Wayfair’s Steve Conine on the Amazon Threat, Adopting A.I. & More

Xconomy Boston — 

The prospect of Amazon putting your business in its crosshairs is enough to give any executive some sleepless nights. Wayfair co-founder Steve Conine seems undaunted.

Over the past 17 years, Conine and Wayfair co-founder and CEO Niraj Shah have built the Boston-based company (NYSE: W) into one of the largest online sellers of home goods, offering more than 10 million products from more than 10,000 suppliers and employing nearly 11,000 people. The company generated $6.2 billion in revenue during the 12-month period that ended Sept. 30, the most recent financial results available. Although it’s not profitable, Wayfair is valued at $8 billion as of this writing.

But Wall Street has shown more concern in recent months that Amazon’s (NASDAQ: AMZN) growing ambitions in furniture and other home goods could stunt Wayfair’s growth. Wayfair’s market valuation slid more than 5 percent in late October after Amazon announced a new in-house furniture brand, the Boston Business Journal reported. That came a month after the Seattle-based e-commerce and tech giant launched a site called Scout that collects shoppers’ preferences in categories such as furniture, lighting, and home décor; Wayfair’s stock dipped as much as 7 percent the day Scout was announced.

Amazon’s home goods revenue has been growing fast. A One Click Retail report released last year estimated that Amazon’s furniture sales reached $4 billion in 2017, more than triple its 2015 furniture sales, giving Amazon the largest market share in the online furniture retail sector.

In early September, I sat down with Conine (pictured above) at Wayfair’s headquarters in the Prudential Center, which ironically is also home to one of Boston’s most popular shopping malls. When I asked him about the rising Amazon threat, he gave the sort of diplomatic, straight-forward response I’d expect from a football coach sizing up the next opponent: stay focused, stick to the game plan, and everything will turn out just fine.

“If you are delivering an experience that is superior in the customer’s mind, you will continue to do well,” Conine says. “At the core of it, it’s kind of as simple as that. Just keep focusing on the customer.”

Maybe it’s a naïve outlook. Maybe it’s just Conine sticking to the message crafted by him and the public relations team. Or, maybe Wayfair has the right formula to win in e-commerce for home goods.

The growing competition in this segment of e-commerce, which Conine claims is still in the early stages, could have implications for several industries, including home retail, supply chain logistics, and new technologies such as augmented and virtual reality. My wide-ranging conversation with Conine covered those topics and more, including Wayfair’s partnership with augmented reality firm Magic Leap, his company’s artificial intelligence investments, and his thoughts on the future of bricks-and-mortar retail. Here are the highlights:

Xconomy: What are some key investment areas right now for Wayfair, as you try to improve upon the e-commerce experience for customers?

Steve Conine: There’s a lot of things we’ve talked about we’re doing on the visualization side, so the sort of cutting-edge side. That would be augmented reality, virtual reality, and how do we help you visualize stuff in your space and get comfort that what you’re buying is going to fit with the look you have—or it’s going to physically fit in the space that you have.

We do a lot with merchandising on the site, so, how do we create beautiful looks and styles and things that you’re excited about? So, we have a lot of house brands that we’ve created.

When you get down to the actual part of, OK, now I want to make a purchase, well is it a good value, how fast is it going to get to me, how convenient is that whole experience? We continue to chip away at that.

We’ve talked a lot about how the majority of our large parcels now all ship in our network. Our ability to actually take control of that has been transformative. When Niraj and I started this business, like two guys, you don’t really have that much clout over the national transportation carriers. As soon as you hit scale, you can actually take it over and can deliver the experience you want to deliver to customers. So, we’ve been able to invest in that area in a way that the economics work phenomenally well. It creates an amazing customer experience. [Editor’s note: Wayfair’s logistics operations include running its own warehouses and, in some regions, operating its own delivery trucks and hiring the drivers, a spokesperson says.]

If today you’re like, “Oh, well, I’d rather go look at it in a bricks-and-mortar store,” and there’s reasons why you might want to do that, every year we’re chipping away at those barriers and making it easier and easier for you to say, “Oh, you know what? Yeah, I kind of would like to see it, but I can have it here tomorrow or two days from now, so, OK, I’ll just do that.” It’s way more convenient because you’re like, “Well, I can spend all afternoon driving around trying to find it, or it’ll just be here on Tuesday.”

We’ve talked about how designer services would be something we’re offering—helping customers feel comfortable with the styles they’re getting and that they’re going to look good in their space. We have a very economical on-site designer services offering now, where if you want to redo a room, go on to [the] Wayfair [website], and [for $79 or $149] we’ll have an interior designer work for you and help you design your space.

X: How much does A.I. play into what you’re doing?

SC: A substantial amount. We have over 1,900 engineers and data scientists on the team. Niraj and I are engineers by background. We are super quantitative and data-driven as a shop. We also happen to have probably the best set of training data in this category.

The most obvious [A.I. applications] you’d see as a consumer would be … Next Page »

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