Wayfair CastleGate, Atlas Copco, Cardlytics, Boohoo, Becle, BioLife, Dino Polska, Instructure

Content Published Last Week

1. Wayfair: CastleGate vs Drop Shipping Unit Flow

2. Wayfair: Drop shipping: Supplier Perspective

3. Atlas Copco Compressors: A Customer Perspective

4. Cardlytics: Billings Growth Opportunity

5. Becle: Agave Price Trends, CRT Inventory & Possible Remedies

6. Dino Polska vs Biedronka: Fresh Meat

7. Boohoo & UK Fashion Supplier Relationships

8. BioLife Solutions: Stirling Ultracold, Cold Storage & Strategic Review

9. Instructure: Competition, Hybrid Learning & Higher Education Market

Wayfair: CastleGate vs Drop Shipping Unit Flow

On average, Wayfair claims that 20c of every $1 of large and bulky items sold online goes to fulfilment and delivery. Wayfair’s CastleGate supply chain aims to cut this cost. Since 2013, the company has acquired an NVOCC licence and built out ~20m sqft of warehousing and 9 consolidation centers across Asia to ship products quicker and cheaper for suppliers and end customers.

However, the penetration of CastleGate seems to have stagnated at ~20% of total sales. The company has even stopped reporting the figure. Suppliers don't seem to be storing as much inventory in Wayfair's FCs as once expected. This is important because CastleGate items are 20% cheaper with 50% faster delivery than drop shipped items and seem to be a core factor of the long-term investment thesis.

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Over the last few months, we’ve interviewed multiple furniture suppliers to understand how a bulky item flows from a Far East manufacturing facility to a US customer.

This value chain analysis walks through each step of shipping a 20ft container of large, bulky items from Ho Chi Minh to New Jersey within CastleGate compared to a traditional drop shipping network.

Over the coming weeks, we also plan to publish a supplier survey on how they use CastleGate and potential limitations to CastleGate adoption. We will also break down the unit economics from a supplier perspective of shipping an item through three competing channels: CastleGate, drop shipped on Wayfair, or via Amazon / other competing brick and mortar retailers. This will help us to understand the value of CastleGate and any potential competitive advantage Wayfair has selling large and bulky items. Feel free to reach out if you have any specific questions around Wayfair or the furniture industry.

Atlas Copco Compressors: A Customer Perspective

For over 100 years, Atlas Copco has been building and selling air compressors at 20%+ EBIT margin and 80%+ ROCE. This interview with an Atlas Copco customer is the first in a series to better understand its products, industry structure, and the opportunity for Atlas.

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The customer managed global maintenance and services across 19 plants manufacturing auto brake pads. Sourcing and servicing each air compressor was a critical part of the plant's operating process:

There were 19 plants situated globally. I'm not sure if you're familiar with it, but there's something called a plant criticality assessment. It's essentially a comprehensive risk assessment for a plant, based on a certain set of criteria such as age, maintenance history, and availability of spare parts for the machine. This assessment identifies the most critical pieces of equipment on the plant. From this risk assessment, we would then conduct a machine criticality assessment, starting with the top three. The machine is broken down into components, each of which is assessed under a risk assessment. This process drives our spare parts inventory. In parallel to this, we also assess non-process critical equipment. A compressor, for instance, is non-process critical, but it is crucial for the plant to operate.

The interview walks through how a plant acquires an air compressor, comparisons with Ingersoll Rand, and how Atlas can compete with Ingersoll's lower pricing.

Cardlytics: Billings Growth Opportunity

Cardlytics has struggled to grow billings outside of traditional performance marketing. This former Strategic Partnership Executive who worked with major retailers describes how brand marketing budgets are set:

Leadership in these types of companies believes they should be able to engage with the most senior leaders at the company, such as CMOs, CEOs, and CFOs. However, unless you can demonstrate how you're making a significant impact on the company, you'll likely be confined to either an affiliate marketing channel or a paid performance marketing channel. These budgets are usually determined behind closed doors, and you get a fixed amount to spend. - Former Strategic Partnerships Executive at Cardlytics

Being group within performance marketing budgets seems to limit Cardlytics’ billings growth. Despite challenges, the executive believes ROAS is effective and offering SKU level data will unlock significant value:

I firmly believe that they will continue to be the leader in card-linked advertising, even five years from now. Banks aren't going anywhere. I don't believe banks can do this themselves. Chase took a long time to come on board because they wanted to do it themselves. But at the end of the day, you need technology, resources, boots on the ground, sales, operations. You need a lot to get a program up and running at the scale that Cardlytics can. If they can make the Bridg acquisition work in a scalable way and connect the dots with SKU level data, creating additional value for the banks and customers, I see potential. - Former Strategic Partnerships Executive at Cardlytics

Boohoo & UK Fashion Supplier Relationships

This interview with a Bangladesh-based garment supplier to Boohoo, Next, and various other UK / EU fashion retailers explores how supplier relationships are evolving. Over the last few months, BOO has demanded 15% discounts on all garments from suppliers:

Yes, they asked for a 15% discount. I refused because I didn't even make a 15% margin on them. They sent me a debit note and deducted it automatically since they're holding my shipment. I'm still arguing with them about this. - Boohoo Supplier

We believe this pricing pressure could be driven by SHEIN’s growth and lower pricing in the UK forcing competitors to react. We explored how SHEIN operates a few weeks ago:

Initially, they were paying 30 days from the FOB (Freight on Board). I submit the invoice because they are bringing on FOB. Then they said they'd pay in 45 days if we gave a 1.5% discount, or in 75 days without a discount. I chose 75 days because 20 days doesn't make a big difference to me. Even after this agreement, they imposed lots of things that increased costs for the suppliers. - Boohoo Supplier

This interview explores how suppliers are having to adapt to quicker supply chains and how different retailers are changing the way they design and source fabric and finished garments.

Becle: Agave Price Trends, CRT Inventory & Possible Remedies

After a few years with high Blue Agave prices, the overall market supply has grown significantly. This interview with an agave buyer for Tequila brands discusses the state of the Blue Agave inventory:

So, we are producing less volume than last year, and we are using less agave because more of the production is mixto tequila. Therefore, we are using less agave than last year. Given these numbers, we have enough agave to produce Tequila for between 13 to 18 years, assuming no growth.

With many small new farmers entering the market, a slowdown in growth, and a shift towards Mixed Tequila, the actual numbers of Blue Agave plants used is not growing. Current inventory levels could satisfy quite some years of Tequila production even with modest growth in the category.

Dino Polska vs Biedronka: Fresh Meat

In villages where Biedronka competes head-to-head with Dino, Biedronka's meat counter profitability is 30% lower than the company average. Biedronka resorts to applying additional discounts on other SKUs in order to drive more traffic to its stores.

When a Biedronka store is located side by side with a Dino store, the competition for customers is intense. Biedronka cannot compete on price due to Dino's ownership of the meat processing facility. They sacrifice their profit margin and run promotions on other products across the store, in that location, to attract customers. - Former Head of Fresh Meat Offering at Biedronka

In this interview, the former head of Biedronka's fresh meat offering sheds light on how this business line was built and evolved throughout the years.

BioLife Solutions: Stirling Ultracold, Cold Storage & Strategic Review

BioLife Solutions is down 75% from its 2021 peak. The company has struggled integrating the Stirling Ultracold acquisition and is contemplating a sale of the asset. Such challenges were explored in detail an interview with the former CEO of Stirling and President at BioLife Solutions:

"However, the executive management team, excluding probably the quality lead for the business, was not designed to manage the complexities of a hardware business. They treated these assets as separate standalone entities with little integration. They were managing the business like a holding company, where each of the respective businesses were standalone and measured as such. As the Chief Operating Officer, I had a few opportunities to help them examine the supply chain. There were a few leverage points, but not many. - Former CEO of Stirling and President at BioLife Solutions

There seems to be an inherent lack of synergy within the two businesses:

"The challenge in terms of leverage comes from these separate touch points and selling processes. When we brought over the memory, one of the challenges associated with BioLife buying Stirling and CBS business was the hardware affinity, recognizing that their mindset had been primarily around the media business. This creates a dynamic in terms of how to take this media business and make the appropriate touch points in a hardware-based environment. There are different call points in terms of who's actually using the media business versus who is actually buying freezers. More operational people are buying freezers, while more scientific people are buying the media. This creates a dynamic that doesn't provide the appropriate leverage. - Former CEO of Stirling and President at BioLife Solutions

If BioLife decides to sell Stirling Ultracold, the executive explores potential buyers and valuation in the interview.

Instructure: Competition, Hybrid Learning & Higher Education Market

Instructure's Canvas LMS has taken significant market share in Higher Education over the past decade. This interview explores the RFP processes in customers choosing LMS providers:

"Reporting is crucial for accreditation purposes. Accreditation bodies typically require separate analytics for online and traditional schools. This separation is challenging within Canvas due to the way courses need to be set up. However, D2L offers the flexibility to extract the necessary information in a single instance, and it provides a wider range of categories for more detailed breakdowns. For example, it allows you to distinguish between a non-traditional student who only studies online and a non-traditional student who attends a hybrid class."