Wayfair's Pricing Strategy and Mature Gross Margin

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Over the last 4 or 5 years, we’ve had this agenda on how we can unlock a lot of gross margin. We're talking about a 1,000 basis point runway, and this was back when we were at 24% to 25% gross margin. - Niraj Shah, CEO of Wayfair, Q3 21 earnings call

We’ve been studying Wayfair to understand the company’s long-term opportunity and potential mature gross margin level. For the nine months to September 2021, Wayfair’s gross margin was 28.8%. This is an increase of half of the 1,000 basis point improvement that Wayfair targeted in 2016.

We believe the gross margin is one of the most important metrics to follow because Wayfair accounts for supplier service revenue (such as CastleGate fulfilment, drayage, advertising, etc) as a contra-revenue item which shows up in the gross profit.

Wayfair’s gross margin is driven by four key components:

  1. Lower product cost
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