WEBVTT - Wayfair CFO Kate Gulliver Talks Earnings, Customer Demand, Expansion

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Well share is a Wayfair. We're keeping a watch on

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<v Speaker 2>that one, dropping a lot down about sixteen percent at

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<v Speaker 2>their lows on earnings, a four month low intra day

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<v Speaker 2>as active customers during the fourth quarter came in slightly

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<v Speaker 2>below street expectations. Now the Street weighing in on the results,

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<v Speaker 2>William Blair saying that the six point nine percent growth

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<v Speaker 2>in net revenue likely fell short of buyside expectations. But

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<v Speaker 2>you had some peers rh our House and also William's

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<v Speaker 2>Sonoma under some pressure in the trade, so investors looking

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<v Speaker 2>at the group overall. Let's get a little bit more

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<v Speaker 2>on the outlete. We want to head to Boston.

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<v Speaker 1>We got Kate Goliver back with us CFO of Wayfair. Kate,

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<v Speaker 1>good to have you on the program. Tell us a

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<v Speaker 1>little bit about the quarter, because interestingly enough, Jeffries says,

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<v Speaker 1>this is attributable to colder weather to start the year.

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<v Speaker 1>Anything about the guidance regarding is it about colder weather?

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<v Speaker 3>Yeah, well, maybe let's step back and sort of to

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<v Speaker 3>the quarter we just reported, and then I'm happy to

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<v Speaker 3>shift to guidance. You know, we feel really great about

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<v Speaker 3>the quarter. We just reported. I think it highlighted and

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<v Speaker 3>capped off a year of incredible momentum for us. We

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<v Speaker 3>opened up the year flat, we you know, exit of

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<v Speaker 3>the year at seven percent, revenue growth eight percent, you know,

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<v Speaker 3>managing for the exit of Germany, and we flowed through

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<v Speaker 3>to improved ebita. Ibata grew year over year about sixty percent. Right,

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<v Speaker 3>So we're seeing both ongoing market share gains and improved profitability.

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<v Speaker 3>And that story continues with our guide into Q one.

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<v Speaker 3>We feel really good about the guide, the you know,

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<v Speaker 3>mid single digits revenue growth and improved adjust at Ebata

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<v Speaker 3>throughout the quarter. So you know, when we look at it,

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<v Speaker 3>we feel that we produced pretty strong results.

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<v Speaker 2>Yeah, I mean you look at the quarter, I mean

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<v Speaker 2>just at EPs, better than what the street was expecting.

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<v Speaker 2>Just at Ebada, as you said, coming in stronger, net

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<v Speaker 2>revenue up about seven percent year over year, gross margin,

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<v Speaker 2>coming in better than the street estimate. There were a

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<v Speaker 2>lot to do. So maybe we talk a little bit

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<v Speaker 2>about you know, I am curious. You know, you guys

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<v Speaker 2>have dealt with the call and so on and so forth.

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<v Speaker 2>What are you hearing from the investment community that they're

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<v Speaker 2>not just so comfortable with Kate.

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<v Speaker 3>Yeah, you know, actually, you know, as we talked to investors,

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<v Speaker 3>I think again there they're pleased with the momentum that

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<v Speaker 3>we see here. You know, obviously we're in a category

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<v Speaker 3>that has been under pressure, right, So the category itself,

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<v Speaker 3>we think was down low single digits in the fourth quarter,

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<v Speaker 3>you know, to your earlier questions sort of around whether

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<v Speaker 3>in the first quarter, we do think the category has

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<v Speaker 3>been impacted in the first quarter of this year, you know,

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<v Speaker 3>likely you know, down low single digits again, maybe slightly

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<v Speaker 3>worse even than Q four. So there's certainly some complexity

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<v Speaker 3>in the overall category here. You know, what can we

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<v Speaker 3>focus on. We can focus on what we can control,

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<v Speaker 3>and our share gain continues to be a real source

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<v Speaker 3>of strength. You see us outstripping a category by several points, right,

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<v Speaker 3>and that's continued, you know, Q three, Q four and

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<v Speaker 3>then again into the guide in Q one.

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<v Speaker 2>And we should point out that investors have been really

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<v Speaker 2>keen on your stock, I mean, nearly double over the

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<v Speaker 2>past year. Kate, let me just go to what you said.

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<v Speaker 2>I mean, maybe it is those concerns about some softer

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<v Speaker 2>active customer trends kind of early on in the first quarter,

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<v Speaker 2>do you give us an idea of what you're seeing

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<v Speaker 2>in any idea or can you tell them as if

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<v Speaker 2>it continues.

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<v Speaker 3>It's a great question. So active customers is one of

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<v Speaker 3>our reported KPIs. It's actually a lagging indicator. Okay, That

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<v Speaker 3>metric is LTM active customers, So anyone who'd sort of

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<v Speaker 3>placed an order within the last twelve months and as

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<v Speaker 3>orders grow, and you do see that order volume grew

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<v Speaker 3>in Q three and in the quarter we just reported

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<v Speaker 3>Q four, that sort of precedes active customer growth. The

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<v Speaker 3>other thing I do just want to point out there

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<v Speaker 3>is we did exit in January of last year or

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<v Speaker 3>German Business, so that took a large chunk of customers

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<v Speaker 3>or not a large chunk, but a chunk of customers

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<v Speaker 3>out of that number. And so as you're looking at

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<v Speaker 3>that active customer number, you know obviously that came out,

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<v Speaker 3>so we'll clear that comp you know, we exited that

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<v Speaker 3>in January of this past year.

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<v Speaker 1>You did say the sector has been under pressure, and

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<v Speaker 1>Carol mentioned some of the piers, but what about the

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<v Speaker 1>wayfair consumer when they're buying something on the platform right now,

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<v Speaker 1>are they buying it because they need to replace something

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<v Speaker 1>in their home? Are they buying it because they have

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<v Speaker 1>extra money to upgrade something. What's the profile of the consumer,

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<v Speaker 1>and in other words, how is the consumer doing.

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<v Speaker 3>It's a great question. We're seeing a few trends. So

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<v Speaker 3>you mentioned some of the sort of luxury peers. Obviously,

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<v Speaker 3>we have high end brands that do compete with those players,

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<v Speaker 3>like a paragold or specialty retail brand. The Wayfair brand itself,

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<v Speaker 3>you know, plays all the way from opening price point

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<v Speaker 3>to you know, upper end mass, so really spans the

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<v Speaker 3>full range. And we have seen, you know, a divergence

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<v Speaker 3>some of that ke shaped economy. I'm sure we've all

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<v Speaker 3>been talking about now for a bit. Certainly, our paragold

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<v Speaker 3>brand or specialty retail brands are growing, you know, really

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<v Speaker 3>north of twenty percent we said in twenty twenty five,

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<v Speaker 3>so you can see that accelerating beyond you know, the

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<v Speaker 3>overall core business. And I think that speaks to the

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<v Speaker 3>strength and that you know, higher net worth consumer. We

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<v Speaker 3>also do see a bit of a divergence in the

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<v Speaker 3>types of things that people are buying. When I talk

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<v Speaker 3>about the category being down low single digits, that's a

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<v Speaker 3>category overall. We actually think furniture or bigger ticket items

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<v Speaker 3>are down more. That tends to actually be where we

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<v Speaker 3>you know, are more focused and have a bigger part

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<v Speaker 3>of the business. But you know, we also of course

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<v Speaker 3>sell decorative accents, seasonal decor. That part of the business

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<v Speaker 3>seems to have done a bit better from a category

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<v Speaker 3>perspective overall, So those would be lower ticket items you know,

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<v Speaker 3>that may feel more comfortable for folks to purchase right now.

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<v Speaker 2>Well, and the other thing I want to ask you

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<v Speaker 2>and listen, Kate, we're obsessed with this the buy now,

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<v Speaker 2>pay later and you can do that on Wayfair too.

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<v Speaker 2>Are you seeing an uptick in that.

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<v Speaker 3>Yeah, we have a number of options, you know, for

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<v Speaker 3>various financings and buy now pay laters. We work with

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<v Speaker 3>a wide range of partners. I do think it's an

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<v Speaker 3>important offering for the consumer, so you know, to you know,

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<v Speaker 3>sort of sort of ensure good underwriting for folks and

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<v Speaker 3>provide them with a lot of optionality. I would say

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<v Speaker 3>our penetration there has been lower than other more traditional

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<v Speaker 3>brick and brick and mortar furniture retailer. So you know,

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<v Speaker 3>as we grow, we're really trying to get to you know,

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<v Speaker 3>sort of a more natural place there for the furniture

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<v Speaker 3>industry overall.

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<v Speaker 1>We're speaking with Kate Goliver, CFO of Wayfair, joining us

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<v Speaker 1>from Boston.

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<v Speaker 2>You know, Kate, one of the other things that we've

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<v Speaker 2>talked with you about is the physical stores, and you

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<v Speaker 2>have noticed some encouraging early performance from the physical stores

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<v Speaker 2>when it comes to brand engagement and cross channel lift.

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<v Speaker 2>As you think about or as you kind of move

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<v Speaker 2>from proof of concept to a potential expansion, what specific

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<v Speaker 2>performance thresholds are you kind of focusing on and would

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<v Speaker 2>justify accelerating the physical store growth.

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<v Speaker 3>Yeah, it's a great question. So we look at the

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<v Speaker 3>economics of the store itself, so purchases that are directly

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<v Speaker 3>attributable to the store, and the economics of you know,

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<v Speaker 3>operating that store. So as you think about the overall store,

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<v Speaker 3>four wall, P and L. But one of the unique

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<v Speaker 3>things about you know, building stores are we have a

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<v Speaker 3>well established e commerce brand, is you do get to

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<v Speaker 3>see a benefit in the area for the brand overall.

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<v Speaker 3>But the other thing that we look at is, you

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<v Speaker 3>know what in sort of industry partlance you might call

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<v Speaker 3>the halo effect, but really sales that are attributable to

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<v Speaker 3>folks that maybe came into the store and then you know,

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<v Speaker 3>left and went and bought something, or you know, had

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<v Speaker 3>an idea about the store being in the area because

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<v Speaker 3>they've heard more about it, and therefore then shopped in

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<v Speaker 3>our a platform. And we've seen that continue to hold

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<v Speaker 3>in really nicely. We gave a stat in our updated

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<v Speaker 3>investor presentation today that the first store, which is in Chicago,

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<v Speaker 3>if you look at the entire state of Illinois versus

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<v Speaker 3>the rest of the country since the store opened, it's

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<v Speaker 3>had a ten percent cag or higher than the rest

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<v Speaker 3>of the country. And that gives you a sense of,

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<v Speaker 3>you know, the momentum that you can get from the store.

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<v Speaker 3>It's obviously very crude metric, but it's an easy way

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<v Speaker 3>to sort of explain it. So we really look at

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<v Speaker 3>the combination of the store, P and L and then

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<v Speaker 3>the other benefits that come along with having the store.

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<v Speaker 2>Well, that makes me want to follow, like what metrics

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<v Speaker 2>would cause you to maybe remain a little bit more cautious,

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<v Speaker 2>So like if you open another's store and the metrics

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<v Speaker 2>aren't so you're not seeing that kind of momentum that

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<v Speaker 2>you're getting in the Chicago store, we just just say, Okay,

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<v Speaker 2>maybe it just depends on the city of the environment, like,

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<v Speaker 2>there's a lot of specifics that can go into it.

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<v Speaker 3>Yeah, you know, I think our focus right now is

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<v Speaker 3>on learning more about what makes a great store. Right.

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<v Speaker 3>So we have one store open. We're playing to open

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<v Speaker 3>three more in twenty six. We have one opening soon

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<v Speaker 3>in the Atlanta area, another one this summer in Columbus,

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<v Speaker 3>and then in the fall in Denver. These will be,

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<v Speaker 3>you know, the Columbus store, for example, seventy thousand square

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<v Speaker 3>feet versus the you know other stores are roughly around

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<v Speaker 3>one hundred and fifty thousand square feets. So we're testing

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<v Speaker 3>out a slightly smaller format. We're testing out different types

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<v Speaker 3>of shopping areas where we put the store, and so

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<v Speaker 3>we intend to learn and then continue to refine the

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<v Speaker 3>store model based on those learnings. So do you know,

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<v Speaker 3>we are quite excited about it as a channel.

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<v Speaker 1>Hey, let's go from sort of like the old school

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<v Speaker 1>store retail model to then what you're doing with AI

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<v Speaker 1>and layer and cause stores old school, So they are

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<v Speaker 1>I mean, they're coming.

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<v Speaker 3>Back right channel. We like the overall omni channel experience,

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<v Speaker 3>but but how.

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<v Speaker 1>Do you layer in personalization with AI? And I'm curious

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<v Speaker 1>how you do that in a way that actually makes

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<v Speaker 1>you more competitive in this area.

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<v Speaker 3>Yeah, we're we're really excited about what we can do

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<v Speaker 3>with AI from the customer experience perspective, and we've already

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<v Speaker 3>started some of that and piloted some of that on

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<v Speaker 3>the site, and there's certainly more to come there. You know,

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<v Speaker 3>I think this category is a bit unique in that

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<v Speaker 3>respect because it's a category that is a highly emotive category. Right.

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<v Speaker 3>It feels very personal to folks. It's not a commodity

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<v Speaker 3>category where you're doing sort of standard replenishment. You want to,

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<v Speaker 3>you know, get a better sense and see the actual

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<v Speaker 3>options out there. The brand is important, you know, our

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<v Speaker 3>brand is important because you want to ensure the delivery

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<v Speaker 3>experience is high quality. So we think that the category

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<v Speaker 3>itself lends itself to bringing people to our site and

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<v Speaker 3>engaging them in a unique way. One thing that we

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<v Speaker 3>can do with AI is help get more personalized for

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<v Speaker 3>your style preferences. You know, I'm sure if the three

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<v Speaker 3>of us we're to pick an end table, we'd all

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<v Speaker 3>pick different end tables. What we'd love to do is

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<v Speaker 3>make sure that when we land on the site, we're

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<v Speaker 3>serving up to each of us exactly that end table

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<v Speaker 3>that we want. Generative AI allows us to do that

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<v Speaker 3>in a faster, more nimble way. It also allows you

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<v Speaker 3>to play around with discovery. So if you were to

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<v Speaker 3>go on the app today into the discover tab, you'd

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<v Speaker 3>see a whole catalog of images and you can create

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<v Speaker 3>more yourself if you want that. Are you know Jennai

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<v Speaker 3>created that? Then allow you to shop the catalog based

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<v Speaker 3>on the type of room that you're designing or the

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<v Speaker 3>aesthetic look that you're looking for. And I think that

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<v Speaker 3>kind of engagement and interaction is really compelling in this category.

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<v Speaker 2>So I know, Kate, if we had asked Tim, like

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<v Speaker 2>if we were going you, me and him shopping for pillows,

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<v Speaker 2>you know he would say, no more pillows. I don't

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<v Speaker 2>know about your household, but that's what happens in my

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<v Speaker 2>house anyway.

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<v Speaker 3>What originally people have an insatiable demand for pillows, so

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<v Speaker 3>we will keep selling them.

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<v Speaker 2>Thank God, thank God. I always appreciate getting time. It

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<v Speaker 2>is a great read on the consumer and finding out

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<v Speaker 2>what's going on. Kow Well, thank you, Kate Gulliver. She's

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<v Speaker 2>the chief financial officer of Wayfair