Dive Brief:
- Wayfair will bring more of its supply chain logistics in house in an effort to cut costs, deliver on fulfillment promises and streamline the supplier experience, CEO Niraj Shah said on the company's fourth-quarter earnings call. Shah said the company already handles 74% of large-format last-mile deliveries for Wayfair.com, Joss & Main, AllModern, Birch Lane and Perigold, with 90% of those going through Wayfair's own "middle-mile" chain.
- The home e-commerce juggernaut added last-mile delivery facilities in Phoenix, Milwaukee, Columbus, Austin, San Antonio, Las Vegas, Kansas City and Cincinnati during the fourth quarter, bringing the total count to 35 last-mile delivery facilities in North America. The company will add one or two more per month in 2019, said the CEO.
- Wayfair also offers ocean freight and drayage services to some suppliers in Asia. "The inbound services which we piloted a year ago have now started to really take off," Shah said.
Dive Insight:
Although net loss is growing for Wayfair, even amid customer and revenue growth, Shah said the e-commerce giant is playing a long game — seizing control of its supply chain from both ends.
He explained to analysts that taking greater control of the company's supply chain, especially the "middle mile" is leading to a more favorable experience for Wayfair suppliers and a situation where both parties feel comfortable lowering prices.
Shah predicts 40% of volume coming into Wayfair's warehouses will come via services purchased directly from the company's freight and logistics arms. He said the company plans to seize even more control of its inbound supply chain this year.
"We see this as a powerful development of our relationship with suppliers as they look to us to take greater control of inbound transportation from Asia, removing the need for them to liaise with numerous third parties typically involved in that process," Shah said. The company has also launched a digital visibility platform for ocean freight so that suppliers can track their shipments.
Wayfair is determined to compete on fulfillment speed and offers free shipping for almost any purchase over $50 on Wayfair.com, even for large items like furniture, but transportation and logistics could be a major drag on margins. Shah said $0.20 of every dollar of revenue goes toward combined inbound and outbound transportation and logistics, combining supplier and Wayfair spend.
Gross margin sat at 24% for the fourth quarter, and Shah said reaching the goal range of 25%-27% will come from scale, triggering more supplier discounts and growing private label brands, plus more efficiency on the transportation and logistics side. Clearly, the company's preferred way to drive efficiency is to bring as much of the supply chain in-house as possible from the first mile to the last.
