Wayfair: CastleGate Multichannel Fulfillment

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Thank you for sharing that background. It broadens the conversation I'd like to have with you. Let's start with CastleGate. They made a major announcement about opening CastleGate as a 3PL. I'm curious about the decision-making process and the technical aspects involved. We can also discuss the potential outcomes. But first, let's talk about the legacy of CastleGate and the problem this change aims to address.

However, the Wayfair team struggled to get inventory into CastleGate because of costs from the customer side. Customers had to pay storage fees, and inventory got locked into Wayfair. If it was within supplier warehouses, they could sell through other channels, not just Wayfair, like Amazon and Walmart. Issues started to arise, such as inventory aging in CastleGate. That's when they considered offering multi-channel options to suppliers and began piloting it. I joined Wayfair around that time. One of my peers started the multi-channel pilot, and we encountered many technical issues, particularly with workflows and order processing from suppliers. It was chaotic at that time.

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Was this mostly meant to give more confidence to existing CastleGate customers to put more inventory into the program, or were those 300 to 500 participants in the multi-channel new customers? Was it mainly to attract new customers into the program or to satisfy existing customers?

Another impetus was the low penetration of CastleGate, which was at a multi-year low. Walking into a warehouse, you could see a small portion with activity, while the rest was empty. Empty conveyor belts highlighted the cost. They explored ways to improve penetration, including multi-channel, enabling multi-box products in CastleGate, reducing storage fees, and removing pick-pack and shipping fees. Multi-channel seemed to have the potential for the biggest impact on CastleGate penetration. This made it more relevant for leadership to focus on bringing this offering on par with others.

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