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On these episodes we're talking with entrepreneurs and other business leaders about how they're thinking creatively during this disruptive time. And today we're going to hear from the co-founders of Wayfair, near in shop and Steve Kohnine. We first feature a near-agent Steve on the show in April of 2018 and we just republished that episode so it's near the top of your podcast queue. You should check it out, they have an amazing story.
Anyway, since we talked to them in 2018, Wayfair has become profitable. And despite anticipating huge challenges during this economic crisis, Wayfair has actually done pretty well as people start to beef up their home offices. I spoke with the original Steve about Wayfair's unexpected success during this economic crisis and how that's changed their business practices. Let's start by taking us back to sort of March.
How did you begin to plan for presumably the worst at that point? What were some of the steps you took, New York? Yeah, so obviously when COVID started, there was a whole lot uncertainty. We kind of decided a few things.
One was how do we keep our supply chain up and running so we can take care of our customers. And so we implemented a lot of safety protocols and that actually worked out very well because we're able to keep running and keep everyone healthy. And safe. Second thing is from a liquidity standpoint, we didn't know what was going to happen next.
So we actually decided to raise money. So we raised $535 million in hindsight. We didn't need, but at the time you don't exactly know what's going to happen. So we did that and we did that very quickly over a two week period.
And so I think that put us in a great position. And then we had a big scramble to get everyone productively working from home who was involved with the supply chain. And so all of our 3,000 people in customer service and our corporate team. And so there was kind of like a bit of a kind of mad dash in the beginning to get everything well situated.
But we have a great team and they really really did a fantastic job. It sounds like you had anticipated that you were going to face a serious slowdown. And that's why you raised the cash to presumably to help you through what you anticipated was going to be a slowdown. Well, our worry was actually, you know, we didn't even know what the governmental regulations were going to be.
Perhaps we would be shut down. You know, we didn't actually know government's time. What was essential was not essential. There was a question at some points about perhaps the carrier networks will only carry certain types of packages and other types of packages.
And we didn't have an answer, but we had uncertainty. So we reacted to that. And then the notion of a slowdown certainly was on our minds. Obviously what's happened is quite different.
It's been more of a boom, but we didn't know that at the time. Before we talk about what's happened, what were you able to do to keep warehouse employees safe? Because you've got warehouses all over the country. How do people stay safe in those environments?
So we changed the scheduling of how shifts worked. So that shifts didn't overlap. And we went to more shifts per week so that we were able to basically take care of the volume without having to have folks in a situation where they're overlapping other shifts. Then within the shift, we put in place temperature checks.
We actually made a lot of the walk and paths one way aisles that we actually were able to support social distancing in the buildings. And then we also increased the cleaning protocols. We actually raised the rate of pay. We did a lot of things to support the families of the folks who were working.
For example, we put in place of dinners to go program twice a week. Everyone who worked in one of our buildings was staying home, a family meal for their whole family. And so that helped the local independent restaurants who were popular restaurants next to our locations continue to have volume. So kind of in a variety of things, something's helping the community, something's helping our team, something's about health and safety.
You know, it's interesting in March, a lot of businesses really saw steep decline in revenue. I assume that maybe happened to you too, but pretty soon after sales just not only picked up but dramatically picked up, right? What happened in mid-March? So from basically March 15th through the end of March, we actually saw sales rise, but they rose in very specific categories.
So things like refrigerators and freezers, kitchen, cooking utensils and pots and pans, home office desks and children's playroom and children's furniture. And then after recreation, you know, trampoline and swing sets. So very specific categories that you could easily attribute to the immediate sort of stay-at-home type situation that transpired. So even though they rose, we didn't know what was going to happen after that.
But to your point, what happened next is more, hey, folks are at home, they're not traveling, they're not going out for entertainment, and every customer has a list of things they want to do to improve their home. And we work across all those different categories. And so there was basically, all of a sudden people started tackling those items off their list. I mean, your second quarter of this year was the first time you got to profitability.
I mean, your stock price over the last year is also dramatically increased. I mean, in a way, it seems counterintuitive, right? That so many of us assume that the retail sector in its entirety would be really crushed. I mean, did either of you ever think that that was going to happen to Wayfair?
Guy, you know, it's very interesting in March. I mean, I think we were definitely, as a leadership and as a company, worried about the business. It was a surreal sort of experience to go from feeling like, we have to worry about this thing going to zero to, oh my gosh, we're one of the beneficiaries. So what's our responsibility there?
How do we help support the team? How do we support their family? How do we support the local communities? How do we make sure that we're giving back?
And quickly, you start to realize like, why you're having success? Because obviously, everyone's in their homes, they're spending on their homes, they're thinking about their homes, their travel budgets are no longer there. And so they have discretionary money to spend. And then obviously government stimulus comes along and that's another positive impact to consumers.
While it's been fascinating. And as you said, we went from pretty normal runway to basically, obviously, you're running at these peak promotional day levels day in and day in and day in. And you're kind of not sure if you can keep up with it, if you can handle it, if the team is going to be able to function well. And so you're navigating it kind of, you know, whatever on a daily basis.
I mean, that kind of helped us all gel. I think guys, we weren't working from home because it was very much faced with a pretty intense period of effort. I want to ask you about the long-term strategy you guys had because essentially you were not profitable until this latest quarter, in large part, from what I understand, because you were spending a lot of money building up logistics and technology, which I guess paid off at this moment. Yes, it's funny how the timing lines up because we built the company by bootstrapping.
So we were profitable for the first decade plus of the business. But then when we raised money to build up the Wayfair brand, then we're losing money. And we were then fairly shortly after that presented with two really big opportunities. One was replicating the business model in Europe and the other one was building out the logistics network.
And those two are investments. I mean, we make lots of different investments, but most investments we make, you know, are five million or 10 million or 20 million dollars a year. The magnitude of international and logistics were massive. And so we've been losing a lot of money.
We look back over the last few years, really building out those two capabilities. And one of the things that we had announced at the end of last year was that we were now at a scale at a point where we could actually be profitable and continue investing, because we've gotten up to over 10 billion in revenue. And so just the contribution margin that generated was now enough to both fund investments and be profitable. But what's ironic is all of a sudden it's COVID hit rather than us, you know, we said at 20% growth, we'd be profitable.
All of a sudden the growth came in at 84% and we were massively profitable. So those two trends ended up sitting, you know, basically on top of each other. Yeah, I mean, have there been any supply chain issues at all in terms of keeping up with customer demand? Significant.
Significant. I mean, as you can imagine, when demand grows that fast, you know, everything from the carrier capacity to do the deliveries to on our team, our customer service team did an amazing job of rallying to handle the volume because frankly, you know, we had the same number of customer service folks the day before, the day after, but the volume has grown dramatically. And as you can imagine, the delays in the carrier now are just creating more calls. So there's a lot of challenges.
And then I mentioned in the beginning part, trampoline, swing sets, where examples of freezers of categories that took off early. Well, within a few weeks, they're sold out nationwide. And so now you have months where you have short supplies. So there's a lot of supply chain challenges.
And so we started working on that right away. And so that as you go through the weeks go by, all of a sudden you do see out of stock rates recovering, you do see transportation getting better. But it doesn't happen overnight. So you have a team that's rally through a really tough period.
It's a little bit of an odd position to be in, right? Because on the one hand, of course, it's great. Your business is doing great in the midst of a general economic crisis. So, I mean, is there something a little weird about that that you just kind of have to navigate in your own mind?
Yeah, definitely is. I mean, I think you don't want to be seen as a group as like taking advantage of the situation that's sort of an out of your control. And so I think giving back to the community and the meal program there just talked and some of the programs we've done to really support play, giving employees, starting their time where things we got right on and we continue to make sure that we're encouraging the team pushing and talking about what we can do to help support the communities. I think that worked out pretty well.
Our team just has so much empathy, whether it be for the customers or the communities we're in, that the immediate reaction everyone had was about how can we help. And so that was uneven unrelated. The fact that we were doing well and because we were doing well, we were able to do even more. So we were able to raise millions of dollars for a couple of global COVID relief charities.
Our employees actually donated a lot of money to COVID relief charities. So there were a lot of things that we were able to jump into just because of the ethos of the team we have. And I think that certainly, frankly, not just doing those things, but doing them very early on. I think helped a lot because I think it's time went by governments and others started helping do a lot.
But I think the very beginning, we felt like we were able to help make a difference. What happens if the housing market starts to soften? And with a softening housing market, you could have a softening furniture market potentially. Are you prepared for that possibility?
Depending on what number you want to take the run rate of, we're at $13, $14, $15 billion in annual revenue. But that compares to an end market that's $800 billion. So we're still less than 2% of the end market. In 2007 to 2010, during the financial crisis, that was the worst time for the furniture industry since the Great Depression.
And the Great Depression it shrunk 35% from the top to the bottom. In the financial crisis, it actually shrunk the furniture industry shrunk by 30%. And so it's really devastating. What was interesting though is online, except for an immediate shock at the very beginning, online actually grew through it.
And the reason is customers who maybe weren't as keen on buying online all of a sudden were more curious about value, more curious about availability. We don't root for about economy, but I think we will be able to do well. And we have great relationships with our suppliers because we're sort of their ability to go to market and reach those customers. They basically lean in in periods of disruption even more than they will on a normal basis.
The other thing I do think this period of time has shown is that even though you're big, you can still change quickly. And so I think we have a team that can react dynamically. And we have a very entrepreneurial culture still. And I think innovation favors entrepreneurs during a time of change.
And so I think those have both sort of been a reaffirmation of like, we have a great team, we can navigate this stuff. And so uncertainty, it's something that we do well as a coming navigating in regards to kind of what the future looks like. That last question I asked you about, Anticipating Downturns. It was a question we got from Megan Rawlings.
So Megan, thank you for that question. A couple of questions about the environment. We have a question from Elizabeth Leonard from Stephanie Moran. What are your plans to make your company more environmentally friendly?
A lot of questions about the so-called fast furniture business and its impact on the environment. Not only producing furniture and mass quantities, but shipping it across the world. So can you talk about that? I mean, there's no question that the industry you're in does have a significant impact on the environment.
Absolutely. A lot of what we're doing is around streamlining the supply chain. So actually, if you look at how it works today, it's highly inefficient. Where effectively goods are shipped through multiple destination points, customers are then driving to a store.
And they're then navigating the store. Then they're buying something. And that item is then put out for delivery later and often has to transit a long way. Because a lot of these goods that are becoming special order type items that have to travel again from a different destination.
We move the items in bulk very efficiently, very closely and customer. We then deliver it directly to them. We are able to take out a lot of the transportation legs, which have the benefit, both from environmental standpoint, from a cost standpoint and improve the speed of delivery. And so we're actually trying to do a lot to do that.
And then that's separate from all the things we're trying to do around waste materials and how we can use more recycled materials. The thing I would add too is just, you know, Wayfair is kind of a platform for literally tens of thousands of entrepreneurs who make products. There is definitely a very keen eye to this topic that a lot of the furniture manufacturers care deeply about. And we're really trying to help surface that so that, you know, as consumer demand preferences shift, they can be very aware of who their buying from and what the products are.
And so, you know, really trying to surface the stories of our suppliers. They're some amazing people and our supply chain doing some really great things around sustainability around better manufacturing and fish and practices. We know they care about it. And our team cares about it a lot as well.
When we come back in just a moment, Neweridge and Steve talk about their role as a national brand with a platform and what they hope to take away from this moment in time. Stay with us. I'm Guy Raz and you're listening to How I Built This Resilience Edition from NPR. Hey, welcome back to How I Built This Resilience Edition.
So last month, Wayfair was the target of a false conspiracy theory, which was debunked immediately, but still pretty troubling for everyone involved, especially Neweridge and Steve. I want to shift gears a little bit and talk about two challenges that you faced and one has surfaced recently this summer. And I hesitate to ask about it because I don't even want to shed any light on it because it's so disturbing and distressing. But there is a conspiracy theory movement in the United States.
And this movement this summer began to spread a conspiracy about Wayfair products hiding children in them, trafficking children in them. I think they were these large industrial sized cabinets. It's something that is so disturbing and distressing that it's not even funny. How did you respond to it?
I mean, I'm sure your initial response is like, oh, this is nonsense. But it actually, you had to really respond to it. What did you do? Well, you know, say you never want to be the target of a baseless conspiracy theory that is effectively engineered and spread by folks who are very adept at social media.
And that is in fact what happened. I think the real damage ends up being caused to the actual real victims, the victims of child trafficking, who basically, you know, the hotlines where they can get help or overrun with calls from folks who are basically tying up that bandwidth just with non-content. What we did is, frankly, just be honest and forthright and basically point to the fact that it was baseless and with a very basic amount of investigation, you can prove that it's baseless. And what we saw, it took a couple days, but then you see credible news sources, whether it's the Associated Press or Reuters or The New York Times, where we have come out and basically debunk it, point out that there's no content there.
And basically also kind of highlight the forces that are at work that are causing some of these things to happen and spread. But I think it's a challenge because I don't think the average person is necessarily as keenly aware of what happens on social media and what perhaps is rooted in fact and what isn't and how to discern one from the other. So I think it is a challenge we have in our times. I mean, is this the new normal Steve?
I mean, are companies and businesses going to have to prepare to contend with these insane conspiracy theories? I mean, is this part for the course now? You know, when we started this business, the thought of saying, hey, you know, we're trying to build up a love brand for home decor and furniture and more and you're going to get pulled into things like this or targeted for various things. There's part of me wonders if you're building a great brand is this just part of the journey and if you look back at other great brands that have been built in the US over the years, they certainly go through periods of good press, bad press, different things, right?
We are certainly in a period today where these things can be amplified quicker than they ever have been. And so there's a concern I have there and there's a concern of how long does it take us as a civilization really starts to digest how these new channels of communication should be handled. And we're certainly in the middle of that. And so I think, yeah, I mean, anyone who's building a big brand is going to have to be aware that they're bringing you to amplify messages and that is going to be something we have to contend with and think about and learn how to navigate.
It's been fascinating for us to learn how to navigate that and figure it out. Let me ask you about something that is not a conspiracy theory. Something that happened last year when hundreds of wayfare employees walked off the job. They were protesting against some furniture that was sold to detention center in Texas that was intended for migrant children.
And you had to deal with this. I mean, you had employees who were making demands of the two of you. They were saying we demand our company be better. So how did that affect the way you think of leadership and the way that you run the company?
First of all, when this came to your attention, what did you do? You know, that was an interesting period to navigate. I think the core thing we really did and the core thing that led to was better communication with the team. You know, we have a very thoughtful team and we have a huge diversity of viewpoints inside organizations as well.
Looking back on that period, we did a much better job of figuring out, okay, issues that people care deeply about. How do we raise them in a way where we can actually have a constructive outcome and we can have a dialogue about it and can make changes that the team feels good about. And so coming out of that, we created an orders perspective group and we've really did a lot of soul searching as a company to really think about, okay, how do we think about who do we sell to? How do we, you know, you don't want to get into business of judging morality of your customers necessarily, but there's clearly lines that you want to hold firm on as a company.
And so, you know, that spurred some really good dialogue inside our organization that has made us a lot more thoughtful about how to communicate and how we make change inside, you know, the company. And talk to each other about it. You know, and that was not a conspiracy theory, but it does also kind of point out that, you know, stories the way information spreads is not always accurate. It was actually Mattressa's soul to a nonprofit of 501c3 that operates refugees shelters all over the world in Africa and the United States and Europe.
And they were actually operating three shelters along the southern border. But the point I would make actually is what Steve said, by tightening the communication with our broad team, it really helped. And so we now have a group that basically internally helps also try to provide proactive thoughts on things we can do. And one of the things that came out of that, we actually encouraged, Jesus, it's really important that everyone votes.
And one of the causes we've really been pushing is just that everyone should take the time to vote, whether it's a local election, whether it's a national election, whether it's a primary. And it makes a difference because if everyone voted, you know, we would get broad outcomes that maybe not everyone would be happy with, but they would reflect everybody. But when only a small portion of people vote, you don't necessarily get that broad based outcome. And so one of the things we did is we basically said on official election days in each geography, we're going to arrange for everyone to have time off so that they can vote.
While that might be easy for someone who, you know, is a software engineer has a lot of latitude and there's schedule, it might not be easy for someone who's working on our warehouses or on a fixed shift at customer service. So we said, well, we're going to figure out how to handle it so that shift-wise with paid time off, everyone can actually go vote. We signed a petition and hopefully a lot of companies take that approach of kind of saying, hey, it's not required that you do that, but why not? And so I think there's good ideas that we really as a team, we want to be one of those companies that can help make a difference.
You know, Nirjan and Steve, I mean, for a long time, big companies and their leaders really kind of shy away from taking political and social stances because they don't want upset their customers. But that's changing. I mean, you look at PayPal, for example, they deplatform, you know, hate groups from their platform. They don't allow conspiracy theorists to use PayPal, etc.
There are other companies that are really taking a stand. And when it comes to taking a stand on certain issues that you believe in, is there an argument to be made that you should be doing that? I think it's important to take a stand on issues you believe in. And there's certain things like on the topic of racism and actually being proactively fighting against racism and making sure that we're rooting out unconscious bias.
That's something we've been very proactive on. And we believe in very significantly. There are other opinions that I have personally that I don't know that the company should take a stand on because frankly, there's two sides to a lot of topics. And in our mind, there is not just one side that reflects everyone's reasonable views.
And so one of the things that's interesting, as you mentioned, our customers have a broad range of views. And so our employees do too. And so what we did with this group is we actually amassed a group that actually broad-based across our workforce. And so what's interesting is then it becomes really clear on the broad things everyone does agree on.
And these are things that we feel like we should go actively push. And the example of voting is one example of that. And there's many others. And then there's other things that the group would not all agree on.
But they would then through that course realize that it's reasonable that people could have other opinions. And on those things, we don't necessarily feel like the company should go and take one perspective. And so there's a balance, I think, between these two different types of issues. Yeah.
You know, one of the things that we hit on in our original podcast episode was this idea that the product doesn't always have to drive the founders, but that the challenge should drive the founders. So you guys were not that passionate about furniture or home to court. You said that on the show. But you were really motivated by solving the problem of how to get people access to a wide selection of these products that were available in big cities, but to make them available to people all over the place.
And that's really what motivated you. Do you have any advice for people watching who are thinking about starting something now and how to seek out the right business opportunities for them? The thing I would say to entrepreneurs right now is that there are a lot of very traditional things that people, you may love. Like maybe you love furniture, you know, where I was thinking about industry.
Maybe you love cars. Maybe you love racing. Maybe you love biking. I think we are in a point in inflection right now where you could likely start a restaurant today and do very well with it because you're going to be forced to operate within the constraints of today.
And they're very different than a lot of your competitive set is. And so if you love cooking, now could be a great time to actually go to that industry. Even on the surface, it seems like it could be a terrible time. Same thing with a lot of the different industries that are under stress.
I think, you know, an entrepreneur is a lot of times get mired in trying to come up with a great big new idea and missing that actually their hard work and effort on something that is kind of in front of them can oftentimes make the biggest difference. I would just say two things. So I do think you need to be excited about the idea of your personal. Even though we didn't start our entrepreneurial journey, which is this company by saying, oh, we want to do something in home and furniture and decor.
We did get excited about the idea. So I think you need to be truly excited about the idea. And then the second point is just simply that the right time to start something is often the time that seems at least obvious. So for example, we started this business, which is an e-commerce business in 2002 right after the dot com crash right after e-commerce was viewed as a bit of a fool's errand by a lot of folks.
But we believe that that wasn't true. We found data that supported our view. And we thought in fact there was a real opportunity. Well, if you look back on that, what happens is less companies get started pursuing that opportunity during a time when it's viewed as out of fashion or a bit unwise or risky.
Then will at a good time. And so innately, you basically both build better muscles dealing with that adversity. And frankly, you have less competition. And so I would encourage folks to not worry about the macro factors.
Instead worry about, you know, is there something they're excited about? That makes sense. And if there is, then that can in fact be a great idea and a great time. How have you kept your partnerships so strong over all these years?
What have you guys been able to do that has worked so well? Is it about strictly demarcating who does what? How do you explain it? I actually say it's a bit the opposite.
So we're trying to demarcate who does what didn't work quite as well. We kind of took a shot at that. Within a few months of the very first business we started, we found that we gravitated to doing different things that we each both enjoyed and were better at. But we got lucky.
Those things happen to be highly complimentary. And so on one hand, we really appreciated each other's advice and business judgment. And so in that sense, really were good partners. But at the same time, we actually enjoyed working on different areas of the business.
I think it's tough if either you don't trust each other's judgment and want to listen to the other one, or if you're both drawn to the same stuff and don't want to do the other stuff. I think those are two common failings and we were lucky not to have either of those two. I would just add, yeah, we've done a good job of communication. I think any relationship communication matters a lot.
And we've both got very good early on being very blunt and not taking it personally with each other. And then the other thing is I would say we both have been very non-judgmental of the other ones. So in other words, your sense of interest that I don't have the interest in, but at the same time when I see him choosing to do it, I'm supportive and excited about it. And I'm not sort of like, oh, why are you doing that?
And we've just developed a healthy relationship through those years of interaction and kind of having different skills and different interests that have occurred well in business. Because you tend to cover a lot more topic areas that matter to the success of the overall organization. In five years from now, when you look back, what do you want to take with you from this time into the future? What are some of the things that you've actually done better that you want to make a permanent part of Wafers culture?
One of the things I would say just, you know, in the beginning, it was unnatural, but it sort of felt like it really important to communicate a lot broadly to the team, just knowing that the uncertainty, even though you didn't necessarily have answers, they had questions. And so trying to do your best to help them understand how you were thinking about things and what you saw that was happening. And just seeing how valuable that is, I think there's always an ongoing under appreciation of the value of communication. And so the question is like, how do you keep up that higher cadence communication, just knowing how much energy it takes, and how do you do it in a productive way?
And I think that's something we continue to get better at that I think helps us be a really tight knit team that we're working on. Yeah, the one thing I would add to that is just I think there's a certain like intimacy of life or like realism of life that this period has brought into business maybe more than it would have. And I think that's a healthy thing and that we shouldn't lose that as we go back to a more blended interaction environment. I find that hopefully would be helpful too overall work, like balances for people.
Steve Conine, here at Shaw, thank you so much co-founders, Wayfair. Thank you. Thank you guys. That's an excerpt from my conversation with Neerid Shaw and Steve Conine, the co-founders of Wayfair.
To see our full interview, you can go to Facebook.com.com.com. And if you want to see all of our past live interviews, you can find them there or at youtube.com.com. This episode was produced by Candace Lim, with help from Will Mitchell, Matt Adams, Gianna Capidona, Gianna Zabella, Julia Carney, Neve Grant, and Jeff Rogers. Thanks for listening.
Stay safe, and I'll see you in a few days. I'm Guy Raz, and you've been listening to How I Built This.