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- [00:00]
Chase Business Representative
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Hiscox Insurance Representative
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Canva Representative
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Kate Gulliver
Bloomberg Audio Studios podcasts Radio news.
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Carol Massar
You're listening to Bloomberg Businessweek with Carol Massar and Tim Stanback on Bloomberg Radio.
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Tim Stanback
We're thinking a lot about the US economy. We do get a Fed decision. 24 hours from now we will have that Fed decision and we are expecting a rate cut. But we wanted to talk a little bit more about the economy and do it through the lens of Wayfair. Those shares are surging as much as 24% higher in today's session. The stock trading near the day's high even at this hour, which is the highest level since April of 2022. The e Commerce home furnishing retailer reported net revenue and adjusted EBITDA for the.
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Hiscox Insurance Representative
Third quarter that easily topped expectations.
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Interviewer
Tim, we've got Kate Gulliver, chief financial officer of Wayfair, back with us. She joins us from Boston. Kate, good to have you back on the program. Thanks for joining us Investors. Certainly loving the update on on the business. How is business? How is it kicking off in this final quarter?
- [02:39]
Kate Gulliver
Yeah, you know, thank you for having me back. Happy to be Here we're obviously quite pleased with the third quarter results and the subsequent reaction to them. And I, I do think it shows, you know, all the work that we've been building to over the last few years and the enduring strength in the model. And so you saw that top line come in pretty nicely at 8% net, 9% adjusted for the German business. And that really is compounding share gains there on the top line. And that of course flowed through quite nicely to adjusted EBITDA gains.
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Tim Stanback
How would you describe the consumer?
- [03:11]
Kate Gulliver
Yeah, you know, it still remains for us that the consumer is quite focused on promotional events. And so she, our consumer is typically a woman, you know, mass market. And she needs those promotional events to really come in off the sidelines and get excited to shop. We've talked in the past about, you know, how the promotional events really work as a marketing banner to get someone interested in the category and to then bring them in to the site. And that is still the case. Those promotional events are pretty necessary to get the consumer engaged and excited. We do see relatively more strength in that higher end consumer. For us, that's consumers that are transacting on our Paragould site, which is our luxury brand or specialty retail brands. We've said that those are actually growing at a faster rate than the core Wayfair.com business. And you are seeing more strength in that consumer segment.
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Interviewer
Are you talking about promotions? You mentioned them. You have to get consumers excited. You have to get them more excited now than you did any other part of this year. We're really trying to understand the economic environment out there.
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Kate Gulliver
You know what's interesting is this category in particular has been down for so long. So the category, you know, obviously boomed during COVID and then at a pretty significant, significant pullback. 22, 23, 24. So throughout, you know, 24 and 25 for this category, promotions have been critical. You know, I would say what we have seen, you know, really throughout 25 is there's also been some mix shift dynamics in addition to sort of higher end consumer and mass market consumer. You do see consumers that are shopping, are shopping for, you know, things like decorative accents, decor, you know, maybe things with a lower ticket than, you know, buying a new couch or a new chair. And I think that's the idea. Someone wants to refresh and is excited about that, but they want to be mindful of how much they're spending. And so they're looking for the smaller pieces maybe opposed to the big piece.
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Tim Stanback
Well, you know, to that point, you know, Kate, I think about the pandemic, we realize that's the anomaly. I mean, I'm looking at your Stock is up 142% this year, which is quite a run, but it's still down about 69% from 2021. We everyone was at home spending on their home. That's why people were working out at home spending on their pets. There was a lot of stuff going on. So I am curious about, when you look at the third quarter growth, how much came from intrinsic share capture versus category stabilization? Because it does sound like we're seeing a lot of stabilization here.
- [05:43]
Kate Gulliver
It's a great question. We think the category itself is roughly flat to slightly down. So I do think the category has stabilized. And we see that. We look at a variety of different data sources and you know, they're all slightly different, but they coalesce around a flattish category. This is in contrast to last year where the category was down maybe, you know, mid single digits to, to high single digits. So that's certainly an improvement. But we don't yet see the category as having returned to growth. So when we look at sort of 8% growth, right, that's definitely us gaining share on a category that is say flattish.
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Interviewer
When consumers are buying from Wayfair, are they buying to replace stuff or is this trade up activity? What is, what is the data telling us or telling you?
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Kate Gulliver
Yeah, that's a, that's a great question. We're certainly starting to hear that a bit from folks. You know, have we hit replacement cycles? And really to the conversation we were having around the pandemic, it speaks to so much of the pull forward in demand that happened during that pandemic period. You know, I think we see a few things that drive, you know, purchase events. One is moving and obviously that part of the category still been, you know, quite suppressed. One would be life cycle changes. So, you know, your kid, you had a baby and now they're moving into a toddler bed or the kid's leaving the home and you're turning their bedroom into an office. So sort of as your life cycle evolves, regardless of if you're moving. And then a third would be, you know, replacement categories or sort of, you know, judging up your room in replacement cycles. I think a lot of folks are eager to see if, you know, what was bought in 2020 and 2021 needs to be replaced at this time. And I think what's helpful to understand there is this is very category by category specific. So if you bought, you know, opening price point outdoor furniture and you live in the Northeast, maybe five years is, you know, an appropriate time frame. But if you bought a, you know, nice couch, you know, you're certainly not hitting the replacement cycle on that yet.
- [07:40]
Tim Stanback
I got to say, I love judging. I love buying pillows, but I'm afraid if I bring any more pillows home, my husband's going to divorce me because he's like, I can't even find that. I can't find the bed anymore. Hey, listen, you talk, Kate, about the higher end brands like Paragould. You're seeing some strength certainly in that area. I am curious too about your retail expansion, the physical store retail expansion, or your loyalty program. If that's adding incremental customers versus shifting, increasing existing digital ones, what are you seeing on that front?
- [08:09]
Kate Gulliver
Yeah, great question. So on the physical retail side, we are adding incremental customers. We're actually seeing in our first large format Wayfair store that's been open for a little over a year now. More than 50% of the folks who are transacting in that store are actually new to the customer file. We have 100 million customer file. Right. So to be getting new customers at this stage is pretty exciting. So it's definitely acting as a way into the brand Paragould. We actually just opened two stores for Paragould. So we opened one in Houston in the spring or sort of early summer, and then we just opened in West Palm beach in Florida a week ago. So it's very early days on those stores. But we do think that they should work as a nice customer acquisition channel. The loyalty program, which is about a year old, I would say that's acting more for existing customers to get them to be increasingly sticky with us. So what we're seeing from loyalty customers is nice incrementality, meaning, you know, if they were going to purchase, you know, six or eight times a year and maybe they're buying one to two from us, hopefully we're getting that next purchase, that second or third purchase as well.
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Interviewer
Now, Kate, on the layoffs that we've heard from other companies just in recent days, Amazon planning to eliminate roughly 14,000 corporate jobs. This as Andy Jassy warned that I will shrink the company's workforce. You have a 2500 person tech team. How are you thinking about headcount? Are you reallocating headcount toward applications, or are productivity gains allowing you to do more with a similar cost base? What are the numbers there?
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Kate Gulliver
Yeah, it's a great question actually. Our cto, Fiona Tan, was on our earnings call this morning. Speaking to some of what we're seeing from AI, both on the top line perspective and where we're going with, you know, personalization, but also on, you know, efficiency. Every employee in the company, not just in tech, is actually enabled with AI tools and AI resources. And right now what we're seeing is really nice efficiency and enhancements to individual employee work and then in different pockets throughout the company, including within tech. You know, as we use more specialized AI tools, you see, you know, uptick in efficiency there. I frequently actually talk about our legal team. So not a tech team, but a team that, you know, has been able to adopt AI quite rapidly for document review and the ability for them to sort of manage, for example, increase lease load as we've been expanding the physical retail network without having to add incremental folks, has been pretty impressive. And so we certainly are seeing gains from that efficiency internally.
- [10:33]
Tim Stanback
Hey, do you feel like though, in this environment that you want to be lean and mean? I mean, I guess I feel like all companies want to be lean and mean, Kate, but I do wonder if you're seeing, you know, as you look down the road, we are in this funny environment. Funny not funny haha, but funny difficult in that with the government shut down, we're not getting data. So we're trying to figure out by talking to folks like you who where we are in our economy. So do you feel like there's pressure to be leaner and meaner than maybe, I don't know, a month ago or so, or you feel more confident about what's kind of coming down the road here?
- [11:06]
Kate Gulliver
You know, I think you framed it well, Carol, when you said you should always feel, you know, the importance of being lean. I mean, we're a mass market retailer, right? We operate on basis points of margin. So we absolutely need to be maniacally focused on cost at all times, regardless of the macro that we're operating in. And over the last several years, you saw us go through a number of restructurings, frankly, to bring down that overhead cost pretty significantly. Our most recent restructuring was actually March of this year. Where did the conversation on tech employees? We did lay off some of our tech team as we completed our replatforming exercise and were able to actually increase some efficiency on that team. Pointed more of those resources towards AI, etc. As they have stayed. So, you know, we continue to be quite focused on efficiency and efficiency gains. We feel good about, you know, where the team is right now and the efficiency that we're seeing from that operating team. But that comes on the heels of, you know, several rounds of restructuring over the last 24 months.
- [12:00]
Interviewer
Well, on AI, on the consumer side, when it comes to AI, I'm wondering about the traction from Muse and Decor, ify the decorating platform, the new pilot. How has that been with shoppers so far? Is it driving broader consumer adoption of AI LED design?
- [12:16]
Kate Gulliver
Yeah. So we've tested out a number of AI tooling as it relates to how the consumer can expand experience. Our website, we offer millions of different SKUs across thousands of suppliers across a wide range of styles. So the holy grail is really personalization. And how do you, you know, all three of us may be searching for, you know, those throw pillows for the bed that Carol was talking about, and we all may have a different esthetic. So how do we land on the site and get to our esthetic as fast as possible? Decorify. And, you know, now we have a tab on the app called Discover. These are ways for individuals to sort of browse and engage in a way that should be more personalized for them. And we do see great engagement there. But even on, you know, the main part of the app, so not using one of these specialized tools or the main part of the website, we are using generative AI to make that experience better. We spoke on the call this morning about combining generative AI from a merchandising perspective with actually human designers. And for folks that landed on those SKUs that were the combo of the both, we saw a third uplift in sort of engagement with that skew. That's really exciting because that means that SKU is probably far more relevant to you than where you were going to land before.
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Tim Stanback
All right, great stuff as always. Great read on what's going on in retail and certainly the consumer. Kate, thank you. Thank you. Kate Gulliver, chief financial officer of Wayfair.
- [13:39]
Carol Massar
The forces shaping markets and the economy are often hiding behind a blur of numbers.
- [13:44]
Canva Representative
So that's why we created the Big Take from Bloomberg podcast to give you the context you need to make sense of it all.
- [13:51]
Carol Massar
Every day in just 15 minutes, we dive into one global business story that matters.
- [13:55]
Canva Representative
You'll hear from Bloomberg journalists like Matt Levine.
- [13:58]
Interviewer
A lot of this meme stock stuff is, I think, embarrassing to the Sec.
- [14:03]
Canva Representative
Amanda Mull, who writes our BusinessWeek Buying Power column.
- [14:06]
Carol Massar
Very few companies who go viral are, like, totally prepared for what that means.
- [14:11]
Canva Representative
And Zoe Tillman, senior legal reporter.
- [14:15]
Kate Gulliver
Courts are not supposed to decide elections. Courts are not really supposed to play a big role in choosing our elected leaders. It's for the voters to decide.
- [14:26]
Carol Massar
Follow the Big Take podcast on the iHeartRadio app, Apple Podcasts, or wherever you listen.