Wayfair Inc. ($W)

Good morning, everybody. At the risk of alienating all of the other attendees at this event, this is the session that I've been most personally excited for. So I -- please don't tell anybody, all right. We'll keep that between us. We are super excited and fortunate to have the team from Wayfair with us, including Niraj Shah, the Founder and Chief Executive -- Co-Founder and Chief Executive Officer; Kate Gulliver, the Chief Financial Officer, who we also consider to be a superhero; and Ryan Barney, who runs the Investor Relations. We're so excited because Niraj, his story is incredible. And if you have not had the chance or opportunity to do a little digging into it, there are so many ways to better understand Wayfair. I would highly recommend how I built this with Guy Raz because it goes into the history of how Niraj and his college roommate, Steve Conine, founded this business. They were at the forefront of understanding that commerce was changing and that the consumer was going to find new ways to procure products. And it is so exciting to have him here today to help us understand what could be the next succession in how commerce and consumption are changing. So I hope that was not over the top and somewhat appropriate.

Michael, thanks for having us here. We're excited to be here. And I thought with that of preamble, I thought maybe we'll go 45 minutes I won't even have to say anything.

As you can tell, I'm a little long-winded and it happens when I get excited. So with all that being said, like I had mentioned, you were operated with a lot of foresight as e-commerce was in its infancy stage. We're at the forefront of a lot of change. So I'm going to leave it very open-ended and ask, how do you see all this technological innovation, not only changing how the consumer shops and looks for goods, but how Wayfair is trying to capitalize it on it to be at the forefront of these changes.

Sure. So I'd say there's 2 -- there are 2 large changes that are underway. One has been underway for, I'd say, roughly 10 years. And that is only accelerating. And what that is, is that customers' willingness to engage in e-commerce has moved, say, about 10 years ago, moved from a stage of sort of early adoption to becoming kind of a mainstream activity they're very comfortable with. And as that happened, sort of their expectations around selection, around delivery, service were heightened. And what you find is that to operate in e-commerce well, you actually need to be a scale player in 3 things. One is your brand, your marketing, your customer reach needs to be significant. We spend over $1 billion on advertising. We have a household brand. We have millions and millions of customers that are in our loyalty program or you download our app and come direct. So you need scale for that. Second is logistics in order to deliver what the expectation customers have and at the price they have, so speed of delivery, convenience of delivery and low cost of delivery, you need scale. And there's no way to do logistics without scale. And so you find the scale players, whether it be Walmart or Amazon on grocery or Home Depot or Lowe's on building materials or us on home goods, they've built an expansive delivery operation around their type of goods. And when you talk about large bulky home goods into the home for a consumer, we're the only one who's invested in that type of network. We have over 20 million square feet and 75 buildings, logistics operations on 3 continents. And so you need scale for that. And then the third you need scale for is the technology. And the technology, I'm going to get to the second big change in a minute, which is technology, which is I think what you're probably actually more focused on right now. But -- and so we have a team of 2,500 data scientists, software engineers, product managers to build technology even in a world of AI, which I'll get to in a second, at the level that consumers expect to experience or your supplier partners expect to have access to or that you want internally to run your operation, is not necessarily easy. And there's a finite number of folks who really know how to play at that level. And so we have the scale in those 3 things. Our competitors, Walmart, Target, Home Depot, Lowe's, Costco, Amazon have that scale. But the big -- the first big change is that anyone who's smaller than that, you can either be an independent store with incredibly good service and a relatively small radius and provide that as a shopkeeper, and that works or you're a scale player. That shopkeeper is not really big in e-commerce. The scale players are. But everywhere in the middle is getting squeezed out. So that's the first big change. And that's continuing to compound. The second big change is obviously technology doesn't stay static. So if you think about the changes, so [indiscernible] the other way to take it is that I'm old, right? So I've been that way.

You still look very good, which is hard to believe.

Well, I graduated from college 30 years ago. We started Wayfair in 2002. So Wayfair is 24 years old this year. And I had a few stages. We didn't launch Wayfair as a brand until 2011. The first decade, Steve and I just grew it out of cash flow. We were profitable the whole time, and we just reinvested all the profits back in the business. When we raised capital to launch Wayfair in 2011, obviously, went public subsequent to 2014. So there's been like a journey. But through that journey, we've always been very technology oriented. Our background was as engineers. And so if you think about cloud and mobile and all the technology changes that happened over the last 20, 30 years, those have all been quite transformative, and they all took a number of years to play out. And you can look back and say, "Oh, wow, this is what happened there, and there are those who won and then those who really didn't quite understand it and ended up losing over time." And obviously, the technology change that's upon us now is AI. And AI, and I think rightfully so, people talk about us being larger than those other technology changes, certainly disruptive and dynamic. And the notable thing about it is it's moving significantly faster than each of those moved. And those didn't move slow, but they moved to the cadence people got accustomed to. Things got tremendously better on like a 2-year cycle. And with AI, things are getting tremendously better on like a 6-month cycle. And the 6-month cycle versus 2-year cycle is very hard for people to internalize. And it doesn't fit with how companies budget. It doesn't fit with how business leaders think about technology. It doesn't fit with how even technologists tend to adopt technologies. But what you find with AI is it's the same thing where if you have a technology-minded organization with the requisite skills at that kind of highest level, you can actually be an aggressive user of that technology in a transformative way, whether that be your internal cost structure and speed of operation, whether that be what you do, in our case, with our supplier partners on our platform or whether that be what we do for customers, you can be quite transformative. And so we view this as the next -- just a huge opportunity for us. And it came at the perfect time for us in the sense that we got lucky in that we spent 3 years doing a lot of replatforming work on our systems, which was unfortunate at the time because we couldn't use our technology resource to advance the business. We had to prioritize replatforming. Well, all of a sudden, we're through that. And so you saw that at the beginning of last year, our growth rate, which is kind of like roughly 0 year-over-year, taking share because the market was declining, but still not much share. And you saw it accelerate over the course of last year from 0% to 7%, while the market continued to contract. And the way we did that was we were back to being on the offense, being able to use technology to grow and drive the business. And that growth rate, which accelerated, we think at the end of this year, we can be nicely -- share spread can expand into the double digits. And again, that's off our own actions. But a lot of that's due to how we use technology to advance our business. And AI is just -- it's a tremendously strong lever. And I think the challenge for folks is when you have a disruptive technology, it's hard to get your head around it all at once. So folks say, okay, well, who's going to go away, who's going to benefit? And I think that's what is a struggle for folks. And I think this notion that LLMs and AI agents can do everything is not the case, but I think they can do a lot. And so the companies that can optimize themselves in that world, the same way in the days of search and social media with what we did with Meta, what we did with Google, we do with Pinterest advantaged us, I think we can do the same thing. And the same way that their efforts like Google Shopping, which tried to have transactions finished there, ultimately found that consumers want to go lower funnel. But basically what OpenAI the other day said as well that that's probably the bulk of what people want to do. Google already knows this lesson from years of balancing both sides of it. I think it's going to be the case, particularly in categories like fashion and home where items are not UPC code commodity goods, where it's just a fulfillment engine. And I think we're well positioned to really be the scale player who then pulls away with this category through the set of what we're doing, whether that be the way we're using these technologies and then our own programs, whether it be our loyalty program rewards or verified or we're doing brick-and-mortar stores, et cetera. So I think it's a really good time and the technology set is, we think, pretty exciting. But I think there's a lot of confusion around it, too.

100%. Well, uncertainty is the worst part of anything, and you just provided a lot of clarity on that. So thank you, and that was very well said. Can you give a few tangible examples of how you've deployed technology in the last 6 to 12 months that has enabled some of those market share gains that have been very visible in your financial performance?

Sure. So I think -- so those gains show up through a myriad of efforts. And I think some of them are easier to grasp from the outside. So in other words, if I talk about our loyalty program, Wayfair Rewards, and we talk about -- we talked about this on the last earnings call, the number of people who have enrolled in it and the fact that they then spend a multiple of what they would spend before they were in it because of the benefits and how -- while it compresses gross margin, it expands EBITDA because we're getting more revenue with less ad cost, but at a lower gross margin. Well, the net of that is higher profit margin, EBITDA margin, right? And we talk about the growth in members, that's like relatively easy for folks to kind of grasp. But then if I talk about like one of the dozens of things we don't do with AI, we have this 20 million-plus item catalog. And we know there's error in this catalog. And dimensional error is like one thing that comes up. And whether that be dimensional error that causes the shipping estimates to be wrong or whether that's dimensional error where the customer that the sofa is an inch or 2 inches off and it ends up being an issue for the space they want to put it in. That's -- you grapple with that because when you have that many items in the catalog, suppliers are putting in that information, some of that they're putting in manually, some that they may have wrong and even in their own system. It's not always easy to find the error. And we've been able to replace a lot of labor trying to help minimize error with automation around using AI to identify and correct that error. We've been able to do that with filling in missing attributes and information. Well, that's a little harder for you to grasp how that drives share gain. Well, the way it does that is customers are happier, you see their repeat rate go up. You also see that reduce our cost on incidences. So if there's a return, that's an incident or if it's a mistake we made, obviously, that's more expensive than just a return because we're paying for everything, and we're trying to make sure the customer ends up happier. So what happens when you save that money is you could put that into something that grows the business, right? -- or profit, right? And you're seeing that our revenue has been going up, profit is going up much faster. And that's basically what you're going to continue to see. So there's like dozens of things that are causing us to accelerate the rate of share. And again, some are easy because we can talk about what we're doing on YouTube or what we're doing on with influencers, which is a lot more than we're doing the year before, again, easy to grasp. But then a lot of the places and things we're doing that get into like our delivery logistics optimizations are harder to grasp, but they do drive that customer behavior.

You bring such a valuable and interesting perspective at the risk of being wrong. I feel like you're a technologist at heart, but a business person in practice.

Well, the technologists won't have me, but I like to think...

I think everybody will have you. Make no mistake about it. So there's 2 questions in this regard. Number one is how do you deploy this technology in a way that the organization can absorb it and capitalize on it. And two, how do you think about the existential threat where this is creating a lot of productivity, but at the same time, that could lead to a disruption in your end market, which is the consumer who might find their job being displaced as a result of the technology. I know those are 2 big questions, but you're such an effective.

Well, so I was reading how...

I think I -- I didn't mean to plummet you.

No, no, I was thinking Howard Marks is like follow-up memo to his original AI memo, which he just published whatever recently. And he talked about like step 1 on an AI was using a chatbot. And you almost use it like the same way you use search, but obviously, it's better than search, right? And he talked about like step 2 is basically where you start giving it like research assignments. You realize you can do more than just what you would do with search and you start framing things that way, asking it to do some reasoning for you. But then you start to realize, well, actually you can do that quite well. And so like stage 3 or whatever you call it, step 3. But the third thing, and it's basically, that's the age we're now at is where you have agents, autonomous agents, you figure out how to orchestrate them around accomplishing goals you have. And I think the real opportunity with AI is actually today and how you take that third step and put it into practice, whether that be in your software development organization, how you really change how you're building software and what you can -- what speed and what you can do or whether that be business teams where basically workflow automation has existed forever, but workflow automation was before it had to be very discrete specific steps. Take the cells from this column, put them on this other sheet, run this calculation, then insert that here. It had to be very literal. You couldn't have a reasoning step, which is like does that based on the picture and what you know of that product, does that width seem inaccurate. That's a reasoning step. You couldn't put that in a workflow automation before. Well, now you can put in reasoning steps, right? And so if you think about the workflows you can automate went from a small amount to a very significant amount of what people do because the small amount stuff was basically automated, spreadsheets and other things sort of helped you automate those. But where you had to have reasoning steps, you had no solution other than to put people around the reasoning steps. So you built up a very large setup to do that. Now you basically can create workflow automation with the reasoning steps basically being AI. That's like the first step of basically what you could do with taking what AI agents could do into the business process side. And I think where that goes is where instead of thinking about it as a portion of what someone is doing, there's going to be certain roles where it can do the entirety of that role. And so like an example, which is maybe not exactly what you're thinking is like if you just think about driverless cars in the beginning, you say, okay, well, maybe the driverless vehicle could go from here to here and very, very narrow band, but it couldn't like pull into my driveway and it couldn't do -- but if you think about like what a Waymo now can do, it's not quite at the 100%, but it's pretty close to it, right? It needs to have mapped the route. So if you're going up a private winding road that it hasn't mapped, it can't do that, right? So it's not 100%, but it's getting close to it. Well, you start thinking about that. So I do think the landscape of what jobs are and where people can add value will change. I don't think it needs to be scary in the sense that there's been technology, which has destroyed jobs and then new jobs have been created many times in the past. But I think there's always a period of disruption. And that period, I think, is coming very quickly.

Got you. And I want to ask one more on the Agentic Commerce side. But before I do, I want to bring Kate into this and look at this from the financial lens. How, as the Chief Financial Officer, are you thinking to capitalize on this technology, but at the same time, meet some of your hurdle requirements, profitability goals? Because it does seem like this is an exciting but also very uncertain period where you're going to have to manage it carefully.

Yes. I mean I think what you heard Niraj describe in a few of those answers were ways that we are leveraging AI to enhance and improve the consumer experience. And that can actually help boost the top line, right? You asked a separate question around sort of like overall consumer disruption. Putting that aside for a minute because we've been operating in a very disruptive category for many years, and we've been focused on share gain. This is a category where the potential to help a consumer identify what she wants faster, simpler with better product data, et cetera, really improves the customer experience pretty dramatically. And so what we get excited about is, one, there's a lot that we can do, we think, that actually grow conversion, grow loyalty, improve sort of that customer coming back to us and shopping again and expanding their share of wallet. So that's sort of the top line benefit. And then you heard Niraj speak about some of the efficiency gains that you can get. And so we're certainly quite focused on how do we think about these efficiency gains if you have portions of someone's job that is automated, where do we think about where that efficiency gain goes. We could put that back into ongoing enhancements that we're making. We could give that to the consumer in some form of price or delivery benefit. And so I think that's actually pretty exciting when you think about it. Now it's very early days on that. But internally, part of our focus is let's make sure we're doing the right things now to make sure that our employees are experimenting, that they're very comfortable with this technology and that we're starting to see some of those efficiency gains and then think about how might we want to invest that and what is the right way to think about that investment. So it's both the top line piece and then the sort of employee efficiency piece.

Very well said. Your share price has been unfairly penalized because of this idea that Agentic Commerce is going to take over and disrupt platform, third-party marketplaces, assuming the idea that we as consumers are just going to go to our preferred large language model and say, send me a gray couch that is 70 feet in length and have it delivered to my doorstep. Why is that wrong?

Well, I think any time there's a rapid change, it's hard to get your head around. So I think the notion that you just don't know what's going to happen definitely is the first thought folks have is going to create fewer uncertainty and doubt. I think the reality is, as I was describing earlier, there's like the bigger players who are basically the ones who can deliver against the customer experience today. They're going to be the big beneficiaries in the slices of the market where they are the best solution. Effectively, what is happening is just that AI is only going to facilitate those -- whoever is the best at something becoming bigger, faster. And that's not just -- that's both internally what they do with the technology and what they specifically do for the customer, the technology, but it's also, frankly, where customers are going to get steered to, where they're going to go to. I think the reality is these -- the LLMs they're very helpful for customers to kind of get the landscape of something they don't understand, but it can only take it so far. If it's something the customer can be very articulate, like I use Dove soap bars, I use whatever Mrs. Meyer's hand soap, I use Seventh Generation dishwasher tabs, et cetera, and I want to replenish that stuff, it could execute those orders for me. And that is a very straightforward exercise. If it's something where there's a discovery inspiration, emotion, aesthetic, whether you're talking about home or you're talking about fashion, you're talking about beauty, I don't think the agent is going to help you by going from the beginning to the end and just saying, okay, you want something that is -- you want some more lipstick unless you want to reorder the same exact one, right? Just like it won't solve the great sofa example that you gave a minute ago. But what it will do is it will -- and this is where we can optimize for this, but it will say Wayfair is a great solution for you, whatever. But there's a lot of choices you get to make around the item. You're going to want to understand other items. We have information about what you purchased. We know what styles you like. We know what you have in your house. We can create inspirational imagery with AI that's very specific to you. We can also present you with a lot of options around delivery, assembly, taking away packaging, things that you would then -- you wouldn't always want necessarily the same services, but depending on the purchase, depending on that particular use case you may want, you can have all these items delivered together 2 weeks from Friday, if you want. There's things that we offer that don't get abstracted away into like this generalized e-commerce sort of use case. So I do think if you're a commodity goods provider, it could be potentially quite different. But honestly, we play in a category that's very bespoke and unique where customers -- basically, home, fashion and automobiles are the only 3 product categories that customers have so much sort of curiosity and fanaticism about that they'll spend money to basically buy magazine, basically consume media for the enjoyment of knowing what else is coming, what the trends are, what's available. So if you kind of put them the shopping lens over that, like these categories, there's not that many of them, but these ones are noncommodity categories where customers are going to want to play a role in the decisioning. And it's nonobvious -- it's not a reasoning solution as if I'm looking for 42-inch TV and I want a budget one, there is a best one at any given time or I want to step up from there, there's a best one at any given time. If I want the premium one, there is a best one at any given time. That's not the case in our world. There's an emotive content to it that is very hard to capture through artificial intelligence.

Yes. No, I was just going to add to that, that I -- yes, I was actually going to say it's highly emotive purchase. And I think the other thing that you touched on a little bit with the delivery Niraj, but this is a complicated purchase for consumers. It's a high-ticket purchase for them. And it comes with some risk, right? Does it get delivered correctly? Will it fit in my room? Who is going to remove the product that's already there if there's a damage issue, which is the category that has damage, how does that get resolved? And so sort of trust in the retailer actually matters quite a bit as well, I think, in this category. So all of the things that Niraj described around sort of taste and style and selection and sort of the consideration combined with the sort of logistical complexity, I think, are quite important here. That said, we are very focused on being wherever the consumer is. And so our view has been we should be in the mix, partnering with folks to make sure that as they're thinking through sort of how this evolves, that we're part of that conversation. We've publicly said that we're partnering with Google on Universal Commerce Protocol to sort of help shape how this discovery happens and how this part of the shopping experience does evolve. And I think that's really one of the benefits of our scale is that we actually are interesting to these folks to actually partner and sort of push the thinking forward here.

Very well said. Home, home furnishing and marriage may be the 3 categories where the risk of regret is very high, just ask my wife. With that being said, one of the sub topics within this is Wayfair has a lot of aspirations to -- for its sponsored ads business, for retail media. And there are fears that if there -- at least a portion of the business move to Agentic Commerce, that could disrupt the ability to monetize those eyeballs. How do you see that playing out? Are you as confident today about your aspirations on retail media than you were a couple of years ago?

We are. I think it goes back to that earlier point, which is just, again, where do transactions really get consummated on these agents. And I think that's really in the commodity purchase type arena, perhaps in the low ticket non-pure commodity. So commodities where the UPC code is the identical thing and you're just replenishing. I think that's where the highest risk is. The next highest risk would be, I want a 3-pack of iPhone cables, I want to spend less than $15. I want them to be gray or black. I want them 6 feet long. That's kind of like you haven't specified the exact item you want, but it's kind of like you might be willing to take the risk on that because you're sort of like how bad can it go, [indiscernible] highly rated, whenever. You may not care. But as soon as you move up in ticket price and the item is more bespoke, you really want to pick the right item aesthetically, emotionally, I really don't think you're going to see a high percentage of transactions happen upstream. The same way you saw that same dynamic play out with all the kind of shopping interfaces that were built by the media companies over the years. So those are not categories that they were able to disintermediate there. And so I think that traffic does flow downstream to the retail sites. And I think the shopping experience we have, the retail media is embedded in that in a way that it's basically helping the customer discover items that they might have high interest in because that's where that ad unit is highly valuable to the person who's paying for it and to the customer. If you have ad units that are not valuable to the customer, you end up running into a problem. You can't really scale your supplier advertising business. So you can only really scale it if you're putting pertinent interesting products in front of the customer that are relevant. And so that's why we think -- that's why we're seeing that continue to develop nicely. We don't really see risk to it.

Got you. Pivoting the conversation, Wayfair has done a remarkable job more recently and over the long term, taking market share. And that has been characterizing a lot of the performance that you've been achieving and reporting in the last several quarters. You haven't gotten much of a help from the housing market, from the home furnishings market. What do you think needs to happen in order for that to become more of a tailwind, understanding that market share gains are going to be a critical driver still for you moving forward?

So there's no question that home goods is a cyclical market, right? And there's no question that we're in like a down part of that cycle, if you look at the overall market. It's contracted for 4 years now. It's not contracting as fast as it did for the 3 prior years, but still contracting. It's probably near the bottom, but in terms of when does it really turn up, that's much harder to forecast because housing prices remain elevated, interest rates remain elevated. And ultimately, when people move, that's one of the catalysts to purchasing home goods. And whether -- if you look at the moves per year, that number isn't really rising. We don't necessarily see it taking off anytime super soon. I think the reason we're fine with that is that our strategy for taking market share is not dependent on the category really gaining momentum. The same way we went from 0% year-over-year growth to 7% at the end of last year. The market contracted through last year. And so we've kind of accelerated against the market. How did we do that? Well, the answer is our own actions, whether it be how we use technology, what we did with logistics, what we did with our marketing reach, the improvements to the customer experience, the programs like rewards, verified stores, et cetera. And there's a lot more to come on those things. And so you start this year, we're at that 7% or whatever, mid-single digits was our guide. And then where we think we'll be by the end of the year, we think that's going to climb into the double digits. And why will it do that? It's that same recipe that we're now back in control of because we got through the tech replatforming, we got through kind of the organizational shift. And now we're back to like driving these programs. We're back on the offense. And frankly, we now have a new tool in the toolkit that we didn't even anticipate at the beginning of last year, which is the rate at which AI is now something we can use in a whole variety of places in our business. So that only accelerates our ability to do that. And so I think you're going to -- you see that play out. And I think basically, you say, okay, well, how can I get some confidence that, that will play out? I basically say, well, because it hasn't, right? So that's how we went from 0% to 7% last year. The market was no help. The market contracted. So you had to do that in the face of a contracting market. So what is it that we did? And you saw profits rise much faster than revenue growth last year. So we didn't do it by funding it. We did it while profits grew. So that's what you're going to see this year. You're going to see that we're going to -- our rate of share capture is going to grow. We'll be in the double digits by the end of the year. And profits, EBITDA dollars or whatever, they're going to grow much faster than the rate of revenue growth.

And do you take any pause in all the macroeconomic uncertainty, the rise in the price of oil, is your mindset, hey, consumers dealt with a lot of uncertainty for the last 4 years. This is really no different than what has happened for a while.

Well, I mean, I think it's really no different, but yes, I would prefer that the price of oil will not be $100.

Without a doubt.

Without a doubt. Well said.

As you look through the different drivers that seem to be in the relatively early phases of having an impact between loyalty and some of the things you're doing on the advertising side, how are those going to play out? What is going to be the most meaningful? Can you give us some insight into what you're seeing from a customer behavior perspective that gives you a lot of confidence on the outlook for the rest of this year?

Yes. We're seeing -- so these key programs we have, whether it be verified, whether it be rewards, whether it be the investments into our native apps, whether it be stores, these are all what we're doing with our advertising marketing programs, it's all basically really trying to do 2 things. One, expand our reach of how we attract new customers. So like in our stores, the majority of customers we get through stores are new to us or some of the marketing programs, we've moved money towards places where we're getting a higher reach with new customers. So either get new customers. But then really, what it's about is basically whether they be new or whether they be repeat customers, how do we get them more loyal. And that's the bigger piece of the flywheel. And that's where if they download the app, we know we bend the curve. If they join rewards, we know we bend the curve. If they shop both online and offline, we know we bend the curve. So all these things accelerate the customer coming back more times per year. So our average customer is spending $600 with us out of an annual spend of $3,000 or $4,000. The easiest way to take market share is to get that customer who already knows us, likes us, happy with us. Why are we only getting $600? Why can't we get $1,500 to $2,000? Why can't we get half their spend? Well, there's no like logical reason why that's like prohibitively -- we have to change the laws of physics to get half their spend, right? No, it's just the customer needs to be aware of the breadth of categories. They need to be top of mind thinking of us when they get to that purchase. It needs to be convenient and easy. They need to feel like they're going to get the best benefits. So the things we're doing with logistics, the things we do with our app, the things we're doing -- these things all kind of do that. Rewards just gives them another financial motivation. They get 5% -- they pay $2,900 a year, but then they get a kind of endless amount of 5% back on anything they buy. So at $600, they've broken even. But then if they're going to spend x amount more in the category, well, if I go to Wayfair, I get this extra 5% back. So if I think Wayfair has a selection, they have the delivery experience, they have the competitive prices, they have a great experience helping me find the things I want, why wouldn't I just go there? I also get this extra benefit, right? And so that's kind of how all the stuff kind of weaves together. And so if we can keep accessing new customers at a faster rate and then whether they're new or repeat, if we can keep doing things that cause them to incrementally become more loyal, that compounds. And so the category, it can shrink, but the truth is it's still quite large, right? And that the spend is very fragmented. If you look at a customer share of wallet, they're generally not concentrating where they're spending their money. And so it's very -- it's quite fragmented. So the share is coming out of a wide variety of places. And if you look at what's happened over the last year, we're one of the only few folks who really gained share in the category. And we think now with the setup we have post the tech replatforming, post the organizational kind of changes we made between '22 and '24, this is now a compounding cycle, and that's what you saw through last year. That's what you'll see through this year.

Kate, you're going to add something?

Actually, you ended up hitting on it on the loyalty piece. I was just going to say, I think we talked about loyalty a bit on the last call because it's actually one of the sort of cleanest ways for folks to start to see some of this in action. And what I think is interesting about it is it's a place where we're giving a little bit of investment to the customer, right, in the terms of that 5% back and some of the shipping and access benefits they get, but it ends up being highly accretive to EBITDA because we're not going and remarketing to that customer. They're coming in directly. So I think it's a good example of the way that we think about as Niraj keeps highlighting revenue growth, but EBITDA growth accelerating faster than the revenue growth. Loyalty enables you to do that because we get that incremental purchase. We actually said in the investor presentation, the average customer is with us 2x, you're seeing actually 3x from the loyalty customer. So if you think about that really being an incremental play, you're seeing that incrementality and we're getting that without retargeting to them. So then you're able to see that flow through quite nicely to EBITDA. And I think it's an important example of how we look at some of these programs and how we think about the benefit that they're driving on the bottom line and on the top line.

And is it fair to say that you have pretty good visibility into the consumer behavior. So you know as the funnel or life cycle unfolds, where those are -- where those consumers are who have just signed up and what their behavior is going to look like over the next period of time to give you the confidence...

I mean we're obviously only a year into the program, right? So I'd caveat it by 1.5 years into the program at this point. I'd caveat by -- it's early days, but we can start to see for those initial cohort of customers how they've behaved over the course of their first year of membership, how they start to behave in their second year. And we think we have a lot more that we can do in terms of how we keep engaging that loyalty customer. And so I would say, yes, we have a clear perspective. Will that evolve over time? Certainly. And then I'd add, we're talking about loyalty because, as I said, it's a fairly clean example of it. But Niraj mentioned a number of other things that we've done, enhancing the app experience, obviously, physical retail stores and verified to continue to improve that sort of customer incrementality.

Yes. I want to pivot a bit to stores because this seems like it's a very exciting opportunity to capture a segment of the market that may not have been focused on Wayfair in the past in the Chicago location. We've talked about 50% of those customers who are shopping in that store are new to file, suggesting that you're getting a bigger share of the TAM. How quickly do you expect this to play out? And is it right to think that over time, Wayfair is going to have a physical presence in many major markets, and it will be another way to interact with, engage and attract new customers?

Yes. So the Wayfair stores are quite large, right? So the one in Wilmette, north of Chicago is 150,000 square feet. And because they're quite large, there's, call it, 2 years of lead time to open them, plus or minus. So they're not something that you can open in 6 months or 9 months. For our specialty retail brands, we have smaller format stores, you can open those quite quickly. But the large ones, the permitting, the construction, just -- you can only open them at a certain rate. So when we opened Chicago, we were very excited with its performance, and that led us to greenlighting some more stores relatively quickly. Well, Chicago has not been opened yet 2 years. It opened in May of '24. So our second store is only opening at the end of this month in Atlanta.

And we're all invited. We're all invited.

Everyone is invited. Yes. I mean stores are open to the public. We'd like you to come as often as you want. And we have 3 opening this year. We have one in Atlanta at the end of this month, one in Columbus, Ohio in June, end of June and one in Denver in November. And so if you think about that 2-year timing, we greenlit them because we saw Chicago open very strong. But now over 1.5 years in, we've been able to see how Chicago has developed, and we're even more excited. So we're already working on what we're going to open not just in '27, but in '28. And we're pretty excited about what the potential is. We've seen the math, whether it be that more than 50% are new to file or the rate of growth in that market, its compounding annual growth is significantly higher than peer markets in the rest of the U.S. We've seen what the economics are of the store itself. Reminder just there is, by the way, you have to spend money for the store, but the delivery, logistics operation, the supply chain, the inventory in it, the brand awareness, the customer reach, these are things we already have. So our economics for opening stores are different than a retailer who maybe started in one region, they're going to expand to another region where they got to open up that distribution center. They got to get inventory into it, then they got to start opening stores to amortize that. They need to market in that region where no one knows them. That's a normal cadence for someone who builds a nationwide retailer. They do it market by market. Well, the reality is we already -- because we have whatever, $12-plus billion national business with all those capabilities, what we don't have are the stores. But we actually have all the other component parts that are usually pretty costly pieces of the store expansion plan, right? So that's part of why it works well, too. But yes, we're pretty excited about the potential.

And how fast could you go? You're opening 3 stores this year. Is that a good cadence? And what does that do to -- and maybe this is Kate's area, what does that do to the economic model of the business over time?

Yes. So I guess sort of 2 questions within there. Right now, our focus has been we have one store, one large format store, leaving aside the smaller formats, which can expand quickly. Let's get a few more open. They're all going to help us learn and understand. We've announced those 3. We've also announced relevant to folks in this room probably who may be from the area, one in Westchester and Ridge Hill opening in Q1 of '27. So we're getting a broader base. And then over time, we can decide what is the appropriate pace to accelerate that off. So I think still today, we're in the, hey, that first store is looking really great. Let's get a few more open, learn about that and then we can determine the appropriate pace. In terms of the economics, we haven't shared a lot around the economics of the store yet. I would tell you that we look at it a few ways. So we think about the 4-wall economics of that store and the performance of transactions related to the store as well as the transactions sort of surrounding the store. Some of that is interesting because the way that we think about our customers is, we want her to feel that this is another channel, and we want her to feel that she can go into the store, get a quote, interact with a customer, with a salesperson, learn more about the product and then go home and purchase it afterwards if she wants to, right? And we incentivize our salespeople to think about it broadly that way. And so we're looking at sort of all the different types of purchases relative to the store and then the store economics itself. And we are encouraged by what we see on all of those fronts. And as Niraj said, when you think about other folks going into a market, they have investments in the logistics infrastructure, in the marketing infrastructure and then the investment in building out the store itself. Really, what we have is the investment in building out the store itself. So as we think about the cash-on-cash returns of those stores, it's really just the physical investment in the store.

Got you.

The one other point I want to make there, sorry, is that because I got a question on it this morning, so just to make sure folks understand, the inventory in the store additionally is not something that we are funding that is suppliers, it's part of the CastleGate network in a way. They see it as sort of another point where they will forward position their inventory. And so when you think about the cash intensity to open a store, the vast majority of the inventory comes from the suppliers.

Yes. And just to highlight that, not only the suppliers fund the inventory in all our channels of how we sell goods. So stores are no different. And in fact, when we highlight something, we curate it. So whether that be joining verified or whether that be in a brick-and-mortar store, actually, the demand from suppliers wanting to be in it is inflationary.

Very high.

So actually, our ability to then still be the curators, our merchant teams picking which items, there's no lack of supplier demand. So it's actually -- they just view it as, hey, I want to drive my sales up. And if you put it in, I know exactly what that's going to be. And so it's actually -- it's a nice adjunct build of the -- already the setup we have.

Where I want to come to a conclusion in our conversation is that Wayfair historically has been incredibly disciplined and thoughtful in how it manages the levers around the profitability of the business. This year, the expectation is set that the gross margin could dip a little bit below 30%. So help -- and that was just coming out of the fourth quarter results. Help us create a little bit of context for that? What's driving it? How should we think about as external observers, how that's going to unfold over the longer term?

Yes. Let me just give kind of a quick thought on that, but then to turn it over to Kate to fully answer the question for you. What I would just say is like so if you think about -- we talked about rewards for a second ago. Well, rewards, if you basically give someone 5% back off the retail price, you basically -- you're taking gross margin down by 5% of the 30%, right? So 1.5% for those purchases, net of what the $29 fee they've given covers, right? So part of that gets covered by the $29. But as you can imagine, they're going to purchase more than $600 per year if they're in the program. And they do. So that takes down the margin. But as we mentioned, the actual profitability goes up. And why? Well, we get a lot more direct traffic from it. So that's like the advertising cost for that customer cohort is lower. So that's like the net math there. I can go down through different examples of basically where there's trade-offs between margin and SOT G&A or between margin and advertising and so on and so forth. And so the set of programs we have will move these interim lines. And that's why I think the important thing to talk about is how revenue can accelerate between now and where we are at the end of the year, where the share spread can grow into the double digits pretty nicely. And the EBITDA growth will outpace that revenue growth by a significant margin because ultimately, like those are the 2 things you really want to see. And because our different programs have interplay, do we want to manage a given line suboptimally to worry about that line? Or do we want to manage them in the optimal mix at that program level to get that outcome we want, which is that the revenue growth is optimized while the EBITDA growth to be faster than that is also optimized. And those are really the objective functions. So that's what we're doing. I think what we found is like you don't want to surprise folks, you want to communicate that. I think in communicating that, what was lost is that the gross margin line, people got focused on it in isolation and the concept that we're talking about EBITDA growth outpacing the revenue growth by a fair amount, and that's part of the sentence that seemed to have gotten like truncated somehow. So I think -- because I think if people kind of pull that full thought together, they're like, okay, well, that's what I want to see. And I think somehow -- maybe we didn't communicate it well enough, but it got truncated there.

Please, anything to add?

I know we're at time or over time.

We can do this all day.

We'll just hang out here already. I think you highlighted it, Niraj highlighted it nicely, which is the philosophy for how we operate the business has not changed over the last few years. And that's we want to accelerate both revenue and EBITDA growth, but we believe that EBITDA can grow faster than the top line. We have 3 primary cost levers between revenue and EBITDA that we talk a lot about. There's the gross margin line, there's the ACNR line, the ad cost line, and then there's the SOT G&A, which is the overhead OpEx line. And we think about the interplay across those lines to ultimately achieve that same goal that we've always talked about or talked about for the last few years, which is do we want to make a trade-off that is going to accelerate revenue growth, but ultimately, on an EBITDA dollars basis is actually better, improving. And so that gross margin piece was, hey, we actually see here that we can make some investments here in price and the customer experience that will ultimately pay off with top line acceleration that yields better EBITDA dollars growth. And there are other things that we can do to sort of navigate and manage that to have that ultimate outcome. And I think we've proven our ability on all 3 of those levers actually over the last 2 years, our ability to navigate those quite well.

This is so fun. So awesome. Thank you so much. Please join me in thanking the team from Wayfair for a great conversation.

Thanks, everybody.

Thank you.