Colin Sebastian: Thanks and good morning. I appreciate the opportunity. Maybe one quick follow-up on the last question around customer segmentation, I know there’s a lot of curiosity around emerging competition in e-commerce, from Asia, including expansion of the home category. Is that something that you foresee impacting prices or customer acquisition costs? Or is that more likely limited to the lower end consumer segment? And then maybe secondly, in the shareholder letter, I was intrigued by some of the comments on logistics around additional services that you’re building on top of that infrastructure. And just curious for maybe a little more color on is that adding new revenue opportunity? Or is that more about creating additional efficiency, obviously, in terms of competitive differentiation. There’s some interesting stuff happening there. Thank you.
Niraj Shah: Thanks, Colin. So first on your first part of your question around the customer segmentation, and I think basically, your question is like the growth of Temu and Shein and TikTok shop. And so what role do you see them playing from a competitive standpoint for us. What I would say is what we’ve really seen is where they compete is at the very low end of the market, both low end quality wise and ticket size. And so that’s where their volume is that’s what they’re known for kind of with customers for I think that’s where you see Amazon obviously lowered their take rate at the low end of certain categories, I think, because it’s kind of a holiday competition there with those folks were. And I think some of the other folks who sell kind of smaller odds and then kind of referencing.
We have not seen them really be a competitor. And we — obviously, we go focus on home. Many people have a home business, the question is what do they really sell in home? What are the subcategories and what tranches of them? Do they really play in and that’s where you start seeing the event diagram overlaps end up not being necessarily a very large in certain places, and they are much larger in other places. So we have not seen these folks to be competitors. Also, some of them are very large advertising spenders and we have not seen them really be a player when we look at the share and who our competitive set is in certain of the lower funnel advertising, things like Google, PLAs and Google Search or some of these things that are highly targeted and high intent.
We don’t see them being players there. And as you go upper funnel, things like display or things like television, these are vast markets where no one competitor or two competitors move that market and you’re not necessarily competing with named specific competitors that those markets are more broad. So we haven’t seen the big competitors. Now we obviously watch all our competitors and what they’re doing and how things are evolving. But we feel very good about what we’ve built for differentiation in home around the shopability or the delivery and logistics around the set of things that frankly or unless you focus in on these bigger bulkier items and the home goods, in particular, that are from the damage. I don’t think you can necessarily tackle those things very easily.
So we feel very good about that. And then to touch on the second part of your question on logistics, and you said, hey, in the shareholder letter talked about logistics for a little bit. And you talked about do these great revenue opportunities to these create cost efficiencies. Well, the answer is they can create both and just one example I’ll highlight, which is kind of a service offering that makes a lot of sense for us to provide doesn’t make a lot of sense if you don’t focus on like our categories very deeply, would be something that’s relatively new, but that we’ve been working on and we’ll start to roll out, which is consolidated delivery. So consolidated delivery, it allows you, whether you’re moving houses or you’re doing a renovation or you’re an interior designer doing a project for a client or one of the items for your bathroom remodel of your contractors show up at a given day or you’re helping your son move into an apartment.
And you can basically pick an order of a set of large and small items pick a date in the future that you want them all to be delivered and they can then be delivered at the same time on that date in the future. So from a customer standpoint, you can see how in certain use cases, that’s incredibly convenient. It would be very helpful for the customer for that to happen. And so you can imagine that the customer would be inclined to buy more of those items for that use case or that project from you, because it’s going to be easier. They’ll all come together at the same time. And so maybe you wouldn’t have booked that coffee maker from us, but if it’s going to be one of the many items you want delivered at the same time, you might as well just buy it from us instead of buying it somewhere else even though it’s more of a commodity item or what have you.
So you can see that growing revenue. But then from a cost efficiency standpoint, as you can imagine, delivering things one at a time is less efficient and delivering a lot of things all at once. And so when you have a logistics network where we have fulfillment centers, we’re picking up from suppliers. We have over-the-road transportation, moving goods down the chain towards where they’re going to be delivered from. We have the delivery terminals given that we have that infrastructure, you can then with software, which you have to build, which is complicated. But as you have that, you can actually lower your cost of delivery, while improving the customer experience and growing revenue. So you get these combination effects. I picked one that happens to just the easier one to explain.
There’s a lot of other benefits and the various things we’re doing. So we think the logistics runway is a real one. It’s significant, and it still has a lot of room for us to build kind of good customer experiences there.
Colin Sebastian: Great. Thanks, Niraj.
Operator: Your next question comes from the line of Christopher Horvers from JPMorgan. Your line is open.
Christopher Horvers: Thanks. Good morning, everybody. So as you think about — a couple of questions. So first, as you think about the flat scenario and $600 million plus of EBITDA, can you help us think about how that plays out down the P&L? Would you expect gross margin to expand in that scenario. If you go back to the Analyst Day, a lot of the long-term margin potential is in the gross margin line or is it simply more weighted to the lower cost on the SOTG&A line? Thanks.
Kate Gulliver: Yeah. Hey Chris, good morning, it’s Kate. I’ll start with that. So it really is more of the cost takeout that we took out in January and seeing that flow through. So I would think about gross margin staying in that 30% to 31% range, which is where we’ve guided to and obviously where we averaged for ’23, where you’re going to see the cost savings from January and on the P&L that was actually in two places. One is on the customer service and merchant fees. We said of the $280 million total takeout and again, that was net, so that included the hiring back. But of the $280 million total takeout, $150 million would hit down to the adjusted EBITDA line of that $25 million within that customer service emergency line.
And so when I guided, I said that would come in a little bit more going forward and then $125 million of that was on that SOTG&A line. We actually saw that in the guide. If you take the Q4 SOTG&A number and the midpoint of the guide, you’ll see that $125 million feeding there. So really, where you see the pickups are on customer service and merchant fees on SOTG&A. Gross margin AC&R stay about where they average in ’23 for that hypothetical $600 million on a flat revenue scenario.
Christopher Horvers: And is that because the long-term gross margin initiatives are more sales dependent versus an opportunity to continue to take cost out? And just as a quick second follow-up, the worst case, plus 50% EBITDA in ’24. Is that — does that assume that the current trend of the business that’s down mid-single digit sticks to the rest of the year? Thank you.
Kate Gulliver: So let me answer the first part of your question first on the gross margin. So first, we remain very confident in the gross margin opportunities. Obviously, we’ve talked about getting in our Analyst Day, we talked about getting to 35-plus on gross margin. That, of course remains, what we were trying to provide in that $600 million is the framework on that flat revenue scenario, just from the cost savings for this year, how you can see that flow through. We continue to see ongoing operating efficiency in that gross margin line. And we always make the trade-off of, do we pass that through to the customer or do we pocket that. And as we’ve spoken about in the past, that’s an ongoing discussion around what is going to be optimal on a multi-quarter basis.
And you obviously saw us reinvest some of that in the fourth quarter of this year. So, although an opportunity there, nothing has changed in our longer-term plan, and we expect to see that to continue to pan out. On your question around the 50% adjusted EBITDA growth, I would think about that as a floor that we’re trying to set. So the top line scenario, we’re obviously not guiding to the top line, but we wanted to help folks see the opportunity that we have on adjusted EBITDA, somewhat irrespective of the macro conditions, based on all these cost efforts and the levers that we have at our disposal. You and I actually just talked about two of them. So one would be the hiring in the SOTG&A. That includes some hiring back throughout the year that can be needed as necessary depending on the macro and the other one on that gross margin line, we of course, always have ongoing operating and cost efficiency there that we’re pushing on, and we can choose to pass that through to pocket that.
And that gives us some optionality is why we felt comfortable saying that we can have that substantial adjusted EBITDA growth, irrespective of where the top line goes.
Christopher Horvers: Thanks very much.
Operator: Your next question comes from the line of Steven Forbes from Guggenheim Securities. Your line is open.
Steven Forbes: Good morning. Niraj, I wanted to maybe expand on your curation comments in the letter, especially as we think about sort of how the assortment right, or the vendor base can change or house brand penetration can change over the coming years. And then maybe if you can sort of weave in how the curation strategy could or does sort of marry together with like any mitigation strategy around tariffs.
Niraj Shah: Great. So what I would say is the curation strategy, which is about really building up the – talk about the house brands and the specialty retail brands, but building up the selection in those with great items that we know customers will be thrilled with once they open the item and get it in their house and set it up and putting that kind of stable approval on it. Obviously, nature is very well priced. The logistics are under optimized. We think we can keep building that up and adding that value to that curation. So we think what we’ve done so far is just the beginning of that. Now what I would say is, obviously, we then are very thoughtful about which suppliers we’re working with for those items, like where we taking these items from.
So we’re picking these from items who we know from suppliers that we know are reliable and ones that we can work with it well and who we have tight relationship with. Obviously, that then we could take many things into account. And obviously, like where items are produced through the tariffs question really is about a source of production. The category I would point to that’s had a lot of tariff complexity over the last couple of years of mattress. And there’s been multiple rounds where mattress sort of different countries have been assigned, different kind of penalties associated with tariffs, which really inhibited production in different places. And we’ve obviously been very cognizant to make sure that we have production that lets us have the quality items we want at the prices that make sense and making sure that we maintain availability that we’re not out of stock and chasing it.
So that’s the type of thing that we think about as we’re building our assortment in mattresses, our assortment is under brands like Nora or Wayfair Sleep. And then obviously, we work with branded folks as well. So hopefully, that answers your question in terms of how we think about it in the kind of the context of geographic location and supplier selection is part of how we think about it.
Steven Forbes: Thank you. And maybe just a quick follow-up for you, Kate. The comments around sort of your ability to pull back on maybe the reinvestment plans for the back half, anyway to help us contextualize the spread between gross and net? Should we look at the first quarter SOTG&A guidance compared to the fourth quarter and assume that’s like two thirds of the benefit? Or any help on sort of just framing where the second quarter SOTG&A number sort of trough?
Kate Gulliver: Yes. So I guess I would help you with this. On the SOTG&A, if you put the midpoint of that guide for Q1 and compare that to where the fourth quarter landed, you see the $125 million of net savings later, right? And so within that first quarter, you obviously had a month of comp for folks that exited in that quarter and not sort of offsetting what we said would be some of the hiring back. You actually end up at that net number in the first quarter, and that should stay based on the hiring plan, that should stay relatively constant throughout the year. Now, as I said, short is a lever for us as we had to pull and you could see us pull that lever dependent on the macro. But it’s important to note that we think these hires made sense.
It’s part of rebuilding the pyramid structure that we think is appropriate for the ongoing growth and execution of the business. Niraj referenced some of the cabin hires and how those flow in and the benefit there. But generally, the Q1 guide, you think about that as a sort of good point on SOTG&A throughout the year based on the current hiring plan.
Steven Forbes: Thank you.
Operator: Your next question comes from the line of Oli Wintermantel from Evercore ISI. Your line is open.
Oli Wintermantel: Yeah. Hi, guys. I had a question, Niraj, you mentioned three things that you’re excited about in 2024. One was the new campaign in March and then the loyalty program. Maybe if you could spend a couple of minutes on explaining what that entails?
Niraj Shah: Sure. Yes, so yes, I mentioned three things I was excited about. One was the launch of the first Wayfair retail store and which opens in May, just north of Chicago and Wilmette. Another one was the new marketing campaign for Wayfair, which debuted in mid-March. So, that that’s a campaign that obviously the most notable place you’ll see it on is in television, but it really carried through all the different channels. We’re really excited about it. You’ll see it very shortly. But the whole goal is to continue to build brand loyalty for Wayfair until the story to make sure customers really understand the breadth and depth of what we offer and why Wayfair should be the place to go to for all things home. And so we think that this campaign can further that depth of understanding and continue to kind of build a real understanding and ultimately preference for what we offer.
