Dive Brief:
Wayfair launched the next leg of its logistics offering CastleGate, now enabling suppliers to fulfill orders for all of their customers — not just Wayfair, Co-Founder and CEO Niraj Shah said during a recent earnings call.
The expansion, called “Multichannel,” acts as a third-party logistics alternative service specializing in big and bulky home goods. Wayfair tested the offering with a small subset of suppliers in 2024 before opening the service to its entire supplier base earlier this year.
“Multichannel volumes are rapidly scaling, and we now have hundreds of suppliers utilizing the offering,” the CEO told analysts.
Dive Insight:
Wayfair’s proprietary logistics offering CastleGate is one of the retailer’s “key competitive moats” where it sees growing supplier interest, Shah said during the call.
While suppliers have been reaping the benefits of the CastleGate network, Shah said “one piece of feedback we’ve heard over the years is that they desire to take advantage of our capabilities for more of their order volume.”
Although Multichannel has “existed in the background” for a while, it was primarily used for clearing distressed inventory on a very small scale, Shah said. Since then, Wayfair has made significant operational and technological investments over the past 18 months to evolve the service into a 3PL offering specific to the home category.
“Multichannel opens up the next leg of CastleGate penetration by growing the inventory pool with which we can offer an enhanced customer experience,” Shah said.
Suppliers can now include a broader product set in CastleGate and can stock it deeper and grow in-stock rates, translating to better speed, lower prices for customers and improved network efficiency, according to Shah.
Wayfair has been investing in CastleGate since 2015 to offer a network that includes inbound logistics alongside storage and outbound fulfillment for fragile, heavy and bulky home goods, Shah said. Currently, the network has a warehouse capacity of 22 million square feet between its 60 buildings, spanning several continents.
The furniture retailer also offers CastleGate Forwarding — an inbound logistics and ocean freight forwarding operation, which helps suppliers maintain a “flow of goods as production shifts around the globe and they [scale] up operations in new geographies.”
“Many of our suppliers are small businesses who individually lack the volume to consistently secure cost-effective and reliable ocean freight capacity on their own,” Shah said. “Our forwarding services provide access to large high-quality ocean carriers on amenable terms, which we can then share at competitive rates with our suppliers.”
Wayfair reported a 40% year-over-year increase in total CastleGate Forwarding volume over the last year due to growth in the service’s active supplier base and average containers per supplier, Shah said. The forwarding service has since expanded to include new markets, such as Brazil and India, which can enable suppliers to more easily expand production networks.
Shah said that recent supply chain volatility has further driven supplier value, noting a more than 30% increase in long-term inbound commitments with suppliers since the beginning of the year. The average ship distance per order has also dropped compared to last year.
“CastleGate further enhances the customer experience from improved reliability with materially higher exact on-time reliability rates than drop-ship, driven by our tight control over fulfillment and carrier partnerships,” Shah said.
Shah added that suppliers also leverage the CastleGate fulfillment network to position inventory. Currently, products shipped from Wayfair’s fulfillment centers account for 25% of its revenue.
“The benefits from the CastleGate network are numerous,” Shah told analysts. “Suppliers achieve broad forward positioning and speed badging, which lifts conversion, lowers incidents and return rates, lowers ship costs and thereby lowers retail prices to consumers.”