I hope that I inspire you to try something new.
Sara said Amy Moore is in this break. I think she called you babe. Oh my gosh.
I'd say today you just earned yourself a bear. Top 10 most magical things I've ever done in my life.
A happy dance.
Being able to give ideas, I can't tell you how happy that makes me feel, 'cause I know it makes you happy.
We can do it together. I got strong elbows and shoulders, so y'all jump on either side, and I'll be your guide through it. What do you say?
Hello, and welcome to the Investor Day for Qurate Retail. I want to start by thanking everyone for your interest. When Qurate Retail was launched in 2018, following the joining of QVC and HSN, Mike George, my predecessor, described it as a third way to shop. A way to shop that was different from traditional and impersonal big box retail, and the steady march of a sterile and relentlessly optimized version of transactional e-commerce. Today, Qurate is a collection of brands dedicated to being not only a third way, but a more human way to shop. What we have assembled is a unique set of brands and assets that are distinctive and powerful, even if sometimes underappreciated. Please allow me to reintroduce Qurate Retail, distinctive brands assembled around three pillars. First, our video commerce business.
At over $11 billion in global revenue and 16 million customers, it is the original marriage of shopping and entertainment. With more than 60 billion minutes viewed and hundreds of millions of units purchased in the last 12 months, it is an unparalleled combination of viewership reach and transactional intensity. I've read countless articles describing how a giant technology company, a prominent retailer, or a startup is launching a service to become the next QVC. Every article reads the same, because today there is no equivalent to what Qurate has built, and everyone realizes what is so unique and powerful about what we do. What is fun is watching some of them come to grips with the fact that what we make looks effortless is far from easy, and that the next QVC is Qurate, the owner of QVC.
We have Zulily, bringing moms on the adventure and joy of daily discovery. Zulily has built that dedication to an exciting and impulsive shopping experience to over $1.6 billion in revenue and over 5 million customers. For just about everything that Zulily sells, it offers the most value and the most unique buying experience, and it is doing so for a demographic that is still underserved. Finally, the Cornerstone Brands. These businesses started in catalogs. Dreams captured in pictures that you can hold in your hand. Inspiration to the aspiration of a slightly better home or better wardrobe, all on a page. That inspiration in modern times has translated beautifully to an online world and has evolved to a largely exclusive and proprietary assortment. If you want the dream, it is only available here.
It is no wonder that this business has been one of the true winners during the pandemic, nor that it is poised to continue benefiting from the recentering of the home and modern life. Taken together, these businesses represent a powerful set of assets and value propositions with a human shopping experience for their customers at the center. That is Qurate. Since I'm speaking with the investor community, let me say upfront, I know there have been persistent questions that may not have been fully answered, especially around long-term growth, both the scale of that potential and how we intend to deliver on it. We will not get to all of those questions today. I am planning a time for us in the spring where we can talk not only about our growth plans, but also give you a detailed roadmap for how we will get there.
What I hope you start to see today is that while it is true that some parts of this business face material headwinds, there are sizable tailwinds as well. Some of which we are uniquely placed to enjoy. I will not talk a lot about myself. I will only observe that my experiences taught me some critical lessons that I bring to this job. My time serving in appointments under three U.S. presidents taught me that we live in an interconnected world. Commerce is global and scale matters. My time at ITT taught me that corporations must always be prepared to change strategy and form to meet the moment as situations evolve and transform, and that the interest of the shareholder must always stay top of mind. My time at Grainger taught me that digital transformations are hard but doable, and only by paying attention to the culture and the details.
My time at Nielsen gave me a unique view into how consumer viewing habits and buying patterns change, sometimes dramatically, and how you must combine data and intuition to get out in front of those changes. I am here because I believe this is the right place to apply all of those lessons. I've gotten the question a lot. Why did you join? Or the more recent variation, is this what you thought you were signing up for? When I was considering this company, I saw a core set of substantial strengths. I saw a business with a passionate and engaged and loyal customer base that was stable and enduring. I saw substantial scale and reach that could form the foundation for a global platform that has enough assets to survive and grow.
I saw a video commerce business that had already mastered what everyone else was struggling to create, a high engagement form of entertainment that could also dependably achieve very high sales volumes. I saw a business that was already moving in the direction of the future, a future where more things will be streamed, more media will be thumbable, more shopping experiences will be integrated with media consumption, and social influencers will continue taking the role of tastemakers, guides, and instructors. I also saw opportunities, areas where I knew we would have to be better or different.
These included doubling down on the commitment to a real digital transformation at speed and scale, accelerating the pace of learning and innovation, and a clear focus on building the platform, which importantly includes not only selling to our current set of loyal customers, but building experiences to attract and engage many new ones. I believe that combining these observed strengths with urgency, focus, and aspiration, we can both reach consistent, predictable growth and continue our exceptionally strong track record of returning cash to shareholders. As I said, I will have more to say about the path to growth in the future, but I thought I would share some of my initial thinking that frames the opportunity today. I think it is self-evident. Today, we are the largest player in video commerce.
It is also true that this space is growing fast and that it is growing fastest outside of its traditional anchor in linear TV. We see broadly four categories of players in this nascent but quickly evolving video commerce space. They are linear TV, think paid cable and satellite services and free over-the-air TV. Traditional e-commerce, think Amazon and Wayfair and Walmart, all bringing more video to their online experiences. Digital streaming services and devices, think Hulu and Roku and Samsung and LG, but also Netflix and social platforms, think Facebook, Instagram, and TikTok. We currently play in all four of these categories to varying degrees, with Qurate clearly owning linear TV. Our view is that the other three are growing quickly and will continue to do so for many years. Further, no one is clearly winning in those other three categories yet.
There will be winners, and the prize will be substantial. Everything we have built to date has been driven by our powerful, durable base business of linear TV. There's no denying that there are real long-term headwinds to growth in this area, with the continuing proliferation of other screens and platforms competing for consumers' attention, creating a fragmented media consumption environment. Our base business is still a powerful one. We reach 200 million homes worldwide, and total minutes viewed across QxH is more than 60 billion annually and growing. 60 billion minutes watched a year and growing. We need to focus on solid execution to protect this profitable base, and we need to make those minutes as productive as possible. We are determined now to bring this growing strength in linear to the broader video commerce space.
It is clear to me that Qurate has the authority to win in this video commerce or v-commerce space, where live and live-like video content is a critical factor in driving engagement and purchasing. This is the common thread that runs through all four categories and will separate those who thrive from those who struggle to compete. If I look at the heritage of Qurate and its brands and what it has created since HSN invented the original V-commerce four decades ago, we have unique advantages. We know how to create authentic shopping experiences across a wide variety of platforms. We have perfected the art of storytelling through hosts, influencers, and entrepreneurs that both engage and sell. It's why global brands from Dyson to KitchenAid to Estée Lauder to MAC to Skechers to Ralph Lauren all partner with us.
It's why entrepreneurs, influencers, designers, and celebrities from Curtis Stone to Jason Wu and Isaac Mizrahi and Dolly Parton and IMAN trust us as their partner in the storytelling of their own personal brands. It's why every year, we see thousands of entrepreneurs apply for our Big Find and Small Business Spotlight product discovery competitions for an opportunity to become our partner. The complex global product sourcing, quality assurance, and supply chain infrastructure we've built over many years allows us to co-create exclusive collections with our partners to help build their own brands and to take care of the entire customer journey with a seamless, high-quality experience from storytelling engagement to delivery at the doorstep and engaging customer service available every step along that journey.
Our collaborations are capable of creating new brands with millions of dollars of sales in their first year, such as Jason Wu's launch last November, and with real staying power, such as G by Giuliana with Giuliana Rancic. We launched G back in 2012, and it did more than $30 million in sales last year. August & Leo, a home decor brand we launched last year with Giuliana, also reached seven-figure sales status in its first year. We leverage this infrastructure and expertise to build our own proprietary brands as well, which we've successfully done many times. Denim & Co. is a great example, with more than $200 million in sales in the past year. Both our exclusive co-creations and our proprietary brands are important and growing pieces of our business.
That variety of products we're able to create and curate is part of what enables us to keep our customers returning to us consistently and building that relationship from a new customer to a best customer over time. Brian will dive into more detail on this later. Those best customers have incredible consistency and staying power. Coupled with that variety and our supply chain scale and flexibility is our agility. Our model allows us to ship product mix real time to meet customer needs, and it is a powerful asset. In many ways, as we are now prepared to accelerate, the world is just now catching up. We were the original buy now, pay later firm with Easy Pay and FlexPay that currently has over $6 billion in proprietary gross merchandise volume per year.
Looking at the core of customers with the purchase frequency, consistency, and low churn rate that we have developed, you can easily mistake the business for a subscription service. As I shared before, we see the V-commerce ecosystem in four distinct categories, with Qurate Retail playing a role in each of them. On the bottom, you see our base with 200 million homes. On the top, you see a real explosion of channels and platforms. We are just about everywhere that growth is happening. Importantly, our digital reach is starting to replicate our linear reach, and we are seeing strong growth across key metrics, though from a low base. We have to do much more to bring our full value proposition to customers across these platforms and realize similar sales efficiency, but we are where the future is going, and we are learning and improving.
Here's a short video that gives a good sense of how we're already operating across platforms in this new and evolving ecosystem.
No matter what you've been through, there's light on the other side, and it will all be for a reason.
This might be the most beautiful dinner setting I've ever seen, guys.
12 bottles of wine a month doesn't seem excessive, does it?
It's not. Doesn't seem crazy at all.
No.
In recent years, we have continued to grow and increase our penetration in our e-commerce business. For us, that's largely driven through transactions on QVC and HSN, both their websites and apps. We have a solid base and real scale here. This is an area where we need to continue to focus, because engagement through these digital platforms is efficient and lends itself to more effective discovery and personalized curation. It acts as an independent channel and as an amplifier and complement to our video commerce business. So much has been written about the explosive growth in digital streaming services, if they can be effectively harnessed for commerce, whether through integrated TV apps, mobile apps or streams. Similarly, the same case has been made for social media and commerce on its platforms. The next slides show some third-party estimates of projected growth in live streaming and social commerce.
Live streaming e-commerce sales are set to triple in the next three years. Meanwhile, social commerce will almost double, also powered by the use of live and live-like video content to engage. The potential is significant, and we believe we have the right and capability to capture and own a meaningful portion of that growth. Capturing even a modest share of these growing categories will fundamentally transform the growth trajectory of our business. It will take some time, dedication, discipline and hard work, but it is available to us. An example of what this looks like today, when you have the capability to operate across multiple platforms and channels, is this slide's images from the Candace apparel brand. This was created exclusively for QVC with Full House alum and Hallmark movie star, Candace Cameron Bure. It launched earlier this year with great success, with many items selling out in minutes.
The ability to reach our customers in real time across multiple platforms gives us significant opportunities to learn and evolve in real time and further perfect the formula for engaging most effectively across all of our different platforms. Turning to our Zulily brand, the company has been hit by a perfect storm of recent challenges, driven in large part by supply chain issues, lack of product availability, and disruption of our main marketing channels. Still, Zulily has a unique value proposition and singular focus on a powerful yet underserved customer demographic, the new and early stage mom. She's time poor and looking for value, but also interested in quality and recognized national brands. This is a lucrative consumer cohort, and we can meet her needs.
It is a $2 trillion market, and we know this business can take share and grow profitably in a normalized market based on its recent history. Lastly, but by no means least, Cornerstone Brands, which just delivered another record third quarter, continues to meet customers' desires to make them feel special through the clothes they wear, and now more than ever, to make where they live more than just a physical place, but a place they call home. We're confident we can build on Cornerstone's stellar performance of the past 2 years, which leverage home spending and digital shopping trends, and that we can capitalize on the strong growth of its affluent and passionate customer base. As I said at the start, we have assembled a unique set of brands and assets that are distinctive and powerful.
Finally, I just wanna take a second and tell you why I think this work is so important. In the modern world, few of us are self-sufficient. We all have to shop to buy your first child's pacifier or the first gift we will give a future son-in-law, or the pot that will cook the first meal that your family will eat in the new year. The question is, how will we shop? I believe that so much of shopping today leaves us all a little less human. Self-checkout after walking through aisle after aisle in a concrete box or mindlessly scrolling through intrusive, unwanted ads to find a product, then being pressured to add more irrelevant items to your cart. If we stand for anything, we stand against that. We are starting to see reconsolidation in retail and media. Who will the winners be?
Impersonal, scale, transactional players are winning for sure, but will they be the only ones? I don't think so. Humans still want to be inspired by humans, and they deserve a way of shopping that gives them that. That is why Qurate Retail exists, and that is the heritage I am here to build upon. I look forward to telling you more in the spring and sharing the details of how we are going to build that experience. With that, I turn it over to Brian, the CMO of QxH.
Thank you, David. It's been a little over a year since I joined the company, and it's a real privilege to be here with you today to talk more about our QVC and HSN customer. I spent almost every week since I joined the company getting to know our customer, and not just from the research and analytics, but also personally and firsthand. In fact, almost every week since joining, I spent time on calls talking to core customers, best customers, new customers, and prospective customers, all with the purpose of gaining better insight into what they care about and what we can do as a brand to improve their experience, making it even more human and helping to accelerate our growth.
What impresses me most about those conversations, coupled with some key analytics around our customer, is just how stable and desirable this customer is, particularly at its core. As you can see, we attract a multigenerational customer, but the core is really between 45 and 70 years old. Candidly, that's a powerful cohort to own because as a group, they tend to be more loyal, candidly have more time and passion for shopping, and importantly, while they appreciate a deal, they will pay for quality and for connection. More on that later. I also think it's important to know as you compare us to the U.S. population, that as customers and their families grow, as their needs grow, as their incomes grow, our ability to capture share of that customer grows.
In fact, by 45, where many individuals are reaching their peak earning years, you can see we capture them at a ratio proportionate to the population. As David noted earlier, we hold on to many of these customers for decades as their wealth grows. The net-net of that, it results in a more affluent customer with significant buying power. In fact, our current 11 million customers spend more than $90 billion a year on the categories we play in. With some of those customers, our best customers, for example, we capture a significant share of their wallet. This also highlights that for those that aren't best yet, there's opportunity.
As we improve our experience, expand our video commerce ecosystem to reach them in more places and connect with them better with our brands and our products and our hosts and our inventors and our entrepreneurs, that we can inspire them to purchase more from us. Doing so requires us to be focused and to deliver even better on the attributes that are core to our customers. Let's spend a little bit of time talking about the attributes that really matter. The first of which is discovery. They want us, and not just our customers, but consumers want to have a constant flow of new ideas, new solutions, new products, and new brands brought to them that both inspire and can improve their life.
It's why our merchant team is constantly on the hunt for great brands, new products, both that we buy, some that we create with exclusive partnerships and others that we develop proprietarily in-house. All of this to create stronger connections with the customer. It's also why we have initiatives like The Big Find and Small Business Spotlight that David mentioned earlier. Next, they love connection. Back to that connection thing, not just with our products and our brands, but with our people. The personal connections we build at scale in our business are unique, and nowhere else in my retail experience have I talked to so many customers who have experiences like these, where they have these deep and abiding connections to our really our talent, our hosts.
Sure, a customer or two might find a store associate that they really connect with in a small specialty brand, or there may be a customer service agent that has done something special to make someone feel valued, but it's different here. When I talk to customers, I hear things like, "I know if David or if Colleen or Shawn," these are some of our hosts, "were my next door neighbors, we'd be best friends and drink wine on the back porch." That's a quote from more than one customer about that kind of connection. That's in addition to the connections they build when we bring them celebrities and inventors and we bring them into their homes or onto their personal devices live in a very human and a very authentic way, different than when they see them on the big screen.
We truly build relationships at scale like no one else, and it's part of the magic as to why our best customers are so loyal. Next, they seek knowledge. Our customers are savvy. They want the stories, the truth behind the products, and we do stories behind products better than anyone else. They appreciate learning about the little things and getting the most out of what they buy. That's because our customers are often the ones who their families turn to for solutions, both shopping and non-shopping. That's not hard if you think about your mothers or grandmothers or your sisters, or daughters who come with a strong point of view to help you. Convenience also remains a top priority.
There is something truly special about being able to tune in wherever you are, big screen at home, small screen on the go, and have expert hosts, amazing celebrities, incredible inventors, bring great ideas to you versus searching through thousands of product listing pages online or walking through endless aisles of stuff. We can all see how valued this is by consumers, though, by looking at the trends in the influencer community. It has really exploded over the last several years, as you know. People want great ideas brought to them for them to discover and buy. Our talent, our hosts, our entrepreneurs, our celebrities, our teams, our model, candidly, is successful at commercializing this need for discovery for anyone. Lastly, our customers, they appreciate a good value. Everybody does.
Here value is defined as bringing them a highly desirable product, solution or brand at a great price. At our core, we're terrific at curating these kinds of offerings. Rather than rambling on, I thought it would be better if you heard it directly from some of the customers we've heard it from recently.
I like shopping at QVC because of the variety. When I first got onto the site, HSN, and I found exactly what I was looking for, I was super excited.
It's nice because there's such a large selection and more likely to have more unique type of things.
I like that QVC not only has the channel that I'm getting now over the air. Their website is really easy to navigate, and that's one more place I can go to look for things.
It's a really great hybrid model to not only have what's going on in television, but also have it accessible via your mobile device and social media.
I just got really attached to the QVC app because I can just be sitting on my phone and scrolling and find something to buy.
It had everything that I wanted. There was kind of like a little video where you could see someone actually using it. A video is a helpful thing to kind of make sure that you're not getting a subpar product.
I think because I got to actually see colors and the styles and the fabric on people and get so much information about how they fit on all different kinds of sizes, it's kind of the next best thing to like being at the store.
I didn't expect it to actually be entertaining. Wow, these hosts are actually interesting. In the Kitchen with David got my attention. Oh my gosh, they have all this kitchen stuff, and even the food they have.
Oh, they have really good-looking food.
My whole kitchen has now become like a Curtis Stone, like, vault, and I've recommended his brand actually to others.
The Barefoot Dreams brand, I was never familiar with them until I saw them on QVC, and now I've purchased, oh my gosh, I can't even tell you how many items.
There's a lot of negatives going on in the world in life right now, and that's part of why I like having QVC on. It's just positive. In a way, it sort of changed my life.
It just has really kind of revolutionized the way I shop.
It's easy after a video like that to see why I love talking to our customers personally. It's not only our customers who value these core attributes. In fact, we see the market opportunity as much larger when you consider the number of American women that share the attitudes, values, the demographics of our current customer. In fact, including our 11 million, we see that opportunity as at least 50 million, and it's why we're focused on accelerating acquisition. As you know, we had a strong 2020 with growth driven in part by the impact of COVID, with consumers at large staying at home and looking for new places to shop. On an LTM basis, this year, we are down to 2020 as we come off that significant bump and we face supply chain challenges in key categories that attract new customers.
Even facing those headwinds, you can see that we remain ahead of 2018 and 2019, and we anticipate returning to a track record of growing new customers. There are a few things that we're focused on to help make sure that happens. The first is we're working on strengthening our position in the market to help consumers discover this powerful, more human way to shop. We're also diversifying our marketing investment. In fact, for the first time this holiday, we have a meaningful advertising campaign in market, helping both customers and consumers understand what we think the shopping experience should really look and feel like. We're reaching them in places outside of performance marketing channels we've traditionally used, like search, affiliates, and paid social. The reason is because we can tell our story even better in these channels.
This includes adding national television, digital video, radio, and digital radio, as well as some content partner partnerships. To give you a better perspective for how we see that story coming to life, let's just take a quick look.
The holiday hustle has begun. Click, click. Buy, buy. But what? What if you could surprise the loved ones on your list with gifts inspired by stories instead of stuff? Like, this isn't just a pot. It's Curtis Stone's love for his grandma who taught him to cook. Sure, this Barefoot Dreams cardigan is made of lovely material, but what it's really made of is the Annette Cook's drive to make the feeling of a hug into something wearable. Wow, wouldn't those be special stories to tell when the people you love so much open the gifts you put so much love into finding? That's the kind of inspiration you won't find stocked haphazardly on shelves. It's why at QVC and HSN, we're all about the stories behind our products and the stories those stories spark. That story?
Well, that's a tale for them to tell. At QVC and HSN, we bring life to products and products to life.
Great. Hope you appreciated kind of the way we see the shopping experience. We'll also continue to leverage, as you saw there, new products and service offerings to help widen the appeal of both of our brands. Of course, as David's already discussed, there's a real focus on growing our reach and building audiences through the video commerce ecosystem. We're having success in the digital channel onboarding customers. As you can see here, over the last several years, we've continued to increase the number of customers who make their first purchase online. In addition, we've increased the number of customers whose first purchase was for an item that was off-air, demonstrating that as we broaden our reach and invite more customers to shop us across the growing video commerce ecosystem, we can and will have success.
It's also important to understand that we bring customers in across our diverse assortment. This chart helps you see the diversity and concentrations of where new customers enter.
For most new customers, they come in across our home and electronics businesses, but we do have strengths in beauty and culinary as well, and we're focused on the opportunities we have to accelerate acquisition in apparel and accessories, which is why in the spring we actually tested a digital advertising campaign that features some of our most recent brand launches, like Candace Cameron Bure, which you saw a bit of from David earlier, as well as Jason Wu, all with the purpose of attracting and reaching new customers to invite them into our apparel offerings.
The results were promising, and it's why you saw Barefoot Dreams as a part of our holiday campaign. We also have an increased focus, as we get customers here of onboarding them, because we know getting customers to increase their purchase frequency accelerates retention and drives value.
You can see here, and it's not surprising, the more number of purchases a customer makes in a given year, the more likely they are to return. What is surprising is how fast that likelihood to retain accelerates here at QVC and HSN after just a few purchases.
We've also had success, talking about increased purchases, of converting our new customers into best customers, even on the back of that very accelerated growth in 2020. Which is important because as I close, I wanna remind you of the subscription-like power of the best customer.
Our best customers, as many of you know, are truly remarkable. The loyalty and strength of this group continues year after year, unlike anything I've seen in retail. It's rare to see a group of customers that are this highly engaged, buying 72 items a year, visiting the website 33 times a month, and tuning in 18 out of 30 days, and again, staying with us year after year.
It really is unparalleled, and in many ways, this group of customers behaves much more like a subscription model customer than a traditional retail customer. It's an incredible foundation upon which to build. It's been great to be here and share a bit of that story. On this note, I'll just say thank you and hand the virtual mic over to Jeff.
It's a pleasure to be with you here today. While we're still virtual, I hope we are getting closer to in-person gatherings. I'll spend my time today covering four key areas to underscore how we are poised to accelerate and grow shareholder value. To start, I'll share just a few of the numbers that exemplify our significant global scale.
Across the seven brands of Qurate Retail Group, we are a global media powerhouse, reaching more than 200 million homes and each day delivering 20 hours of live, enriching, and engaging video content to inspire our loyal customer base. Our 19 fulfillment centers deliver more than 300 million units to 24 million customers across three continents. We have over 150 team members who source exclusive and proprietary product from 35 different countries.
Across the macroeconomic landscape, the rapid pace of change in 2021 has not lessened, but we have remained resolute with our strategic actions to capitalize on new opportunities and introduce clever new ways to minimize the effects of unprecedented disruptions and cost pressures.
From a category perspective, as expected, our best customers rebounded and increased their penetration across many of our fashion categories, especially apparel. Beauty is starting to reemerge and demonstrate early signs of improved demand. As to be expected, we experienced a deceleration versus the pandemic highs across home categories and also in consumer electronics, largely due to supply chain challenges.
Unfortunately, we have not been immune to global industry-wide supply disruption, product scarcity, and cost inflation. To punctuate the impact to our business, 80% of our Today's Special Value products arrive late, and 60% were more than two weeks delayed.
On a typical day, this single product makes up 20%-25% of our customer demand. We schedule air time for these products 6-12 months in advance, with complementary programming for other products to supplement the day. When a TSV is unavailable, we necessarily shift to less optimized and less planned offers.
Finally, inbound shipping costs have more than doubled, and fierce competition for labor has substantially driven up labor rates. In response, we've increased prices to partially offset cost pressures. We've activated new supplier partnerships to access new fulfillment and transportation services.
We scheduled early inventory receipts to hedge ongoing delays and used our scale to procure a ship to bring in approximately 800 containers and address 70% of our overseas backlog. Where possible, we are diverting and rerouting shipments.
I believe it's important to double-click on category and viewership to provide some dimension of how supply disruption impacts customer purchase behavior. Brian spoke earlier about the importance of our best customer, who represents 73% of our shipped sales.
It's also important to recognize our new customer, who only represented 6% of shipped sales, but who we want to nurture and develop into our best customer. Note that our best customer overindexes to our fashion categories, while our new customer is overweighted to home.
The top three categories for best are apparel, beauty, and home innovations, and the top three categories for new are electronics, home innovations, and beauty. Electronics and home innovations were the two most impacted categories from supply disruption this year.
While beauty has been experiencing an industry decline for several quarters, it delivered an upsurge in September, and we plan to reallocate additional air time. With respect to category performance, electronics, home innovations, and beauty were all down versus last year, which had a very pronounced and expected impact on new customers.
As most lockdown restrictions lifted and customers re-engaged in daily activities, our best customers increased their spend in apparel and accessories, which are two predominantly proprietary categories that enjoy higher margins in comparison to national brands. Last point, our best customers have a higher penetration of spend on items that were aired within 24 hours of daily programming. What we broadcast matters.
With significant delays in TSVs, we chose to offer advanced orders to customers for many of these items, which meant customers would not receive their orders for several weeks or a month after purchase.
First, many customers let us know that they were less inclined to purchase with such long lead times. Second, since we recognize revenue only upon shipment, this pushed sales into future periods. In the third quarter of this year, we experienced pressure in our customer file relative to 2019, which was more of a function of new and reactivated customers whose decline highly correlates to the category performance we discussed. Shifting to a quick update on the QXH integration and cost savings initiatives.
Through September 2021, we achieved 80% of the targeted cumulative run rate savings and remain on track to deliver $375 million-$400 million in run rate savings through the end of 2022, with a modest carryover into 2023. The cumulative run rate savings applied against our trailing twelve-month revenues represent approximately 200 basis points.
These cumulative run rate savings fueled increased performance and retention marketing and expansion into other digital platforms. In addition, they absorbed a portion of the elevated network cost pressures the industry is witnessing. The impact of changing macro environment extended beyond our net revenue.
With the improvement and rebalance in category mix to higher margin fashion products and disciplined expense management, Qurate Retail Group and its largest business segment, QxH, delivered 20-70 basis points of improvement across product margins and operating expenses, which has been largely overshadowed by persistent and elevated inflationary costs, most notably in fulfillment and increased marketing spend as mentioned earlier.
Over time, the scale of this business unit and unit economics have delivered strong adjusted OIBDA and free cash flow. 2020 received a substantial boost from discrete working capital enhancements and an off-cycle year for TV distribution renewals.
With a relatively low level of capital investment and strategic tax planning investments, free cash flow conversion has remained steady. Now, I wanna take a moment and compare the drivers for working capital in 2020 versus 2021.
In 2020, working capital was a major source of free cash flow, primarily from reduced number of offered customer payment installments on Easy Pay and FlexPay programs, reduced inventory receipts reflecting uncertainty of customer demand in the early stages of the pandemic, extended vendor payment terms to align with customer installment payment options, and elevated expense accruals from outsized management incentives and increased profitability.
In 2021, working capital has been a use of funds from ongoing improvement in fraud and credit screening, yielding a reduced reserves for bad debt, advanced inventory purchases to hedge persistent delays, product scarcity, and elevated inbound freight costs, reduced payable timeline associated with directly sourcing proprietary product categories, and the return to normalized post-pandemic accruals.
We expect working capital to be more normalized in 2022. I'd like to wrap up with a quick review of our substantial cash flow return to shareholders, made possible by Qurate's strong cash flow profile.
In 2020, we paid $3 per share in a special cash dividends, representing a 48% return to the average adjusted price. In 2021, we are paying out another $1.25 per share special cash dividend, which still represents a 48% return since the start of 2020.
On behalf of our 28,000 team members, we appreciate your continued interest in Qurate Retail and look forward to possibly seeing you in person in 2022. We wish you a happy holiday season and prosperous new year. Shop early and shop often. Now I'll turn it over to Brian Wendling, Chief Accounting Officer and Principal Financial Officer.
Good morning to everyone from West Chester. Ben and the treasury team have already been busy in Q4. We refinanced the QVC revolver at the end of October, extending the maturity three years to 2026, with better pricing and upsized capacity to $3.25 billion.
We also expanded the borrowing group to include all Qurate subsidiaries, notably with the addition of Cornerstone, which has been posting fantastic results the last 20 months. We are also planning to redeem 100% of the outstanding MSI exchangeables by the end of the year with borrowings from the new amended revolver.
The market value of the exchangeable was approximately $550 million at quarter end and will be funded with $315 million of incremental draw on the revolver, and the remainder will be covered through proceeds received in the unwind of our MSI total return swap, where we had nice gains, effectively covering upside exposure on 94% of the underlying shares at an effective entry price of $171 per share, compared with a market price of around $250 per share.
We expect to owe $105 million related to the tax liability when we redeem the bonds, which is substantially reduced from last year. There are additional details on the DTLs related to the exchangeables in the appendix. This transaction further simplifies the balance sheet and should result in approximately $10 million in annual interest savings.
Leverage at quarter end, when you include the impact of the amendments to the covenant calculations, was 1.9x. The most significant amendment is the inclusion of Cornerstone's OIBDA and the inclusion of all cash balances in the net debt calculation.
Note that co-borrowers can be removed from the revolver at any time, assuming compliance with covenants and no drawn balance at the respective entity. This represents deleverage of half a turn, down from 2.4x at Q4 2019. We are maintaining our leverage at or below the target of 2.5x at QVC, and the impact of the MSI redemption should not be material to the leverage calculation.
Looking at the tax picture at Qurate, we expect our normalized annual effective tax rate to increase to 27%-30% in 2022 as the benefits of our clean coal investment sunset at the end of 2021. Clean coal had a low teens positive impact on our effective tax rate in the past.
We expect this increase will be temporary as we are actively sourcing new green energy investments and expect to have some of these projects online by the end of 2022, but won't see substantial benefit until 2023.
Our cash tax rate is expected to be approximately 12%-14% of adjusted OIBDA in 2022. The cash rate is driven lower than the effective rate due to the impact of contingent interest expense from the remaining exchangeable debentures.
We continue to opportunistically repurchase small amounts of exchangeable bonds to generate gains which allow us to utilize disallowed interest deductions, thereby maximizing deductions and managing the deferred tax liability at the same time. We also continue to look to Washington for any potential changes in tax legislation. At this point, a modest change in the corporate rate wouldn't alter our long-term plan for the remainder of the exchangeable bonds.
We're still undervalued relative to our peers, trading at 5.9x enterprise value to OIBDA. This compares to a median multiple of 10.1x for the peer group, while our levered free cash flow yield remains the highest in the comp set at nearly 22%. What to do with that type of disconnect between free cash flow yield and valuation? Return capital to our shareholders.
Jeff just showed you a slide that reflects a 48% effective dividend yield in 2020 and for the 21 months ended September 30, 2021. That number doesn't include the preferred dividend from last year.
That slide, of course, includes the $3 of special dividends from the prior year and the $1.25 special dividend that we just announced for an aggregate distribution of $495 million this year. We think this is optimal timing for the most recent dividend in the event tax rates increase in 2022. We're also returning capital in the form of share repurchases, with $267 million repurchased through October 31.
We are targeting repurchasing 10% of the shares outstanding as of December 31, 2020 by year-end this year, and where appropriate, we are using financial instruments to effectively lower our entry point into the stock.
23 million of these financial instruments settled in Q3, and the remaining 46 million settled in November. The settlement of these financial instruments is included in our target total repurchases for this year. We note that we have been returning a substantial portion of free cash flow to shareholders over the last five years, while still prudently managing the balance sheet and reducing leverage from 2.6x in 2017 down to 1.9 x at quarter end.
In looking at uses of excess free cash flow, here we're talking about the excess free cash flow that's available after the company invests in its business through capital expenditures, securing favorable channel placement, and investing in customer acquisition efforts. We've historically looked to share repurchase as an effective means to return capital.
Even after issuances for the Zulily and HSN acquisitions, we have retired 57% of the outstanding shares since the Liberty separation in 2006, and 35% of the outstanding shares since the Q4 2014 reattribution.
This has resulted in a meaningful increase in our per share metrics. We will continue to utilize share repurchase as an efficient means of capital return. We have completed or announced $4.25 of special cash dividends since the beginning of 2020, representing nearly a 50% yield, as Jeff mentioned.
The special dividends provide flexibility while also diversifying the capital return approach. We will continue to evaluate the needs of the business against excess cash, including one-time items, to determine if additional special dividends can be paid in the future. Lastly, debt and tax liability management.
We've already shown how our leverage has come down more than half a turn since 2017. We're also working our deferred tax liability down from $1.1 billion at 9/30/2020 to approximately $800 million at year-end 2021.
We will continue to invest in attractive green energy projects to lower our effective and cash tax rates. Regardless of where it comes from, we expect to continue to return the vast majority of Qurate Retail's excess free cash flow to our shareholders. Thank you for your time today and continued interest in the Qurate Retail portfolio of companies.
Welcome to Q&A, certainly a highlight of the day. With us today, we have President and CEO, David Rawlinson, and Executive Chairman, Greg Maffei. Thank you to everyone who submitted questions to us. We'll get right into the questions. We'll start with one for you, David.
Great.
You've spent a good portion of your career analyzing customer behavior. For a business like Q, building customer habit is critical. Can you talk about what we are doing now to make sure that these fulfillment and inventory issues don't alienate our best customers? What is or can be done to show customers how much we value them?
Thank you for the question, and it's a real honor and privilege to be here for my first Investor Day. In response to the question, I'd say there's no doubt that supply chain issues have been real issues for all of retail. It's affecting everybody. Fulfillment, delivery issues are top of mind, I think, for everyone right now.
We're working hard to close that gap between our order and delivery times, between the time from the order placement and the time to your home. We've made good progress on that. We've been attacking the backlog. That's been coming down. We're reaching something close to more normal levels as we get close to Black Friday, based on various actions we've taken.
We have seen improvement through the end of the third quarter and into the fourth in reducing our backlog and improving the delivery time. We think we can make continual progress here.
It's not close to normal levels, but like I said, we're in the best position we've been in many months, right now. We've been trying to keep proactive communication with our customers through the whole customer journey from order placement to after order, delivery.
I would say in terms of best customers, we've not seen a real impact in their performance. We haven't seen an impact in retention. We haven't seen an impact in frequency from our strongest customers. There's no reason to believe that the relationship has weakened. In fact, it looks stronger, even stronger.
With that said, given the magnitude of our best customers, we have to keep an eye on it. I would also say, finally, we look at things like customer surveys, NPS scores. We watch those scores very closely.
When we're performing poorly, they show up. When we're performing well, they show up. We have a number of ways to stay very close to how our customers are experiencing the supply chain disruptions, and we're staying on top of it.
We're gonna pivot to Greg for a question on capital allocation philosophy. You have an asset in Qurate that trades, carries a 25%-30% free cash flow yield. When a company carries that high of a yield, yet is not aggressively buying back stock, some investors conclude that management or the board does not believe in the company's future prospects.
What would you say to investors who make this claim about Qurate? And where can Qurate invest an incremental dollar that generates more than a 30% return, such that it justifies allocating your free cash to anything other than the buyback?
Well, thanks for the question.
You know, I think we've seen volatility in the cash flows. I'm not sure we've actually averaged anything like 25%-30% free cash flow yield this year, probably more below 20%. Still a meaningful number, and you've seen us therefore, as we have in many prior years, lean in heavily. We're gonna buy back something like 10% of the stock this year.
We've also pursued a strategy of one-time dividends or other kinds of distributions, like the preferred dividend last year, to try and meet a whole variety of investor needs and try and take advantage of what the capital markets want and how we can best deliver value to our shareholders.
Greg, a question for you then on capital allocation. You know, Liberty has repeatedly justified that cash dividends over the past year are justified given the threat of potential future increases in taxes. Presumably next year, that train may have left the station. How would a change or a potential change in tax policy impact the dividend strategy?
Well, I wish the tax world were quite as crisp as you're proposing. I think there's a lot of volatility still left. As I noted a minute ago, we have a group of shareholders who are definitely seeking dividends. We have in fact driven the majority of our cash flow over the last years into the buyback, and I expect it will be a meaningful piece of our capital return philosophy, regardless of what tax policy is going forward. Right now, I think there's certainly a lot of flux about what will be the tax policy. As we record this, we're still looking at, you know, the first infrastructure bill being done, the second reconciliation bill being up in the air, and what taxes will be there. That may or may not be resolved in the near term. To be seen.
I know we have more capital allocation questions coming, but we'll pivot back to David for another one on the business. At the end of the day, Q is a business driven by product. Can you talk a little bit about the merchandising organization at Q and why it can win in a very competitive and distributed environment?
Yeah, it's a great question. It's absolutely right that the product matters. Frankly, I think it matters more for our business model. Our customer expects to get to hear from the inventor or the company and to learn of special background stories or features. It's a major point of differentiation.
When we have the right product, this is a business that still sings. I would note a few things. If you look at Zulily, our fastest growing area is factory direct, assortment from the source directly to our customers.
In Cornerstone, the vast majority of the product is not only exclusive to them, it is designed and sourced by them. Then when you look at QxH, our exclusive brands, our ability to build product in partnership with a personality is truly distinctive.
A majority of our products are exclusive, either because it's a house brand or because we have an exclusive size or bundle, or because we partnered with someone to create a limited run. In the last couple of years, going to the merchandising organization part of your question, we've remade the merchandising operation.
That's improved the ability to execute. Part of what that was designed to do is to make sure that buyers spend their time buying and not on administrative tasks. We feel like we've gotten that organization in a better place operationally, and now we're continuing to add more of an outside view of what's happening in the market and what's happening across market share. There's more to do there, but there's a lot of progress that's been made in the merchandising organization.
The final thing I would just say when it comes to product is this business can still do very special things. We recently had a launch with Iman. She's launching a new perfume. It launched this week. It was featured in Vogue. It's the first time she's talked in depth about her feelings and relationship with David Bowie.
She did it in concert with HSN. She said she did not want to put in words her feelings about her loss. She wanted to do it through a scent. That scent is available exclusively through us. That is a product. That is a product launch. That's what this business is still capable of doing. When we do that, we win.
That's great. You touched a bit on this too, but on the customer. We'll dive deeper there a little. The customer count in most recent quarter was down versus 2019. Couple questions on that. One is, you know, what drove that and also how can we be guaranteed or assured that the 2020 bump we saw wasn't just a one-time bump in the customer file?
Yeah, great question. We have to disaggregate a little bit the customer count. The customer count reduction in Q3 was really driven by the lower end of the customer file. If you look at the upper end, our best customers, 20-plus purchases or our elites, 50-plus purchases, they were steady to up mid-single digits on a shipped sales basis to 2019.
Continuing real strength in customer count there. In Brian's earlier presentation, he talked about the fact that those customers consistently drive a majority of our revenue, so that still feels very solid.
On the lower end of the customers file, what you're seeing is category dynamics really playing out through the business, and those category dynamics are combining with supply chain and supply pressures.
The new customers have been over-indexed on things like electronics, which are places that usually bring them in disproportionately, but have been abnormally affected by our supply chain challenges. You saw a close corollary to this last year.
You may remember there was some weakness in apparel, which is a strong category for our best customers, and so you saw weakness in our best customers. Once we got apparel back, our best customers came right back.
We think that the tie to new and occasional customers to areas like electronics, some other categories, has been a headwind. In a more normalized environment, we think we'll be able to get back to growth. Now, I would recognize 2020 was an exceptional year. We had just an extraordinary crop of new customers. Post-pandemic, that's probably not a reasonable comparison.
We do think we'll be able to get back onto a pre-pandemic steady growth of customers, and we're gonna be working towards that. Final note I would make is we did see some challenges in marketing, and so we saw some drops in marketing efficiency. I think you've seen this across the industry, some of that attached to the iOS changes, but also some more episodic things like printers were having difficulty.
We cut catalog production by 20% just because there weren't enough people to print our paper to get catalogs out the door. As it turns out, catalogs are one of the most cost-efficient ways to acquire new customers. There were a number of headwinds that feel like were pretty unique in Q3.
Let's talk about the digital strategy. I know it's certainly a hot topic. You've mentioned needing to act with a sense of urgency in pivoting to digital for Q. What's your assessment, you know, coming to the business of where we are from a competitive position with our digital assets and what needs to be done from here?
Yeah. Well, I like our starting position. I think it's still early for Qurate. It's still early for the industry. Today, the business is still reliant on our foundation, which is in linear TV, in our traditional e-commerce engine. We showed some stats earlier. Obviously e-commerce is doing very well for us. Both of those are fundamental, profitable.
They work very well. I don't think the story about how digital video will be connected to commerce has yet been written. There are many people trying a lot of different things, everybody from major retailers to the tech giants to entrepreneurs. Just last weekend, actually, I met with an entrepreneur who got venture capital funding because he was trying to build the QVC of the future. That's what he put in his pitch deck.
I think we're at this moment where there are many players, and they're trying many approaches. We can look at Asia, and you can see a level of success with sort of live streaming video commerce in a scale that hasn't been replicated in North America or Europe yet. My bet, and I think the bet of a lot of others, is that this level of success is coming here. The question is, who's gonna win?
I think you can see the trajectory pretty clearly. If you back up, what everybody is trying to create is the thing that QVC and HSN already created. It's this ability to take commerce and entertainment and combine them, and to be able to capture eyeballs and translate those eyeballs directly into purchases, not just into advertising dollars.
The only person who's done that, the only company that's done that at scale, is Qurate. We now need to bring that special talent to all the new digital platforms. I think that's the work. I think nobody's figured it out, but given what we do already, I like our starting position.
Yeah, I think we've all seen the headlines, the QVC, right, only increasing in abundance. A follow-up on that, it's very clear that video selling is a core competence for Q.
Yes.
How do you adapt that competence when you look at doing the content on different platforms?
Yeah, well, I think it's an evolution. I think the first step is you have to be there to play. As I described earlier, I think we're largely there. We're just about on every platform. We're present on the vast majority of live streaming TV services, and we're working on the remainder. We're doing something with just about all the social streaming companies.
W hen you look at what we've done with our own streaming video and apps, we're right there. Where everything is moving, we have a presence. I would also point to our live streaming video event. We put on 200 hours of live content in 49 hours.
What was so interesting about that event is it was streamed not only across our normal linear TV, not only our own streaming services and apps, but we also had live streams on YouTube and TikTok and Facebook. We were managing four -six live streams at a time during the whole event across numerous platforms. We learned a lot technically.
We had to overcome some technical barriers to that. We saw what was successful. We were very happy with the way the event turned out, and I'm not sure anybody's done that much live programming of that many programs at that scale before. We're engaged, we're present, we're iterating, and we're learning. I think that puts us in a really good position to continue to make the transition.
We'll have to try to check out replays if we can of the content that we did that weekend.
Check them out and buy something.
Note to all on that one, for sure. Okay, turning to international businesses. Those have been performing very well recently. Can you explain some of the nuances of the international markets, what makes them both similar and different than the core U.S. markets?
We continue to see real opportunity in our international markets, and we believe they'll be consistent growers over time. Although they have not been spared the impact of the pandemic, our operations in Europe especially faced real difficulties. We saw canceling of TSVs 30%-40% between Germany and the U.K. Product scarcity and supply chain constraints have really hit those businesses.
Just like in the U.S., we're starting to see some better flow through. What's interesting was to observe. They went through different patterns of lockdown and different patterns of coronavirus spikes, and so we did see that affect buying patterns differently. We're on slightly different rhythms across the world in our core video commerce enterprise. It's been inconsistent from that standpoint.
Japan, I would point out, 10 quarters of growth. We continue to be really excited about that business. The team is executing very well, but we also continue to be very excited about Europe. We think there are years of growing demand, pent-up demand for our model, especially in the U.K. and in Germany, and so we're excited about that.
When I think you—if there's so much noise in the last year, if you look at those businesses on a two-year stack, it's even more remarkable. So obviously you can tell we have a lot of confidence in those businesses. The final thing I'll say is it gives me more confidence about the digital transformation. One of the remarkable things is that the core video commerce formula that we have has worked across the world.
It's worked across cultures. It works in the U.S., and it works in Japan, and it works in Germany. What that tells me is that there's something core, a core desire that our business model speaks to, and that that can speak to that desire across countries, but it can also speak to that desire across platforms as we move to new digital platforms.
You know, every retailer talks about shipping and handling and then what we're seeing in that, in that space. In the past, Q has dismissed the need for fast shipping, but consumers might not wanna wait two weeks to get a package or long time. I think that's a little overstated on our shipping times for Q, the way this was phrased.
Even if the current cohorts are willing to wait, we worry whether the future cohorts will similarly be willing to. First question to clarify, what are the current ship times roughly for QVC and HSN? Do you think they need to change? Your overall views, I think, on the shipping and handling landscape in retail.
Yeah. Love it. Obviously, I can't speak for past leadership and what they said. I don't think they dismissed the need for fast shipping. I know a lot of work has been done, and we continue to do on network optimization. It's designed to allow us to get our shipments out quickly and efficiently to our customers.
I will say, we can see in our data very directly the impact of declared delivery times on demand. It's not an impressionistic question, it's an empirical one. We see the satisfaction levels of our customers, and we can cut the data by delivery times. We know with some precision the effect of shipping times on the current and prospective customer. I would also note, I think that we see today extended shipping times for just about everyone across the industry.
After years of training the customer to expect faster and faster shipping and to expect free shipping, the market is now going the other way with shipping charges and longer lead times. Those who led with a fast shipping promise are often now pushing options for you actually to delay your package to give them some relief.
I think ultimately the direction we were headed as an industry was probably not sustainable, and I think we're gonna level out in a more sustainable place. I do think we ultimately have to get better at delivery. We're better than we were. We're gonna get better still. It's only one part of the value proposition, and so I think you have to measure it in terms of the whole value proposition.
I doubt we'll ever be the absolute fastest. I think our goal is we need to have a competitive delivery promise in the market, which I think is very achievable. I think we need a total value proposition that's distinctive.
Finally, I will say there are times when it's extremely important. If you look at gifting during the holiday season, being clear that an item will be there for the intended holiday is obviously critical. We work really hard to be transparent and to meet our customer expectations during times like that.
Greg, we'll turn to you with a mechanical clarification, if you will, on the capital returns. We mentioned on our last call, targeting repurchasing 10% of our share count by year-end. By many, many people's math, that implies a substantial share is still to be purchased by year-end based on what we've repurchased to date. Are you planning to do all this with open market purchases, or any comments on that target of 10%?
Well, as always, I'm impressed with the math capabilities of our shareholders, and I think their math's probably pretty good there in terms of what we bought and what we intend to buy. I'm happy to reiterate that we're still looking to buy 10%.
I'm probably less happy to talk exactly about the means just 'cause I think that's market signaling we don't need. I would, however, point out in a hint that you may have noted we did some derivative transactions earlier in the year, and that may be part of the calculation.
We'll make sure IR handles any of the follow-ups on that one too, of course. That's all I'll leave you. Okay, we'll turn to Zulily. David, I'll ask you a question. Greg, of course, if you wanna comment as well. You know, while the acquisition predates you and your time here, David, the Zulily business has had turbulent performance since it joined Qurate. As a fresh set of eyes, how do you think about Zulily and what the strategic alternatives might be for that asset?
Yeah. I wouldn't say I'm not sure I'd say it's been a consistent drag. If you look at Zulily last year, they grew revenue mid-single digits. They grew OIBDA over 70%. What I would say is they've certainly been inconsistent, I think, in some of their performance.
As I talked about in my comments earlier, what we see today is really a perfect storm for that business model between the marketing challenges, supply chain challenges, and other things that have hit the business. What I like about them and what I think they bring to our portfolio is they've always had this human experiential component. They've always concentrated on bringing joy to mom. That's an incredible value proposition.
It fits right in the heart of what we wanna do at Qurate, which is to be to stand against the more transactional type retailers and to be a more experiential, more human retailer. Zulily, I think, does that very well. I think we always have to look at all of the options, right?
All of the ways to create values for our customers and our employees and our shareholders. We'll continue to do that with Zulily. Zulily is at a scale where it could be a standalone business. Zulily could be combined with other similar businesses. But Zulily also really enhances the digital DNA by being a part of the Qurate group as well.
We're optimistic about the future of the business, even though they're in a little bit of a perfect storm right now. We think they bring a lot to our group, but we also think there are lots of options when you have an asset pointed at something that powerful, right? $2 trillion worth of purchasing power for moms. The addressable market for that business is absolutely massive. There's a lot you can do with that.
Yeah. Shane, I'd add, I'll agree with all of David's comments. Definitely the case that Zulily's fought many, many headwinds. We've looked at various times at ways to maximize that value, and I think there still are partnerships or other alternatives which could be quite attractive.
I do think we have gained, even if it doesn't always reflect in the P&L from the digital DNA that is inherent and built into Zulily, which was a transition that Qurate has made and QVC, QXH have made very well, but I think have definitely been helped and accelerated by the Zulily experience. That having been said, we want better performance out of them. They want better performance, and I think we have a path to do some of that as well as ways to gain value.
Let's talk about marketing for a minute. Obviously, very relevant to Zulily, but this is actually a question to the Q business at QVC. Do you believe that materially higher marketing and customer acquisition spend may be required for Q to consistently achieve top-line growth in the years ahead? And how do you think about the IRR threshold for any potential spend?
Yeah, great question. I'll answer it. For QxH, QVC, and HSN, we don't see materially higher marketing spend as being needed going in the next year. I would point out we've grown marketing spend pretty substantially over the last few years, and we think we can optimize that spend this year and get more for the same spend.
That said, we're gonna stay close to the returns. If we see an opportunity to spend in a way that clears our internal hurdle rates, we will do so. I would also note that we tend to think about marketing in terms of getting to break even on the marketing expense, and we manage that tightly.
I don't think we have disclosed our hurdle rates for obvious reasons, but I will say, having run a business that helps companies manage marketing, capture market share, measure ROI on media spend, I think we do reasonably well there.
Okay, Greg, we'll go back to you. For a number of years, there's been an effort to simplify some of the entities that Liberty controls. For example, Qurate has evolved into more of a pure play retailer. What advantage have we gained from that? Some of us prefer the old, more complex model. Why not give up on the pure play retailer idea and create a new Liberty Ventures inside of Qurate?
Well, I think if you look at the longer arc of what we try to do during really the whole existence of Liberty, and certainly during my 16 years, it has been try and build more focused entities. Part of that's been the tracking stocks. Part of that's been getting rid of a minority positions where we didn't think we had a long-term attractive play or the ability to provide real influence.
That having been said, look, I'd like to think we're good at capital allocation, and we at various times, as you know, with Liberty Ventures, have taken pretty big bets on the side that were out of what was our then core business. For example, the investment Liberty Broadband, Liberty Broadband/Charter turned out pretty well.
We weigh that, those opportunities, and we see them against sort of what we try to tell the marketplace about their expectations and where we're going. If we find another Liberty Broadband, trust me, we're gonna make that investment, and we'll explain hopefully to our shareholders why we believe in it and they should believe with us.
Okay. Then we'll do another one on the balance sheet, actually. We're more than a decade into a bull market driven by deliberate asset inflation to create a wealth effect. John has always run a levered equity model. Greg, would now be a good time to take the leverage down a bit for a while to see what risks and opportunities emerge? Interesting follow-up to the prior question.
Yeah. Look, we certainly see the rise in asset values across all categories. You know, if you see someone like Elon Musk talking about how this is 1,000% more wild than 1999, you know it's a fairly bullish environment. We have tried to do a couple things. First of all, the leverage has come down about a half a turn in the last year or so.
Secondly, we try to take advantage of the low interest rate environment, extend maturities, push out the debt that we have. Seems like it's a good time to raise debt, maybe less attractive time to spend the money. We're looking at those alternatives. You know, it's hard not to wanna play and find opportunities, but we are certainly mindful of what kind of environment we're in.
Great. David, we're gonna close with this question for you. You touched on this briefly in your presentation earlier today, but in your initial months with Qurate, we'd love to hear what has really surprised you while getting under the hood of the business. Can be positive or negative. Any initial reflections?
Yeah, it's a great question. I would certainly say I underestimated how subject we were to supply chain concerns. I think just about every business has been impacted, but the ripple effect of missed special values promotions is unique and powerful in our business. That's getting better, but it was probably initially more impactful than I imagined. I will say I found a firmer cultural foundation at the company than I knew.
People care about their customers. They care about this business. They care about the community. They care about each other. I underappreciated how much heart there is in this business. I probably also underestimated just how much our customers care when they have a reaction to something. They don't hesitate to let me know.
They were very quick to find my contact information, so that was probably a little bit unexpected. Finally, I would just say on a serious note, I get to work with John Malone, who's on my board, and Greg, as my chairman. I think two of the best strategists and capital allocators in history. That's just an incredible privilege and probably an even bigger one than I knew when I joined the company.
Well, happy to have you.
Thank you, David.
Thank you to you both. Thank you to the investors for your questions as well. I believe this concludes our Investor Day today. Thanks everyone for joining and to the Q team as well. We hope you enjoyed our Qurate Investor Day.
Thank you.
Thank you.