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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 and the company has stopped reporting CastleGate penetration. Suppliers don't seem to be storing as much inventory in Wayfair's FCs as 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. 

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 breakdown 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.

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