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Episode 87
October 31, 2018

Wayfair: Building Durable Customer Experiences

How do you build durable customer experiences? According to Wayfair's Steve Conine it starts by innovating and owning the entire experience, soup to nuts. In this episode we interview the co-founder of Wayfair and how investment in platform, technology, customer experience and even open source are the differentiators in creating engaging customer journies. Listen now!

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this episode sponsored by

Main Takeaways:

  • Wayfair has curated in-house brands and has seen success due to its focus on customer experience and lack of awareness of brand.
  • Consistency is the name of the game when it comes to customer experience.
  • Wayfair understands that investment in its own teams is the best way to fill gaps in talent.
  • Wayfair is popping up in two physical locations this holiday season.

Wayfair: E-commerce Ahead of Its Time:

How Did Wayfair Manage to Escape House Brand Criticism?

Wayfair Really is The Jimmy Choo of Home-Furnishing-Commerce:

Seek and You Shall Find Talent: How Wayfair Filled a Gap in The Market:

Is Wayfair Really Trying to Compete With Walmart and Co?

  • Historical retail has been about how to keep costs as low as possible, which puts companies in competition with their supply chain.
  • Steve says that they are really trying to create a platform where everyone can have a successful business, not trying to compete with massive retailers.
  • Brian says that the culture of innovation that Wayfair has is best in class, and questions whether Wayfair would ever move beyond the home market.
  • Steve says that Wayfair's focus really is on crushing it in the home category, and providing the best customer experience.
  • Phillip promises to remind Steve of this moment when Wayfair starts selling subscription boxes.

Wayfair's Brick and Mortar Experiment: Popping up This Holiday Season:

Brian: [00:01:41] Welcome to Future Commerce, the podcast about next generation commerce. I'm Brian.

Phillip: [00:01:45] And I'm Phillip.

Brian: [00:01:46] And today we have Steve Conine, co-founder of Wayfair, with us. Thanks for coming on the show, Steve.

Steve: [00:01:52] Yeah. Thanks, guys.

Brian: [00:01:53] Really excited to talk with you. We've got a lot of stuff to cover today, so let's just jump right in. To kick things off, introduce yourself. You know, who are you? What's your story? How did you get started with Wayfair?

Steve: [00:02:07] Sure.

Brian: [00:02:08] Give us the rundown.

Steve: [00:02:09] Yeah, sure. So I'm Steve Conine. I'm one of the co-founders of Wayfair. So we started this business back in 2002 in my house here in Boston. "We" is Niraj Shah and myself. So Niraj and I were fellow Cornellians. And we've started three businesses together in our career. So I've been an entrepreneur since I graduated. This business, we got into in 2002 when I'd say e-commerce wasn't exactly the hot investment area. And I think, you know, we saw that as the opportunity. Every year, the U.S. Commerce Department would release statistics showing that more and more people were purchasing online. So even though I think a lot of people in the late 90s saw sort of the euphoria of the Internet and thought that the transitions to online shopping would happen a lot faster, the pace of consumers moving online, while it may have been a little slower than what people had initially thought, it was absolutely happening. And we saw that as a great opportunity and felt like, you know, the e-commerce space was sort of a ripe area to jump into.

Phillip: [00:03:08] Well, you made the right bet, right? {laughter}

Steve: [00:03:13] Yeah, it's worked out. Right. Well, you know, when you get into this market... I previously ran a consulting business. It was the first company Niraj and I started. And the second one was in the software space, in the mobile phone space. This is a category, you know, in those businesses, the market landscape for who you could sell to was small. Then you could kind of figure out, you know, OK, at some point, you know, these are the companies were selling to and there's only a limited number of them. When you get into e-commerce, the exciting thing I think when we got into this business was that it's, you know, two thirds of the GDP is consumer spending. So it's a limitless market. And so you're really only held up, you know, in terms of your aspirations for how large your company can get or the opportunity. That's really limited by just your ambition. And so I think when we got into this, that was very exciting for us to sort of be in a market where there is a huge potential to become a very, very large business.

Brian: [00:04:05] That's really...

Phillip: [00:04:06] Large businesses is a bit of an understatement. I think Wayfair is recognized as an obvious global scale brand and has a lot of dominance in the marketplace. And you also have several brands that you guys carry and you manage yourself. But, you know, I have this very interesting outlook and kind of wondering who is your customer today and how has that kind of changed in the past five years for you?

Steve: [00:04:36] Yeah. So you saw our customer today is sort of a 45 to 55 year old woman. You know, we always describe it as people don't purchase a lot of the goods that we sell until they've sort of started to settle down and raise a family, or they're purchasing a home or renting a larger place. And so the younger generations, and the Millennial generation today is just in their early thirties. They're obviously purchasing a tremendous amount online, but they only dabble in our categories. And, you know, the reason is it's really driven by their life and where they are and kind of the stages of their life. So our core customers are later in their life. And it's basically been that way since we've got into this business. I think, you know, one of the things that's created the opportunity for us in the categories that we're in is that it is a different category and has a different shopper and it has a lot of different kind of use cases and ways that customers think about it in their lives.

Phillip: [00:05:38] Do you think that your customer has changed or tracked along with you in the last five years? Or how will they change in the next five years that you're planning for? The consumer changes... Does that change in like age range, or is there a broader market? I know you guys have a huge marketplace component. Is your customer also more B2B centric these days? I'm curious how you see that changing.

Steve: [00:06:07] Yeah. So, you know, again, I don't know that there's a dramatic change you'll see. I mean, we are very maniacally focused on being the best solution for shopping for the home online. And so I think, you know, if you look at home purchasing, the demographic of who's purchasing that, I don't think there's something that all of a sudden says that 20 year olds are going to start purchasing a lot of home furniture. They tend to inherit it or they tend to be moving into places that are previously furnished. I referenced B2B... Our primary business is direct to consumer. We definitely have a nice beat to B2B portion of our business, and I think that'll continue to grow, and we're certainly focused on servicing that customer base. I think, you know, on a broad demographic level, one of the things we're very excited about is that the Millennial generation, who I think in a lot of ways, they've driven online adoption of, you know, say streaming media. They've really driven a lot of apparel and some of the sort of earlier categories that you purchase younger in life. They are super comfortable shopping online. They basically turned to it as kind of their, you know, initial option of where to shop. As they start to age in... They're just turning thirty seven, I think by the way they sort of defined that group. As they start to age into our core demographic, we're very excited that we have an offering that is spot on for them. It feels young, it feels exciting. It's well merchandised. And we're providing a spectrum of things that that hopefully they'll find very interesting.

Brian: [00:07:37] That makes sense. And I think one of the things that I've seen that you've done very well is you've kind of created your own brands as well. Your house brands. So you're well recognized as a marketplace, but you've also built out kind of a staple of house brands. And it's interesting because Amazon has come under a lot of fire for some of their house brands, if you will, their generics. But I don't see Wayfair coming under that same scrutiny. And I feel like it's because you've approached it completely differently than Amazon. How would you say that you're go to market strategy is with these exclusives and how do you see using concept of a brand in the future?

Steve: [00:08:19] The first thing is the category we're in is very different. So, you know, if you take a highly branded category... So if you're selling, say, you know, Duracel AA batteries or Energizer batteries, I mean, there's a basic AA size that fits in all the devices. And they all try to position their different brands in different ways. In our world, there are no brands. If you think of home brands and you ask consumers, you know, name a few brands of home, they will name retail brands. And so they don't actually name the underlying manufacturer of the products, with very few exceptions. You know, in our space, you get into some of the housewares categories. So KitchenAid would be a brand people would say. But when you get into, you know, bedroom or dining room or kitchen or bath or rugs or... People don't have brands in mind, they'll come up with the name of where they bought it. Right? And so one of the things that that lets us do, or that we have done, is we try to help the consumer make sense of the space by creating sub brands. And, you know, we call exclusive brands or house brands, within the portfolio of products that we sell. And so we buy from manufacturers, we might buy from a manufacturer that just makes wooden seating. We buy from the another one who just makes maybe like wooden tables. Another one makes just rugs. Another one makes throw pillows. Another one makes upholstery. Well, a consumer want to think about you've got a dozen different brands, and I've got to pick a flooring guy, and then I got to pick a chair guy, and then I've gotta... They just want to think of it as a collection. So we will have a collection. Mark Manor is one of our collections, or Braydon Home, or Greyleigh... Where we curate across the industry, all the different pieces together, and we put them together into a consistent stock, a consistent look. Oftentimes similar price band. It's easier for the customer to shop, and the manufacturers love it because you know, they don't have free hands to begin with. They're used to having merchants come in and curate looks for their store. So, you know, if you shopped at a Pottery Barn or a Crate and Barrel, or Restoration Hardware, similar type scenario where you're going, and they've pre curated looks for you. They're buying across the industry. The industry behind it doesn't have brands. So our world is a very different landscape than what you find in core commodity in the way it's merchandised and in the way it's brought to light for the customer. You know, we're just playing into that.

Brian: [00:10:26] Interesting. So you're saying that the category of home, in particular, sort of lends itself to this strategy more than other categories do?

Steve: [00:10:35] Absolutely. I mean, it's a very unbranded category, right? You can think of it like apparel would be another category that sometimes, you know, we reference to say, well, it's similar in that there's a massive selection bias and people want to have different stuff from each other. They want to have their clothes, look, you know, have their own...sort of be a representation of themselves. Home is very much that way. But home doesn't have brands. You know, there's not a Nike and Adidas or, you know, Jimmy Choo of home. The brands in home are the brands that the retailers have made up.

Phillip: [00:11:07] Right.

Steve: [00:11:09] And, you know, there's some high, high end brands here and there that maybe have some awareness, but their awareness is tiny compared to what you find in, again, core commodity. You think about Duracell, you think about Energizer, you think about Bounty paper towels. You know, those are all things where they've put a lot of money behind marketing and creating a brand the manufacturer has. They then merchandise it, and they send it out to retailers who merchandise on the shelves. Our categories are very different.

Brian: [00:11:31] Yeah, that makes sense. And it's interesting. I think it's actually been... Even in grocery and even in the CPG market, you're starting to see this idea of brand-less be a bigger and bigger idea. People actually are a lot less brand dependent and brand loyal. And so I actually really love this. This is really interesting.

Phillip: [00:12:00] Yeah, I'm always very surprised at the number of people who aren't really sure what brand of X, Y or Z that they buy from Whole Foods. They just know that they like Whole Foods. And I think that's like an evolution of the consumer because, you know, the days gone by, I do think that there was a lot of brand loyalty, especially in CPG. I would make the argument, you know, not to pet anyone's ego... Maybe Wayfair is the Nike or the Jimmy Choo in that you're creating the brand engagement, and they're buying an experience. That's effectively what Zappos would have been credited with doing in a bygone era. But I think that's more what the consumer is looking for these days, especially in digital commerce. It's more about that sort of experience. It's more aggregation, more merchandising, taste making. It's more about buying in a world that's focused on selling toward me, by my tastes. So, you know, commercializing like a Pinterest or an Instagram, which, you know, I can just live in this world that is created for me. You're anticipating categories and trends in a way that, you know, appeals towards those types of consumers. It fits very squarely within the world that they already live in elsewhere.

Steve: [00:13:24] Yeah, I would agree. I mean, I think when you look at what brands do, they basically give consumers confidence of a consistency of experience. Imagine, you know, pick your favorite soft drink brand. Imagine if every fifth can made you violently ill. Your opinion of the brand would not be that high. So the reason you trust it is that you have hundreds of friends, you've drank plenty of it. It's always delivered a very consistent experience that you've come to trust. So the new brand that shows up in the market that you've never heard of, well you might move into a little skittishly, or if someone else is endorsing it, you might move into it a little bit more aggressively. But I think you're right. In our marketplace, we basically have tried to build a durable experience where customers over time come to feel like, "Oh, great, Wayfair delivers products quickly. They have great selection. The quality of the items are good. They basically have taken on the burden of vetting out what is going to be a good product for me, and I don't have to think about that as much." You know, that's what I think creates brand affinity, brand loyalty.

Brian: [00:14:30] And obviously, this has paid off for you. You had an unbelievable Q2. And I know that Q3 isn't quite released yet. But I mean, we'll brag on you for a minute. Your direct net revenue was increased 538 million dollars, up to 1.6 billion, up 48.8% year over year, which is just amazing. Gross profit 385 million or 23.3% of total net revenue. Just unprecedented success online. It's really powerful. And strategies like the ones you've implemented are helping you achieve this level of success. I think another thing that's really helping you achieve success is you're widely considered one of the most successful innovators in commerce. So tell us, what's your secret here?

Steve: [00:15:32] {laughter} The core of it is our team. We have an amazing team. We've put a huge amount of effort into trying to find and hire the best people in market. And then I think as important, we try to make sure we have a culture that lets them work to their full potential. And I think particular when you look at innovation, I think innovation only happens when you have sort of the right blend of a space where you can hire creative people and they feel like they have the space to take risks without huge downsides. And so, you know, if you look at what we do, whether it's in engineering or whether it's with the merchandise or marketing or the way we've approached TV advertising, we try to create a culture and environment where we can test stuff. We can try things that may be obvious. We can try things that may not be obvious. We can learn. We can feed that back in and do it a little bit better the next day. And I think, you know, if you look at this business and you say, well, it's taken you 16 years to get to where you are, it doesn't sound quite as crazy. If you think about every day our team comes in here and tries to figure out how do we make the experience from yesterday a little bit better tomorrow and that compounding over years gets to where you have a very exciting, very durable experience that customers start to say, "Oh wow, I trusted their value."

Phillip: [00:16:51] I think that that's spot on. One of the things that I've seen that that sort of took me by surprise... So I come from an engineering background. And, you know, 10 years ago, I was building e-commerce sites. And, you know, back then the build versus buy conversation wasn't so prevalent as you see today. A lot of people are are buying more than they're building these days. But, you know, I come from a custom software background, so I always sit up and take notice when a retailer or someone in the merchant space is contributing back as an engineering organization to larger engineering efforts. And that's something that I've equated with Wayfair for a very long time. I think of other brands that are having resurgence like Walmart, who are doing the same, and other brands that are in other ancillary, say like payment technology space, like PayPal, who are doing the same. And I have to believe that it hints at a culture of innovation and trust in an engineering organization. And I think that that's something that, while it's not necessarily a key to success, it is a symptom of success in that you have a forward thinking culture that likes to not only publicize the kind of work and effort and the engineering culture and make that an attractive place for others to come contribute their efforts to, but also that you are innovating and you're pushing forward and that you're doing it even at the smallest levels of your engineering organization. I think that bodes really well as a retailer who sees yourself as an innovator, that you're not just consumers, but your creators.

Steve: [00:18:30] Yeah, I think it's quite liberating from a technology innovation standpoint to actually not be in the business of selling software. So, you know, we're in the business of obviously using technology to create an experience for customers. And so we look at it very definitely. I mean, you referenced the way we give back to the community and the way we sort of think about exposing what we're doing publicly to anyone. It's a fun space to be in as an innovator and engineer working on our team.

Phillip: [00:19:02] And I think that's turned into larger efforts, right? So, one of the things we hear, especially around retail innovation, and the focus of our podcast is things like AI, machine learning, machine vision. And when I think of those things in the context of Wayfair, I think of it as strategies that aren't technologies in search of a solution, but strategies that are employed to skate to where the puck's going to be, if you will. So you're working on a bunch of these innovative things. I think of you as the leader. But how would you, to people who aren't aware of the kinds of tech innovation that you're investing in right now, could you give us a little bit of a rundown of the things that you think are going to be differential for you over the medium term?

Steve: [00:19:49] Sure. Sure. Yes. Well, you sort of hit on a few. I think AI and machine learning are both spaces that we have fairly large teams going after. You know, I think the easier side to think about is drive from the consumer experience. So if you think about, you know, our customers a lot of times are trying to find products that are right for their home or right for their style or right for their look. We had this, you know, we think one of the largest datasets of information about how people browse for their home and how they shop for their home and how they research products. And so, you know, we basically have a team of data scientists that are trying to figure out how do we enhance that. So, you know, there's obvious things like how do we send them the right e-mail and how do we highlight things in marketing programs that are things that are going to be exciting to customers. When they're on our site, and we're showing them search results, how do we dynamically try to put products that we think are going to be, you know, more interesting to customers in front of them quicker so that this sort of overwhelming size or our catalog doesn't become a deterrent and we can actually get stuff in front of people quicker. How do we use imagery? This is a very visual category. A lot times people can take a picture of something that they like, but they don't know really how to describe it. So can we take, you know, visual imagery and use machine vision to turn that into search results that can help customers navigate the space very quickly? So that's a whole domain we invest a tremendous amount in. I think from the outside, customers would say, "Oh, it's a great shopping experience. I come on, I can find what I want, and it goes smoothly." The actual nitty gritty nuance behind the scenes making that happen, I think is an area that we continue to invest in and uncover great opportunity in. And we've talked a bunch about kind of easing 3D and sort of spatial computing as an area that we see as being a real future enhancer to shopping in our category. Today we do a tremendous amount of actually 2D image rendering. So I think, you know, one of the problems in the 3D space in the future, we'll be content. So if you come onto Wayfair, basically you're going to say, "Well, if you can show me the products in my room in a VR environment or an AR environment, that's great and all. But you know what? I want to see everything that you sell, not just these 10 items you happen to have modeled." Well, we're building a huge model library. And basically, we're doing it because we use those models to do 2D image rendering today. So we basically have a great way to fund creating a very large content library that we think then will drive these future experiences. In the meantime, you know, we're really at the forefront of trying to run experiments with all the new AR and VR tools that come out. So, you know, most recently we've talked about the partnership we've had with Magic Leap and using their new device to really create some cool experiences. I do believe that one of the big anxieties consumers have when they shop this category is, "Is it going to look right in my space? Will it fit? Will come up the stairs cleanly?" And some VR stuff we're doing, it's a great solution to I think reduce that anxiety. The tools aren't there today. And I think some are getting there, but it's a space that we continue to invest a tremendous amount into. And I think some of the deeper things... We have a server dev ops team inside Wayfair that manages all our systems and kind of helps to make sure we can move fast and have velocity in our innovation. I think some of the things that we're doing there that we're turning back to the open source tech community have been pretty cool. And we're getting to a size now where we're running a significant scale e-commerce business. We are in this business before cloud existed. And so we've got this pretty cool environment where we run a lot of stuff ourselves, and we're starting to look like our own cloud services company. But then we're also using public cloud systems that are available. So there's a whole space that I think we're in a unique spot to innovate and take advantage of things in that area. We have a bunch of other kind of things going on, but hopefully that gives you a feel of a few of them.

Phillip: [00:26:30] Well, that's kind of just a follow up there, I think the biggest challenge that we that we face is, you know, top tier retailers and innovators like yourself have very obvious application for some of these types of technologies. Although the way that you described your core customer earlier, I'd love to see her wearing a Magic Leap. But that's secondary. {laughter} But my understanding is that there are broader market applications for technology than the ones that we've sort of overlaid into the minority report interfaces that we think about when we say AR/VR, the 3D modeling as 2D content generation is absolutely the kind of thing that just about anybody as a midsize manufacturer or retailer needs today anyway and is probably doing anyway. You're just not orienting your thought around what that... You probably already have assets like this. You're probably already doing this somewhere in your organization. You just haven't thought about what it looks like five years or 10 years from now. So I think that's a really salient point. Brian, I don't know if you have anything you want to add to that.

Brian: [00:27:41] Yeah, it's really exciting to follow up on this because I got to interview Mike Festa Shoptalk. And we talked about this a little bit, just a few minutes. And so it's really cool to hear, Steve, you talk about this to. How you've gone about building this? We haven't even said the words Wayfair Next, yet. But you've invested heavily internally. Are you investing externally, too? Have you made acquisitions? How are you going out and finding these tools or building them or thinking about them? And what do you see as kind of next steps to continue to push things forward?

Steve: [00:28:23] Yeah. So, I would say two and a half, three years ago, I took the lead on kind of running a bunch of experiments internally to sort of see how far is the state of the art of sort of 3D modeling and then 2D image production. And I think very quickly I honed in on like, "Oh, my gosh, this feels like a category that's kind of like just crossed the chasm." It's gone from where like, you know, basically you'd have Pixar and some sort of, you know, high end media shops doing this stuff to where all of a sudden these tools have gotten to where you find recent design graduates coming out of school where they're using them. And the learning curve is low enough where all of sudden people who are very good with photography or using cameras can figure out how to use the software. And I think, we sort of recognized that two and a half, three years ago, and then right away you're so like faced with, "Okay, well, you know, we go and hire hire a company to do this for us?" And there's basically no one in the landscape that we could come across that's at scale that's doing high level modeling and 2D rendering. There are a few. They exist, but nobody's doing it real scale. So then we're so confident, I guess, in our execution abilities, and we've built so many systems that drive process and that create assets and deliver experiences. We quickly say, "Well, this is a landscape where the demand we're going to have is going to far outpace the capacity of the people with the talent of the world. We need to figure out how to drive talent creation in this space." And so we started off internally just bringing on people to the team. We'd run an internal labs program for 3D artists. We've trained a lot of 3D artists in the tools and techniques that we use to generate the stuff we do. We then quickly realized, like, geez, even at this, we're not going to keep up the scale we need. We really need to educate the whole industry, and we need thousands of people doing this content creation in parallel in order for this to really take off. And so we actually publicly published a thing we call 3D University, which is at It's on our blog. We in excruciating detail... I'm pretty confident you've never modeled in your life, you could come on, and spend a few weeks going through our program, and at the end of it, you'd be someone who is pretty functional and pretty skilled in this particular area. And so that's been a great example of something that we have open sourced to the broader community to say, "Hey, look, the ability to create content is going to be the thing that's really going to drive adoption of 3D. And while we're going to continue to drive it, and we have a lot of systems internally ourselves that we're building out, we need a broader set of industry to drive it." I was telling someone recently actually, I think it's been a fun five years now. I think we have one of the largest 3D modelling artist teams in the country, that I'm aware of. And, you know, it will create this funny concentration of that talent in this market in Boston, which will be fun to see, you know, five years from now, what that seeds and what some of the team that's gone on to do. Because, you know, some will stay with us, but they'll do some new things because it's such an evolving space.

Brian: [00:31:30] I love this so much.

Phillip: [00:31:32] That was a comprehensive answer. Thank you.

Steve: [00:31:34] {laughter}

Brian: [00:31:38] I have to think, you've seen so much success the past few years and so would you... I mean, you've put a lot into to being that successful, but would you consider Wayfair Next sort of key to your success going forward? And what level of importance do you put on this kind of culture?

Steve: [00:32:02] Well, so, you know, Wayfair Next is a small team that really has driven the AR/VR research inside Wayfair. When you think about innovation, you need that across the entire organization. And so I think, you know, if you went and saw what we're doing in transportation, shipping logistics, we're doing some equally, probably more impactful to our customer, in the next year or two.

Brian: [00:32:25] Wait. Tell us about this.

Steve: [00:32:28] If you think about home, a lot of the products we sell are quite large. I think our average parcel is 30 pounds. That compares to a small parcel guys who are in the one or two or three pounds. A lot of things we sell one hundred pound plus, and FedEx. UPS don't carry them. If you think about, you know, historically home purchasing, I think one of the big anxieties is how do I get this to my house? Is it going to ship? Is it going to be some surly trucker who shows up and is kind of like telling me I got to get it off the truck? I guess take a day off work because they give me that window of time to deliever... That's a terrible experience. And we just over the last year or two here, we've talked about this thing we call the Wayfair Delivery Network. But we are basically building out a national footprint of distribution agents where we control the whole flow of the freight. And we control the scheduling. And so we can deliver an experience where day of delivery, you can track the truck coming to your door, and you see that a little bit with FedEx or UPS, and small parcel guys have done it. Nobody is doing it in a large parcel freight side. And so, you know, we believe that's gonna be a highly impactful experience for our customers. It's a very complicated tech problem because you're moving around huge, big products that, you know, you got to be careful about not getting them damaged. You're trying to schedule things that are several days out. And then you're trying to deliver an experience day of delivery where, you know, the customers feel very great about the delivery team that comes out and brings it to them. So it's interesting coupling of physical assets with sort of technology innovation.

Phillip: [00:33:56] I have to remark that we've come sort of full circle in that this was the only way of doing this, you know, 50 years ago. There was no such thing as... You had to have your own sort of last mile delivery focus. And a lot of that was built around accessibility to your catalog in store. {cough} Sears, I mean. One of those things that we had a challenge around early on in telling small SMB retailers that they could do digital was how they would solve the shipping and logistics. It's so interesting that with dominance of players like, you know, Amazon in the space that we forget that we used to do it a different way, that the owning of the experience with the customer was integral from the ordered placement to the order delivery.

Steve: [00:35:01] Yeah.

Phillip: [00:35:03] And an understanding that relationship.... You wouldn't have outsourced that relationship 50 years ago. But that's sort of the norm now. It's kind of interesting that we've come full circle to come back to that.

Steve: [00:35:15] Yeah, well, it definitely is. I always tell a team here that it is very easy to throw up a sexy web site where everything's in stock and everything ships in 24 hours. Like, literally, I could put up a site tomorrow that sells whatever you want. It is very hard to durably make that happen over time.

Phillip: [00:35:29] Sure.

Steve: [00:35:31] And knitting that together with the physical execution of it, that's the complexity in retailing and in commerce. If you want a great experience for the customer, you do need to own it soup to nuts. Then there are definitely parts of the stack where you can use great partners that you work with. And there are other parts of the stack where the partners don't exist, and you need to go and forgot to innovate those on your own.

Phillip: [00:35:48] We have a... I have a saying that there is this sort of like Moore's Law, but for marketplaces, in that they eventually become payment platform, shipping platform, cloud computing platform. You are a platform company. So you understand things as a platform challenge to solve.

Steve: [00:36:08] Fore sure.

Phillip: [00:36:08] Right. It's super interesting.

Brian: [00:36:12] I mean, one thing that I've heard right here, for merchants out there, there's a big question... When do you build? When do you buy? What parts of the customer experience do you own? Which do you outsource? And a lot of these technologies that you've invested in internally and have taken ownership of have provided you with an edge, but what about third party sellers and customers that you have? Do you see, you know, what you're doing obviously in a 3D space, you're passing on a lot of value to them. But where do you see other merchants that maybe kind of feed into your marketplace? What pieces should they take on themselves? What should they pull from you? What should they pull from others? Give a little advice there.

Steve: [00:36:59] Sure. Yes. You know, I think the categories... It's pretty cool in that we buy from ten thousand plus suppliers. And they're all entrepreneurs. And so, you know, they are running their businesses, and they're going after the opportunities they see. I think the thing that we try to partner with are our suppliers to say, hey, look, supply is in our category, they need to be great at figuring out what styles are we good, how to do value manufacturing, how to make sure things are being produced in a quality way and responsibly. And they really are... We are trying to enable them to bring their product visions to the consumer. So we run this platform that they can use to basically enhance their business. So they can come onto the Wayfair platform. They can use our tools to understand different price bands and what products are selling in what areas. And what are we seeing for traffic and what are we seeing for interest areas from customers? And they can understand, you know, what we think demand forecast and what we think inventory planning might look like for products that they're launching in our platform. They can spend it on sponser SKUs. They can use that as a way to sort of test the waters. And if they have a new introduction to market that they are excited about, and they're not quite sure what the buyers would look like, they can watch it on our platform. They can, you know, get it sponsored to give visibility, and they can sort of get a good quick read on what the popularity of it might be. And then we'll give them insights into what we think as well, that they can then drive into kind of their demand forecasting. So I think this space is very cool because I think, you know, every year we see dozens, if not hundreds, of new entrepreneurs show up who have a great design product idea. And they're using a platform like Wayfair to bring their products to light in front of the customer. And we can drive traffic, and we can create awareness. We create visibility for them in a way that they struggle to do on their own. And, you know, frankly, they're better off using a platform like ours to do it through.

Phillip: [00:38:54] One thing that I think that people forget is that that relationship is supposed to be assistive and supportive. You're not just a place for people to make products and then sell them. You're not just a sales channel. Ideally, the value that you're providing to them is not just access to a customer base, but also the benefit to have that back flow of data to help inform their decisions of product assortment, and that was the supposed benefit of marketplaces, was that we have the insight into the customer, and we'll help you be better at manufacturing the product to reach the customer. What do you think of that?

Steve: [00:39:45] Yeah. So I think that's right. I think, you know, historically, retail had a much more combative relationship with their supply chain. And it was, you know, a merchant would go out and pick products they thought were going to be the hot sellers for that year, and they would just try to crush the supply chain as much they could to figure out who could supply that particular item at the cheapest price possible. I think when you look at a platform like Wayfair or other online platforms, we basically say, "Hey, look, if you think you've created great value in the market, put it up. And the guys you're competing with are the other people who are trying to go against the similar value to what you're creating. So you're not really competing with us as a platform, you're competing with the landscape of the other guys in the industry." And so I think it creates a... It changes the dynamics somewhat. Obviously, there's always competition. You're always going to have someone who if they see a similar opportunity is going to go out and say, I think I can do a little bit better. But it creates, I think, a much healthier dynamic for the relationships with retailers or their suppliers. And we've certainly tried to think about it as how do we make our suppliers as successful as they can be? How we give them the tools they need to be as competitive as they can be with everyone else that they see opportunity to go against an industry?

Phillip: [00:40:59] That's the promise. Right? This is always the challenges is as a manufacturer, you have this temptation to want to go direct to your consumer, thinking that there's a... You look at your marketplace channel as like a cost center, or it's not your true consumer, that there's another consumer out there who's looking to buy. I can't believe that there is a market for, you know, 300 direct to consumer manufacturers of the same style of couch. They're all competing for the same traffic. They're all competing... There are some categories that will really only thrive in marketplace. So you have to have a value add that resists the temptation or keeps them from creating a category like custom bespoke furniture that only, you know, they could deliver direct consumer. And that's itself its own challenge. I see that a lot, and Brian and I see that a lot. It's a constant conversation, especially when you have marketplaces that turn around and then compete directly with those partnerships. {laughter} It's really tough to continue to preach the value of that marketplace.

Brian: [00:42:06] Actually, I want to get back to something. Go ahead. I'll let you finish that out.

Steve: [00:42:12] No, I think that's a great topical... And I mean. Yeah, but go ahead, Brian.

Brian: [00:42:15] Yeah, no, actually, this relates back to something that I kind of cut you off on, I think a little bit earlier when I asked you talk about what you're doing in logistics, but how is your culture of innovation and empowering your merchants, how is that healthy compete into what is now a very like crowded marketplace landscape with, you know, Walmart's marketplace coming on and a whole host of other marketplaces that didn't exist back when you started Wayfair?

Steve: [00:42:46] Yeah. So, I would tell you that like having... I think if you talk to suppliers in our space, they almost universally would tell you they love working with Wayfair, and that they honestly feel like we are a partner to them, and we are actually trying to help them with their businesses. I think you sort of alluded to it, but I think that historic retail... You see this in some of the more, you know, again, commodity stuff where if you're some paper towels, you're selling batteries, you're selling, you know, soaps and razors... There is definitely an appeal as a retailer to say, oh, let me go figure out how I can take my first costs lower and how I can go deeper into the manufacturing chain, so that I can buy better, and I can offer product to the consumer that, you know, my belief is that they're interchangeable. And so I can push the consumer in different ways. And as you start going in that direction as a retailer, obviously, you're now a competitor directly with your supply chain. And, you know, I guess I look at it is like, look, would I rather have ten thousand entrepreneurs who are like super excited about me innovating every day and trying to be successful on their own? Or would I really go against that team and try to go deep and try to beat the ones here and there? If you find one who's having success, you know, you'd kind of beat him down and go after this particular market. That's just... Our belief is that you're better off trying to create an environment where you're not going in and trying to say, "Hey, we're going to steal our top sellers and go deep on him," but that we're going to try to create a platform where everyone can have a successful business or they're competing with their other people in the space and not competing with a guy who's got an unfair sort of insight into data on him.

Brian: [00:44:25] So that culture and mindset is something that would appeal to merchants that are well beyond the home category. Do you do you see yourself kind of pushing into other categories and taking this further? I mean, the culture of innovation you have is best in class. And I would imagine that there are a lot of other categories that would love to come into an environment where they're being empowered. And you're having that tuck flow back and everything that you're doing, you know, on the innovation side sort of filter down into their categories as well. Do you see that happening?

Steve: [00:45:00] Unlikely. We are really focused on just providing the best experience in this home category. I think we will continue to add tools and enhancements to our platform that let our vendor community and our customers have less friction in kind of running their businesses. And so, you know, I think you have to look out over the next several years. I think really the focus is how do we continue to just crush it in home, provide a great experience for customers, and then I think there probably are seeds that have been planted inside the company today where you look and say, "Oh, yeah, you guys are actually you know, you're running a kind of a software platform now for your suppliers. And, you know, that's kind of an interesting sort of thing I hadn't really thought much about. But you've kind of evolved into that space now." And I think there will be things that we that we sort of continue to evolve toward. But I don't know that trying to be something that we aren't outside of home is really a direction we're going to go.

Phillip: [00:45:59] Yeah. Amazon only sells books right? {laughter} Five years from now when you're doing subscription fashion boxes, I'll remind you of this conversation.

Steve: [00:46:10] I mean. We always are... Yeah. No...

Phillip: [00:46:14] I'm just always taking shots

Steve: [00:46:17] ...the everything store, but...

Phillip: [00:46:17] {laughter} What I think is is really interesting, too, though, is this idea that... See, everyone probably thought I was taking shots at that company this whole time. I'm really talking about Target who seems having trouble retaining a Millennial customer. I think as generation changes and as tastes change, you have to adapt your strategy. And, you know, what used to work five years ago doesn't work now. And so you have to constantly evolve and aim to where you're going. And I think that's kind of the crux here. We would also... By the way, I really appreciate all the time and the conversation. We would be remiss if we didn't at least mention Wayfair's been in the news a lot, especially around the landmark South Dakota versus Wayfair decision, which I think, you know, a lot of retailers have their eyes on in digital commerce. But more broadly speaking, not to address that directly, there's a lot of implications right now in public policy and how retailers are having to shift their business strategies. Everything from net neutrality, as we've talked about a lot on the show, to tariffs, to privacy and GDPR, and data privacy. Those are all things that are super top of mind and very topical. How does Wayfair see public policy and global policy shift sort of affecting how your strategy is determined as a business?

Steve: [00:47:42] Yeah. Yeah. I would say broadly. I think of that realm of stuff. We have a team that does, I would say, they tend to do well with change and complexity. And so, you know, all the things you just mentioned, basically, you sort of play to that, right? Where if things are changing or adding complexity, it's adding steps. You have to change the nuance of how you're doing things. That tends to play to our strength. We have a very innovative culture who loves diving in and try to figure out how to navigate the next challenge that's coming at us. And so I think our ability to do that is one of the reasons we've been successful, and that kind of compounds over time. So with an immediate sort of one thing... So tarriffs, you know, everyone in the issues got me thinking about that and trying to figure out to navigate that.

Phillip: [00:48:26] Sure.

Steve: [00:48:26] Well, can we figure out how to navigate that just a day or two quicker than everybody else? And can we figure out how to figure out a couple ways to work that to our advantage? So, you know, broadly, I think of that sort of spectrum of things kind of following in there. And I think there are things that are out of your control. So there's a little bit of like the best thing you can do is have a team that can react quickly and know how to respond to the change.

Phillip: [00:48:49] Well, that's awesome.

Brian: [00:48:50] Smart. I like that a lot. I think that I could see a lot of other businesses if they aren't already doing that, having that sort of team that's focused on that. I think that's a takeaway, as well. One more kind of off the cuff question here. I heard a rumor that you are going to be piloting some pop up shops maybe?

Steve: [00:49:14] Yeah.

Brian: [00:49:15] And so I'd love to hear you kind of talk about what you're doing there, what you hope to take away, and what you learn from that. The whole clicks to bricks, bricks to clicks, the digital natives moving to brick and mortar.

Steve: [00:49:30] Omnichannel.

Brian: [00:49:32] Omnichannel. Yeah. It's such a big topic right now. So I'd love to hear your thoughts on this as we kind of finish out the interview.

Steve: [00:49:40] Sure. Yeah. Obviously, all that bricks and mortar guys are trying to figure out how to mix the two channels. Yeah. We're doing two pop up shops. We've we've talked about one in New Jersey and one up near us here outside of Boston this holiday season. And, you know, they're experiments for us. I mean, we're obviously, we've been maniacally focused at how you provide the best online shopping experience that we can. And, you know, I think there's a curiosity around, hey, is there a whole meadow out there that we haven't sort of thought about harvesting yet? Are other opportunities to get in front of customers in the physical world that would be additive to our overall experience. And so, you know, those will be informative for us. I'm looking forward to going out and actually sort of mystery shopping the one we have near us here in Boston and seeing what customers are going through, and actually what they're thinking and how they're behaving.

Brian: [00:50:34] That's awesome.

Phillip: [00:50:35] And it's really interesting. So as we close up so if you had to give some, you know, near-term recommendations for retailers in the space, based on what you've learned over the past couple of decades, what would you say? Or how about this? What would you tell Steve ten years ago?

Steve: [00:50:53] {laughter} Keep focusing on execution. It's almost always better to try what you think might be a good idea rather than sort of just speculate about it.  Yeah, it's probably as simple as that. There are definitely things I look back at and say like, oh, well, rather than argue or discuss that we could have spent half the time or whatever, you know, small amount of time, and just answered it. It's a little bit like the old thing about like, you know, if two of us are in a room together, and we're arguing about the height of the ceiling, and we happen to know the third guy's got a yardstick with him, like, just get the yard stick out and stop arguing. I think just watch out for that pattern. And keep moving and keep innovating.

Brian: [00:51:38] Really good advice. I love that. That makes me really happy because that's what we try to do at Future Commerce. What about five years from now? What do you see ahead? What would you say? What's one technology or thing that that retailers should keep their eye on? Really broad question, but...

Steve: [00:52:00] Quantum computing... {laughter} Everyone talks about it, but I do think that the sort of big data AI world is an area that if you're not focused on it and have a team and investing in it, that you're going to feel like you missed the boat five years from now and that it will be hard to compete with companies who have very tuned automated machines that are using, you know, a high degree of computational power to figure things out. It's been interesting in that space. You know, we have some pretty complicated models and they get to the point where it's really hard to understand oftentimes why they're making a certain decision. So actually building the tools to have the insight into how decisions are made into your AI platforms has been very informative for us. On the one side to say, OK, yeah. Now I believe that the decision is the right decision, but it also just illustrates that as these things get more complex, they will be harder and harder to compete with, I think, unless you're also investing in them.

Brian: [00:53:03] Good advice. Good place to end it.  Well, thank you so much for coming on, Steve. It's been such a fun interview. I've really enjoyed talking with you. We're looking forward to seeing what's ahead for Wayfair. We'll have to check back in with you from time to time. Looking forward to those Q3 numbers, as well. And so I really appreciate your time on the show. And I know that our merchant listeners do as well. Phillip, you want to take us home?

Phillip: [00:53:30] Yeah. Thanks for listening. You can always give your feedback and lend your voice to this conversation over at  And we really want to hear back from you. You can also get this podcast anywhere podcasts are consumed or on any smart speaker device with the phrase "Play Future Commerce." And as we always say...

Brian: [00:53:46] Retail tech is moving fast...

Phillip: [00:53:48] And Future Commerce is moving faster. Thanks again, Steve.

Steve: [00:53:52] Thanks, guys.

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