Dive Brief:

• Wayfair added a last-mile facility in Savannah, Georgia, in the second quarter — the 39th such facility in North America and 10th added in North America this year, said CEO Niraj Shah on the company's second-quarter earnings call Thursday. "We now have a warehouse presence in most major U.S. port locations and last-mile delivery facilities strategically placed across the continent giving us great coverage," said Shah.
• The company grew its delivery network while posting a 60 basis point gross margin bump year-over-year. But profitability continues to elude the retailer calling into question the logistics expenditures. Wayfair posted a $181.9 million loss for the quarter.
• Northern California and Jacksonville, Florida are next on the list for the home e-commerce juggernaut, which said it will add five million square feet of warehouse space to its network by the end of 2019, bringing the total to 17 million.

Dive Insight:

Large format delivery, while growing quickly, is a notoriously difficult space within last-mile logistics. Wayfair's success at the task, profitability aside, has rattled some carriers, while growth in e-commerce furniture sales is drawing attention and investment from the same players.

On the call, Shah called Wayfair's internal logistics capacity a "major differentiating advantage." 75% of large parcel and roughly a quarter of all small parcel shipments for Wayfair.com, Joss & Main, AllModern, Birch Lane and Perigold go through CastleGate, the company's internal logistics arm, and Wayfair contends this is an essential element of its customer experience.

CastleGate has been part of the retailer's secret sauce since 2016, but building a network that can achieve two-day delivery for large format items like furniture anywhere in the U.S., and increasingly internationally, comes at a steep price.

In order to speed up ship times and keep up with growing demand, CastleGate facilities transitioned to a seven-day per week operating model in the second quarter. Along with the new facilities, this change offers more capacity, however it leads to a period of underutilization, said Shah, which can at least partially explain rising costs.

"Today the utilization of the network is not anywhere near the full capacity, " Shah said, adding the cost to process individual units will decrease over time as order volume and utilization rise.

The vastness of Wayfair's warehouse network allows the company to position goods near the customer so that the network becomes a "one-day network" and even a "same-day" network by default, co-founder Steve Conine explained.

"That’s been part of the vision for a very long time. We believe speed is critically important in every category of goods," said Conine.