Wayfair CastleGate, Amazon, & FBA vs FBW

“It seems to us that the basic building block of internet retailing, its skeletal structure, is far more robust, scalable and cheaper than the high street equivalent.' - Nick Sleep, Nomad Investment Partnership Interim Letter, 2007

This quote by Nick Sleep is always in the back of our mind when we’re studying internet retailers. When looking at new categories moving online, we question whether the building blocks of an ecommerce model are more durable than incumbent brick and mortar retailers. For example, does an online furniture retailer have an outsized chance of owning more market share than a traditional retailer?

We interviewed a Former Global Head of Fulfilment Engineering at Wayfair to explore how Wayfair solves the problem of delivering furniture online and why a potential solution could create a competitive advantage over traditional retailers.

Wayfair is not a typical furniture retailer. In fact, it’s possible that framing Wayfair as a retailer is completely missing the point. Consider this quote from our interview:

“At one point, there was a conversation around turns which, in any other fulfilment world, would have been topic one. It was verboten in CastleGate; initially, we did not talk about turns. The reason being that it’s the supplier’s inventory; it’s not ours, as Wayfair. It is their decision what to do with it and we’re not going to force them to turn it because it’s not that type of relationship. It’s a different model from the one Amazon has.” - Former Head of Global Fulfilment Engineering at Wayfair

It’s rare you find a retailer that is not laser focused on turns. However, the quote is less surprising after considering Wayfair's history.

Wayfair started as hundreds of standalone SEO-optimised websites offering every individual category of furniture. Each website was effectively lead generation for third-party furniture manufacturers who didn’t have the expertise of selling direct-to-consumer.

One aspect of home furnishings is that the vast majority of the category is unbranded goods which makes it difficult for customers to find products they want and even harder for suppliers to sell DTC. This sparked the original insight of creating Wayfair: by merging all the websites into one brand, it could aggregate demand online and build loyalty with customers.