Wayfair Supplier Survey, ASOS, YELP, Countrywide & UK Housing, Cardlytics, Tecsys

Content Published Last Week

1. IP RESEARCH: Wayfair CastleGate: Supplier Survey

2. Yelp vs Google: SMB Ad Agency Perspective

3. Vistry Group: UK Housing Partnerships Model

4. ASOS & UK Fast Fashion Manufacturing and Supplier Operations

5. Cardlytics & American Express: A Card-linked Offers Comparison

6. Tecsys: Warehouse Management Systems, Healthcare & SaaS Transition

7. KX: A Customer's Perspective

Wayfair CastleGate: Supplier Survey

As we’ve previously discussed, one factor in the Wayfair bull case is a higher proportion of items shipped from CastleGate facilities. This is one of Wayfair's core point of differentiation. CastleGate items have 2-day shipping badges, drive higher turns, and a better delivery experience for customers. In 2021, when Wayfair last publicly reported the figure, 18% of large items were shipped through CastleGate.

We conducted a survey with 7 Wayfair suppliers to understand more about how and why suppliers may or may not use CastleGate’s warehousing and logistics service. The suppliers cover a range of SKUs, price points, 3 currently use CastleGate and the other 4 have clear reasons why they don't.

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The survey focuses on two core questions:

1. What are the reasons for suppliers to forward position more inventory in CastleGate vs drop shipping?

2. How can Wayfair incentivise suppliers to store more inventory in CastleGate and drive volume through its middle and last-mile logistics?

One insight from the survey is how the returns allowance fee and damage and liquidation fees are charged to suppliers when items are returned. Wayfair has a generous return policy for customers. If a product is returned, it’s expected that the cost of the return is covered by the 4-6% return allowance that Wayfair charges suppliers.

However, if the item is damaged and returned, the product is often liquidated at a heavy discount because it's uneconomical to ship the item again out of a CastleGate facility. The liquidation fee significantly reduces the total gross profit the supplier earns through CastleGate. A low damage rate can destroy a significant amount of gross profit for suppliers through CastleGate. Understanding the difference in the damage rate of items shipped through CastleGate relative to dropshipped items via 3P carriers is important to understand the gross profitability of suppliers and overall attractiveness using CG. This is a topic we are planning to cover in the coming months.

We’re also in the process of publishing two more surveys in December with law firm partners to Burford Capital and SMB advertising agencies for Yelp.

Yelp vs Google: SMB Ad Agency Perspective

Yelp doesn't allow SMB advertisers to actively bid on specific keywords. This ensures that actual reviews drive the ranking of businesses on Yelp, providing a more accurate measure of product/service quality.

On Google, you can set prices based on keywords. The bidding system is visible. However, on Yelp, you can't see the bidding system. They simply don't allow it. - CoFounder of Yelp Advertising Agency

In this interview, the founder of an SMB advertising agency sheds light on the key differences between Google and Yelp ads.

Vistry Group: UK Housing Partnerships Model

After Vistry Group and Countryside merged last year, Vistry announced its intentions to focus solely on the capital-light partnerships model. This interview with a former Countryside Partnerships Director explores the partnership model, its economic characteristics and limitations:

One aspect to consider is land disposal by Homes England. This government body regulates and funds them, and also disposes of sites under the Dynamic Purchasing System (DPS). Many government sites are disposed of via the DPS. Here, Countryside and Vistry have a significant advantage. They offer an attractive service, a mixed tenure approach, effective marketing, and have numerous successful scheme examples. I believe they will acquire a large proportion of these public sites disposed of via the DPS. This is probably the biggest advantage Countryside and Vistry have. - Former Partnerships Director at Countryside

Cardlytics & American Express: A Card-linked Offers Comparison

American Express has its own card-linked offers program, called Amex Offers. In this interview, a former executive that worked on Amex Offers for over 5 years discusses the performance of the program, similarities to Cardlytics, and the long-run opportunity of card-linked offers:

If we consider the high-value offers created by Amex, companies like Cardlytics and other aggregators will need to differentiate across their customer base and the value of their offers. Cardlytics is often associated with low-value offers, which require time to add and scroll through. For customers who have less time and are less price-sensitive, there needs to be suitable offers. While Amex claims to have such offers, Cardlytics does not seem to have them. - Former Director Amex Offers at American Express

The executive also discusses why a pilot that combined both failed:

We ran a pilot with Cardlytics, incorporating some of their offers into our platform. We then analyzed customer responses to these offers and compared them to responses to Amex's high-value offers. Unfortunately, the data was inconclusive. We couldn't determine if the presence of low-value offers alongside high-value ones affected customer behavior. Despite the inconclusive results, the consumer business wanted to proceed with a larger test involving hundreds of offers. However, Cardlytics requested significantly more data for this larger test. - Former Director Amex Offers at American Express

The interview goes on to explore the workings of the Amex Offers program relative to CDLX in further detail.

ASOS & UK Fast Fashion Manufacturing and Supplier Operations

This interview with a UK-based fast fashion supplier to retailers such as ASOS explores how the supplier-retailer relationship has evolved and the challenges ASOS historically has faced:

Traditionally, there were dresses, tops, and going-out dresses. However, they started to blur these categories. So, you would have day dresses, going-out dresses, and casual dresses. Each product had different garment techs and sizes were not standardized. This lack of standardization spiraled out of control. Because they were successful, everything they sold was selling, at least for a while. It didn't matter that returns crept up to 70%. This didn't happen overnight. People often say 40% is an average return rate, but I'd argue it's closer to 50%. Half of what you sell comes back because people are buying multiple sizes. There were many issues with fit. They also started to reduce prices too much, resorting to inferior fabrics. We use viscose elastane which should be about 220, but they were accepting garments at 180 to meet their price point. This is what we call engineering into price. - UK-based Fast Fashion Supplier

The interview also goes on to explore how AMZN’s new fast fashion format looks to compete with SHEIN:

Amazon Drop involves partnering with an influencer who has a substantial following, say 10,000 users. We, as a supplier, design 10 garments for that influencer. Once the influencer approves the designs, they are listed on Amazon Drop for 30 hours. During this period, the influencer promotes the garments heavily on social media. Amazon also promotes the products. The key is that we only produce what is sold during those 30 hours. For instance, if 200 size 10s or 600 size 18s are sold, that's what we manufacture. - UK-based Fast Fashion Supplier

The interview also shares details around the technology and processes SHEIN uses to reduce the pre-production and sampling time from weeks to days.

Tecsys: Warehouse Management Systems, Healthcare & SaaS Transition

Tecsys is a Toronto-listed provider of supply chain management software. The company has mainly focused on helping healthcare facilities manage their complex supply chain. This interview with a Former Executive at Tecsys explores its historical strategy and how it solves complex problems for customers:

Many health systems still rely solely on distributors like Owens & Minor, which is not an efficient way to manage a supply chain, as the pandemic has clearly shown. The shift in healthcare has been towards direct sourcing from suppliers, having alternative sources, and ensuring substitutions for essential items in primary care. - Former Global Alliances Executive at Tecsys

KX: A Customer's Perspective

Although several players are emerging with competing solutions to KX, having the software run on large amounts of data daily increases the commutation cost for the end customer.

"However, the historical data is a significant deterrent. If you have petabytes of historical data and thousands of queries running daily against that data, the cost of change would be substantial." - Former Relationship Manager at Intel

In this interview, a former Relationship Manager at Intel shares his perspective as a customer of KX, explains how KX is different from competing solutions on the market, and what the company still needs to do to scale.