Wayfair’s Castle Gate……Should you Participate?
Castle Gate is Wayfair’s third-party logistics (3PL) warehouse service. This service includes
inventory storage and order fulfillment. Additionally, they will fulfill your orders for your other
customers. Currently, they have over 9 million square feet of warehouse space with locations in
Kentucky, New Jersey, Utah, California, Canada, the UK, and Germany.
The Castle Gate program is one of Wayfair’s most important initiatives. This is their direct
response to compete with Amazon prime. Based on the locations of the distribution centers,
they can ship orders to 58% of the US population in one day and to 95% of the population in
two days. In addition to processing small parcel orders, they have two facilities, one in New
Jersey and in Southern California that are equipped to handle LTL orders.
The decision to use Castle Gate is an interesting dilemma for many suppliers. Because it
challenges traditional thinking and company processes. It is hard for some companies to justify
using the service when they already have a well-oiled drop-ship infrastructure. They see this as
an added cost which may be a challenge for companies that work on tight margins. These cases
require a different approach on how warehousing costs are allocated. Additionally, I frequently
hear that participating in Castle Gate may also mean reducing your company’s operational staff
and that becomes an emotional decision. It is important to remember running a business is
about the numbers and profitability.
For companies that want to maximize growth with Wayfair they have to understand that Castle
Gate is internally one of Wayfair’s top sales drivers. Effective account management does
require embracing the key initiatives of your customer to grow sales. Currently over 450 of
their top suppliers use the program and Wayfair prioritizes vendors that participate. Wayfair
continues to add new DC’s and manpower to the Castle Gate team.
There is a distinct difference between Castle Gate and a traditional 3PL. A traditional 3PL stores
and ships your products. Castle Gate does that plus is a lever to draw eyeballs to your products
on the product pages. When you use Castle Gate, your items get a merchandising boost with
quick delivery flags. Additionally, your products will be selected more frequently to be featured
in promotional events, you get a boost in the search pages and your sales on average, can
increase 30% to 40%. The 1-2-day flag is a proven sales converter.
Other key benefits to the service: suppliers have access to Wayfair’s reduced freight rates
which lower onsite retails. You get a dedicated Castle Gate account manager to help you with
the process and forecasting. Finally, returns and damages are lower for products in the Castle
There are two primary costs of the program. One is for warehouse storage space for your
products. This is calculated by the cubic feet needed to store your items. The cost calculations
are pro-rated on a monthly basis based on how much space you occupy. The other cost is the
order processing fee that is done on a per item basis. The cost to pick, pack and ship the item
will vary with each category. Both of these can be negotiated. Suppliers are also responsible
for the inbound freight into the warehouses.
Participation in the Castle Gate program is a no brainer. Besides the benefits listed above the
consumer now expects orders to ship within 24 hours and for free. A 2018 survey from The
National Retail Federation sites that 75% of consumers expect 2 day delivery to be free even on
items under $50. This number is up from 68% in 2017. Strategically, speed in shipping is now
expected and a requirement to be competitive.
Before making this a major part of your operation, it is important to start slowly.
Unfortunately, simply putting any product in Castle Gate does not guarantee success. A poor or
average performing item will not magically start selling and you will be stuck paying inventory
storage costs on products that are not selling. This program is designed for “good’ to “top
performing items”. Your goal here is to increase the rate of sale and grow your base business
with your high priority products.
To get started, select a good cross-section of your top sellers for the initial distribution. This
first mix will be coming from your domestic warehouse. You want to have some diversity in the
initial mix to really learn what is going to work. Also, I would recommend sending in a truckload
to get the best freight rates.
Determining the initial quantities per item is also very important in measuring the success. For
example, if one of your items sells on average 20 units per month at Wayfair, you need to send
in at least 35-50 units so you can measure the increase in the rate of sale. If you were to send
only 20 units, it would be difficult to measure the results.
This initial distribution test will give you some important data how to best use the service. If
you are an importer, once you have some proven success, you should plan to send direct
containers of the products to Castle Gate to minimize your freight costs. Over time and by
working closely with your account manager, you will develop a formula that works best for you.
The eCommerce sales channel continues to evolve and improve to best serve the end
consumer. Within the next few years, eCommerce sales will account for at least 20% of all
retail purchases. It is easy to get left behind because some of the changes that are occurring
can be costly or difficult to implement. Wayfair’s Castle Gate program aims to eliminate these
challenges for suppliers.