Disclaimer: This In Practise Investor Dialogue is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.
In Practise Investor Dialogues gathers a group of professional investors to explore the value drivers and risk factors of a specific business, moderated by In Practise. Attendees are selected on the basis of the depth of their knowledge of the security that is subject of the dialogue.
Analyst 1: Yes, I can go ahead and share my thoughts on Temple & Webster's perspective, as well as the management team's view. They are essentially the Australian equivalent of Wayfair, and they have followed the Wayfair blueprint almost exactly for a number of years now, except for investing in CastleGate. This is the one adjustment they have chosen not to make. Their perspective is that CastleGate does not provide Wayfair with a sufficient competitive advantage to justify the cost of building it. I've questioned them intensively about this over several years, including the CEO and CFO of the company. Their belief is that their primary competitive advantage is the ownership of top-of-mind status as a marketplace. So, if you need to buy a new coffee table, Wayfair instantly comes to mind and you go there. Everyone is familiar with the marketplace dynamics and the reduced customer acquisition costs for repeat purchase behavior and things of that nature.
I generally agree with them on this, although I hold this idea very loosely and I'm interested to hear everyone's thoughts. There are many positive arguments that can be made for Wayfair to implement CastleGate, such as reducing the damage ratio, faster fulfillment times, and the potential for a decrease in fulfillment expense as a percentage of sales. They generally view these as marginal or potentially negligible, a very incremental increase in competitive advantage, if at all. The primary advantage, in their view, is the ownership of demand, not necessarily the supply. I'll leave it at that because I'm really interested to hear everyone's thoughts.
Analyst 2: Can I ask, I haven't looked deeply into the company at all, so I'm not familiar with this. Do they (Temple & Webster) handle last-mile delivery, or is it all drop shipping, third-party drop ship?
Analyst 1: 75% is drop-shipped and 25% is in-house that they (Temple & Webster) own outright. This is primarily the top-selling items because they have access to the data. They know which items are going to sell the most, so they own those outright because they can collect a higher margin on that.
Analyst 2: Do you know their mix of small and large parcels?
Analyst 1: No, unfortunately, they (Temple & Webster) don't provide that data.
Analyst 3: The top-selling SKUs, I believe you mentioned 25%. If they (Temple & Webster) don't have their own logistics assets, how do they manage? You mentioned that they fulfill those orders themselves. How does that work?
Analyst 1: Yes, they do own their own logistics for the items that they own. However, that amount, which makes up 25% of sales, accounts for less than 1% of the SKUs listed on the site.
Analyst 3: Do they own warehouses? How does it differ from CastleGate?
Analyst 1: Well, they own their own warehouse as a retailer, which accounts for 25% of sales. However, as a percentage of the actual items listed on the site, it's less than 1%. Does that make sense?
Analyst 2: So it's somewhat relevant, right? Because there's a massive deviation from the 80-20 rule. It's much more skewed than that. Less than one percent of SKUs doesn't mean anything if you have 100 million SKUs? I don't know how many SKUs they have, but that's not the point.
Analyst 3: I just don't understand the difference between what you're describing with Temple & Webster and CastleGate.
Analyst 2: They don't do it for third parties.
Analyst 1: They're not a third party, right. Apart from the 1% of the items that are not their own, they're listed on the website; that's all drop shipped.
Analyst 3: Do they own the inventory? They purchase the inventory from suppliers.
Analyst 1: Yes, that's correct.
Analyst 2: That's also quite different from Wayfair.
Analyst 1: Yes, it's fairly different. Right.
Analyst 2: That means they're competing against their third-party suppliers.
This document may not be reproduced, distributed, or transmitted in any form or by any means including resale of any part, unauthorised distribution to a third party or other electronic methods, without the prior written permission of IP 1 Ltd.
IP 1 Ltd, trading as In Practise (herein referred to as "IP") is a company registered in England and Wales and is not a registered investment advisor or broker-dealer, and is not licensed nor qualified to provide investment advice.
In Practise reserves all copyright, intellectual and other property rights in the Content. The information published in this transcript (“Content”) is for information purposes only and should not be used as the sole basis for making any investment decision. Information provided by IP is to be used as an educational tool and nothing in this Content shall be construed as an offer, recommendation or solicitation regarding any financial product, service or management of investments or securities.
© 2023 IP 1 Ltd. All rights reserved.
Subscribe to access hundreds of interviews and primary research