's call it, say, sophisticated on the advertising side. So as we've ramped them up as technology has come in place, the team is now in place, we've seen really some great accelerants. And that's what I think you saw on the chart, and that's why we feel confident about that target we put out there.

I would just add one thing. I don't know if Adam, if you had anything you want to add. But the thing I would add is, I think from the way you asked the question, Peter, I think you're thinking that the primary gate for the 1% growing would be demand. I wouldn't say that that's a fair characterization. I think part of what we need to do, and we feel like we have the right road map with technology is how can we increase supply while still delivering the ROA for the supplier while making sure that the outlets we have around personalization and mix of the sort order and the like allow the customer experience to remain at the level it is and continue to get better rather than a degradation. And that trade-off is a complicated thing to deliver on. As we deliver that, what we've seen as we've expanded our footprint and the RAS is there, the demand is there. So I wouldn't posit it as necessarily a demand problem.

We'll go with Anna.

I'm Anna Andrea from Needham. I wanted to ask on the customer file very significant at 85 million customers and 21 million customers that are active that just grew this past quarter. Curious your thoughts on the health of the customer file. And if you've been doing anything differently lately to drive that conversion and reengagement from customer file to active customers? And then secondly, to Kate, very helpful regarding the profitability color. And I know you're not giving an exact time line. But you mentioned the mid-single-digit EBITDA margins are just around the corner. So just curious if sales are growing in '24, could the business see mid-single-digit profitability?

Sure. So just to summarize Anna, a question on the health of the customer file, what we're doing to reactivate some of those folks, and then with regard to the mid-single-digit. Step 2, of the adjusted EBITDA plan, how should we think of that vis-a-vis some growth in 2024? So maybe, Niraj, if you want to talk to the file first, and then, Kate, you can talk to the finance question.

Yes. So what I would say -- so we use the industry standard definition of an active customer. Active customer means you need to have bought within the last 12 months. We also shared some stats around the number of site visits and other things. And so you could imagine to take a site visits, you divide by active customers, you're like, well, hey, are those customers really visiting that many times, it doesn't make sense. So what you realize is there's quite a few customers who are engaged visiting the site, maybe haven't purchased. And as the recipe is, we've executed on driving up speed of delivery, driving up availability, driving down retail prices. As the world has normalized post-COVID, engagement with the platforms increased, you're seeing that in more people buying, you're seeing that in the order growth, you're seeing that there is sequential increase in the active customer count. Well, a lot of those other folks who are now coming back more often, they may not have just bought yet, so they're not in the active customer count, but this bullion view of, hey, you're either active or your lapsed, there's actually a very big chunk in the middle where they're engaged. They have not bought, so they're not active. But to me, last means you're currently not engaged at all, right? You're just -- we're going to have to somehow stimulate you don't start coming back again, you're not coming back. And so what I would say is like the easiest way to think about it is there's a lot of engagement. And as we are advancing everything we're doing, we're seeing those folks tip back into the active customer count. We're also seeing the repeat metrics for the active customers, so folks who have recently bought an X number of days, 7 days, 30 days, 90 days, and what percentage of them buy again. And those are numbers you can track and you have like -- you have a longitudinal long-term view on that. We're seeing those numbers improving. That's the core of how we grow is that it's not just customers tipping back into active, but it's that the repeating gets compounding, right? And so if a customer comes in, they see something they like, they decide to buy it. That's a pretty high bar, right? They bought it. Then they get the delivery. They're happy with what they have. Now they're more engaged, they're quite happy. They're more likely to now make that next purchase from us than someone who isn't there, right? So that compounding cycle is the other thing that drives growth.

So I want to get the second part on the mid-single-digit adjusted EBITDA. So I guess a few thoughts there to help you frame that up. So the first thing that I would say is that the cost actions required to get us there are already well underway, right? We're operating against that plan. Today, you've seen some of that flow through. Obviously, we had 4% adjusted EBITDA last quarter. And we said we were a little high on gross margin, maybe a little low on AC&R. So there's some puts and takes there. But generally, you're seeing that cost action come through fruition, you will continue to see that play out. So as we think about the speed at which you get to sustain mid-single digits, I think it depends a bit on where you see the top line going and how quickly you see that top line returning and maturing and then accordingly, the flow-through from the actions that we've already made.

Great. We'll go with that Colin.

Colin Sebastian from Baird. I guess a couple maybe first for Thomas. I'm curious in this end-to-end supply chain that Wayfair operates, are there elements that Wayfair doesn't currently operate that you think the company should? And along those lines, what's sort of an optimal mix of products sold that you would want to go through the platform? And then for Kate, just maybe a follow-up to the last question. There are not a lot of e-commerce companies that have over an extended period of been able to grow revenues faster than they're growing operating expenses. And so I guess, what gives you the visibility or the confidence to guide that way over an extended period?

Sure. Thanks, Collin. So a question for Thomas, regarding our supply chain. We, as you know, do not provide kind of a long-term CastleGate penetration figure, but it would be great, Thomas, if you want to speak to that to start.

Yes. So I think, first of all, I don't currently think about the supply chain as something where we need to add significant capabilities. I think the capabilities we have in place, and I was talking about is exactly what the customers and the suppliers need. So the focus is definitely on actually strengthening those rather than extending them. On the CastleGate front itself, I think the perspective we apply is, we don't want to be seen or operate as a classical third-party provider. So it's not that I go out in the market and say whatever you have, please give it to me. The way to look at it is that we take a conscious perspective on where do we add value for the suppliers. And particularly given the sales we have for certain products, we don't feel that we can provide a good enough forecast that justifies that suppliers give us their product for certain actually SKUs, which means that are suppliers for, let's say, 60%, 70% of the catalog, whatever the number is, right? But I will never ask them for 100%. At the same time, I'm totally open actually for all our suppliers to give me what they want to give us because at the end of the day, they take the risk. And I believe that they anyway actually should know even better than I do what they actually think they can sell.

So let me touch on your second question before we move to somebody else. So I guess a few thoughts there, and Niraj, feel free to jump in too if you'd like to. I think the first piece is you have to have conviction in the unit economics and that we can continue to grow that gross margin. If you look at the 3 components there, on ad sales. We're very small in that today. We've just talked to you about some of the structural changes, which we think drive that. You've seen us execute, I think, very effectively on logistics cost efficiencies. And so conviction in that, I believe, should be high and then the merch mix. So when you have the unit economics into those mid-30s, then it comes down to can you get leverage on what is the more fixed cost like component of our business. And I think the piece that's unique there to us is that so much of our investment for growth is already embedded in the business today. And so as that pans out and materializes, we don't have to grow meaningfully that SOTG&A number. In fact, in the near term, we said that's actually not moving anywhere, right? If anything, it's coming down a little bit more this year and then we said it's going to hold for a bit. But to see that sustained growth, we actually already have had to allocate teams against that work. We're already building the technology. And I think that's a little bit of a unique dynamic, and that's what gives us that conviction.

Yes. I would just highlight the last piece of what Kate said around the -- I think folks may underestimate the sheer amount percentage of the OpEx that's already being spent on these investment areas. And so the confidence we have is -- because we're not saying, hey, there's this idea we have. We're going to stand up a team against it. We maybe don't know how big it is. We're actually already working on all these things. We know the size teams we have, we know what size we need. So we feel quite comfortable we understand that. And these are generally things that have been underway for a while, not all of them, obviously, some are new, but most of them have been underway for quite some time and we've been spending that money. And so the profits you're seeing and the growth in profits we're telling you you're going to see every year, it's relatively easy to see that because we're not guessing, okay, incremental revenue has incremental margin and to do these things, we have incremental costs, and we're guessing on both sides. We kind of understand the cost side, and we understand the incremental margin side. So it's a much simpler math to exercise.

Okay. Next question would be for Zack.

First question -- Zack Fadem, Wells Fargo. First question from me is just what level of top line do you need to sustain mid-single-digit EBITDA? And what level of top line do you need for double-digit EBITDA? And then just following up around the cost discipline. For many years, we saw costs growing faster than sales. Can you explain to me how you're no longer spending to drive the top line, in fact, it's more of a support as opposed to spending to drive growth, if that makes sense?

Sure, Zack. I'll summarize a little bit more detail around the top line assumptions embedded in some of the guidance that we've provided the outlook and the framework we've given on margins as well as a little bit more detail on the cost discipline. Kate, why don't you start on that?

Yes. Well, if I was going to give a direct top line number, I probably would have given that earlier. So I know where this is going, but again...

Can you provide detail of 2024 guidance?

Yes. But let me try to. I appreciate the ask, and let me try to again provide some color in terms of framework of how to think about that. Obviously, as we start to comp over what was a fairly complicated period, we do expect to return to growth. In fact, we guided to positive revenue costs for the second quarter. We also said we're getting near in on that mid-single-digit adjusted EBITDA, not immediately, but near in. And so I think if you play around with the guidance that we gave, the ongoing improvements that we said you expect to see in SOTG&A and where we expect gross margin to land from these cost efficiencies that are already underway, I'd point to you for a more detailed walk on that to some of the remarks I shared in not in this most recent earnings call, but in the prior earnings call. And at that point, we said at a run rate that was generally close to where we were operating at today. Once all that had flowed through, you could get to that mid-single-digit adjusted EBITDA. And that was in the Q1 of '23 call. So that's the most that we've sort of provided on that front. And then, again, as top line continues to grow, you'll see ongoing growth in that margin on the path to north of 10%. On cost discipline, I think that's really both sort of the mechanisms that we've put in place to manage that around our budget process and how we're managing that with our teams and also cultural change, but maybe I'll turn that to you for a minute and then I'm happy to jump in more.

Yes. What I would say is like -- so you saw the OpEx costs grow a lot in like '17, '18 -- just kind of like '17, '18 and into the beginning of '19. And then you saw it grow a lot in like '21 and into the first half of '22. I wouldn't equate the growth in OpEx with what's driven our growth. I'd say, maybe we should have learned it with the first time, but I'd say, learning it twice reinforces the fact that it's an inefficient way to approach things. A lot of that money was squandered -- kind of like people come up with a plan, we add this head count, we can do all this stuff. And the history of the business -- the reason Steve and I are large equity shareholders is we built it with a very -- we built it out of cash flow, like we really didn't have investment capital for the first decade. And then even kind of when we brought in capital in 2011, it was really a very lean amount relative to what we were aiming to do, build a household brand, et cetera. So from 2011 until like 2015, it was still -- money was being spent incredibly tightly. There's a period of time where -- and I could blame it on like a lot of tech companies are spending a lot of money. There's a lot of money available, interest rates got really cheap. But that's fine. That happened and maybe that was part of where we got the bad discipline. We got sloppy. We spent money. I'd say what we found is that you basically squandered both money and time. And so I don't think it's that how are you going to grow now that you're not spending to grow. Actually, we're spending a tremendous amount of money to grow. Like we have teams on all these initiatives. Obviously, our advertising spend is a significant amount of dollars. So we're spending a lot of money to grow. But inside that envelope, there's still a significant amount of profit to be had today, which will continue to grow. And that was the bridge Kate showed on kind of the margin build. And the idea that, hey, to continue that growth, you're going to need to ramp head count like you did in those other years. I don't actually think that head count ramp actually helped us. I think it hurt us.

Yes. I would just underscore that by saying, we do think we were not as tight as we should have been in the more recent past. Our history and our culture and our DNA is actually to be very tight on this. And so we've returned to our roots here and you should expect that discipline. But the growth investments are already in there.

Let's go with Alexandra.

This is Alexandra Steiger, speaking from Goldman Sachs. So can you discuss maybe some of like the potential risk to your top line guide both from a macro and also competition perspective? And then second, could you maybe dive a little deeper into your international opportunity and how you're planning to allocate dollars between investing in existing markets versus potentially entering new markets over the medium to long term?

Sure. So just to summarize a little more color on the current state of the macro environment as well as our international ambitions in these short-term balancing between reinvestment and growth. Niraj, why don't you take those?

Okay. So the macro environment, I mean, I think we've shared this on the earnings call. We get the same credit card data that I know many of you get. The category is clearly down year-over-year, and the downturn in the category started actually a year ago in the spring of '22 when it started comping down year-over-year. So the success we're having is not because the macro has been steady or improving. The success we've had is by executing the recipe and taking market share. That's something we've done in our past successfully, numerous times. We believe we can continue to do that. It's a little hard to say exactly what the macro will do in the forward period. This category is down pretty high off the peak. But obviously, the economy is also not super great in any of the countries we're operating in. That said, we're seeing strong results from what we're doing despite that fact, right? I think you had another question in there, though.

International expansion, how we're thinking about that vis-a-vis reinvesting in existing countries?

Right. Wasn't there something else tied to the macro?

Well, you said in relative to our guide, just to be clear, we've only guided to Q3 where we guided low- to mid single-digits.

The other thing I was mentioned was about competition. Yes, so Kate doesn't let me field any guidance question. So those all go to Kate. But you also mentioned relative to competition -- on the competition was the other thing I think that you had mentioned that I was forgetting. Look, we have numerous competitors. I think when Corey was up here earlier talking about -- he talked about the density of data we collected on so many competitors, so many different prices in the market for items. That said, I think he mentioned, we weigh them by the relative importance of the competitor in each category of goods. And as you can imagine, the main competitors we have are going to be the largest players, Amazon, Walmart, Target, Home Depot, Lowe's. That's a United States example. But in every market, it's the largest players who have the heaviest influence. We're seeing that we're having very good results against those folks. So on one hand, it's super fragmented, and so we track quite a few people. On the other hand, most of what matters are the biggest players. And that's where we feel like we are creating financial advantages. We're seeing success specifically in our categories because we're not worried about who's going to win with the construction pro on building materials, which is a fierce battle ground. We're not worrying about who's going to win in grocery delivery, which is a fierce battleground. We're focusing on home. And so we have the benefit of our primary focus being something that's often a secondary or tertiary focus for other players. And so if you think about everything we're doing, it's bespoke to the specific category. And then the second part.

Well, and then I think we sort of touched on -- I just wanted to clarify, you said the revenue growth and the risk there relative to our guidance. We've only guided to the third quarter. We said we were comping low single digits at the time of the call. We guided to mid-single digits. I think you spoke to some of the dynamics that are happening in the macro. I think your -- the third part of this was on international investment.

So I think the way to think about international is like, so we're focused on -- we have basically our biggest efforts in 4 countries that are 4 of the top 10 countries by GDP in the world, right? United States, Canada, Germany, UK, I think right now, we feel like that keeps our plate full. And we believe the way we have a leadership position in the U.S. where we're taking share compounding it, we want that answer to be true in all 4 of those. We think that would then lead us to looking at other large markets where we have an advantage, either because we have a lot of goods across the border. We have some sort of natural advantage where we can offer a great experience. But right now, we're focused on being the leader in those 4 markets.

I think we've got time for one more question in this forum, and we'll go with Tom Forte.

Thomas Forte with D.A. Davidson. So as you march forward on the path of profitability and free cash flow, can you give us what your current thoughts are on strategic M&A?

Sure. Just to summarize, thoughts on strategic M&A vis-a-vis where we are on our profitability path. Niraj, Kate?

I'd start with we just outlined for you what I think are a number of organic growth vectors. And so we are very focused on investment and continuing to see that pan out. Obviously, we are always opportunistic and thoughtful. But again, our growth has largely been organic and we outlined a number of areas that we're already investing in today.

And I would just say, in the near to midterm, we feel like all the initiatives we outlined and sort of gave you an update on, we feel like those are an incredibly great set of initiatives. We think they also, from the standpoint of sort of only tackle an envelope of activities that you can do well and win at, we feel like that fills up that envelope. So right now, those are the things we're focused on.

Well, there are a lot of hands left, but the good news is we have a reception to follow. So if you can join us, please, we'll head downstairs. We've got a casual meeting group with all of the senior management team. So we will see you there shortly. Thank you everybody.

Which exit should folks use to get out?

Please go out this exit. There'll be folks to usher you down the same way that you came up, head down to the second floor, and there will be folks to greet you there as well.

Thank you, everybody.

Thank you.

Thank you.