NAED members speak up on Amazon Business’ latest push into their territories and discuss how they’re standing up to this B2B e-tailing giant as it tries to infringe on their turfs and steal their market share.
Amazon has been circling the wagons around the industrial segment since it initially launched Amazon Supply in 2012 and then used it to start selling industrial and scientific components and maintenance, repair, and operations (MRO) supplies. Three years later, Amazon launched Amazon Business (and shuttered Amazon Supply). A marketplace strictly for businesses featuring hundreds of millions of products and bulk discounts, the new site offered free two-day shipping on orders worth more than $49.
Since then, Amazon Business has been building momentum across myriad business-to-business (B2B) industrial segments. Right now, for example, the site’s “industrial electrical” department offers a laundry list of products that includes (but that isn’t limited to) circuit protection products, controls & indicators, fiber optic products, lighting components, sensors, and wiring & connecting products.
On track to bring in more than $10 billion in sales in 2018 (up from $1 billion in 2015) Amazon Business is growing faster than its parent company’s consumer retail or cloud business units, according to CNBC. And if that uptick in sales volume doesn’t make electrical distributors sit up and take notice, this definitely will: In October, the company rolled out new Business Prime benefits for its B2B customers in the U.S., Germany, and Japan.
In exchange for an annual fee that ranges from $179 (for three users) to $10,999 (for more than 100 users), Business Prime customers can now request extended payment terms and get free same-day delivery or free one-day shipping on qualifying orders of $35 or more. Other perks include access to visualize spend data; help identifying potential money-saving opportunities; and either 5% back or 90-day terms on eligible purchases (made with the Amazon Business American Express Card).
This could spell trouble for independent distributors that lack a strong e-commerce presence and/or that haven’t been putting much time into differentiating themselves from e-tailing giants like Amazon Business.
“For many years, analysts predicted distributors were at risk of disintermediation, removed from the supply chain by manufacturers leveraging digital platforms to cost-effectively sell directly to users,” MDM’s Ian Heller and Thomas P. Gale point out in Your Amazon Business Playbook. “That risk never materialized, but Amazon Business has crafted a deeper value proposition that threatens displacement – removing distributors from the primary customer relationship or at least pushing them into the role of second-tier suppliers.”
“Evolve or Die”
At K/E Electric Supply Co., in Mt. Clemens, Mich., General Manager Rock Kuchenmeister has been keeping tabs on Amazon Business’ push into the industrial marketplace. He says distributors that aren’t paying attention to the potential threat could soon find themselves struggling to stay afloat. “It’s time for the electrical distribution industry to either evolve or die,” says Kuchenmeister. “At this point, some independent distributors out there are trying to evolve and get to a new level of business, while others are just not ready to do that yet.”
While Amazon Business has always offered 2-day delivery (similar to its consumer program), the site’s new same-day delivery service is clearly meant to steal market share using a service that independent distributors are well known for. Kuchenmeister says the actual act of delivering to the job site isn’t as easy as it sounds.
“A lot of times we’re bringing orders to places that don’t even have physical addresses yet,” he points out, noting that Amazon could work through that challenge using a system like Domino’s Pizza “hot spots,” which delivers to parks, beaches, and other places where people don’t have definitive physical addresses.
As Amazon Business continues to hone its model, Kuchenmeister tells other NAED members to focus on adding value in ways that the e-tailer can’t. “If all we do is lower our prices, then Amazon is going to beat us every time. They’re just too big, and they have too much buying power,” he explains. “However, we can separate ourselves by offering competitively-priced products combined with technical services; flexible credit offerings; delivery to places that Amazon can’t reach; and a full menu of value-added services.”
Strong Differentiators Matter
Kuchenmeister isn’t the only distribution professional who has been paying attention to Amazon Business’ push into the industrial market. At Rexel in San Diego, Maxwell Gabin, branch manager, has also taken notice. “Amazon does play a part of our day-to-day business on a competitive level,” Gabin admits, “but the biggest differentiator between us and them is our expertise.”
For example, when a customer knows exactly which part he or she needs for a specific application—including the part number and other details—then Amazon Business comes into play. However, when that same customer needs to know which connector to use in a specific situation, Rexel can offer the expertise that Amazon Business lacks.
On the delivery front, Gabin says the e-tailer’s new Business Prime benefits basically mimic what independent distributors have been offering for decades. “We’re already doing next-day and same-day delivery in our territories,” he points out, “so on that level, Amazon Business is really just catching up to us.”
Not willing to wait around for Amazon Business to claim more of its market share, Rexel has been adding new services designed to make life easier for its customers. Just two weeks ago, in fact, the company installed lockers of various sizes (up to 10-feet-high) to the front of its building to make after-hours pickups more convenient for its buyers. “We give them a code to the locker,” says Gabin, “and they can come and get the orders at midnight if they want to.”
Gabin says the distributor also has also instituted a “three-ring” phone rule, which basically means all phone calls must be picked up within three rings or less. Employees are also discouraged from transferring calls, emails, or other forms of communication from department to department. Rexel keeps track of the metrics associated with these calls, and then uses that information to further improve its customer service offering. “Our goal is to create a ‘frictionless’ buying environment for our customers,” says Gabin, “and to make it easier for them to do business with us.”
Keeping Distributors on Their Toes
When Devin Ezop heard that Amazon Business was going to start offering Prime benefits to its B2B customers, his first thought was: “Well, this is definitely going to keep us, as distributors, on our toes and coming up with new ideas to stay relevant.” President and CEO at Metro Wire & Cable Corp., in Sterling Heights, Mich., Ezop says his company tends to focus on project-based sales that Amazon Business could have a difficult time servicing.
Put simply, the fact that Amazon doesn’t have teams of electrical experts standing by, ready to drive over to a job site on a moment’s notice, puts the value-added distributor in a good position. “We’re managing projects and bringing in $100,000 of material into our warehouses—and then going to the job site daily or weekly to cut wire and cable to length,” says Ezop. “I really don’t feel that Amazon can do that—or at least at this point in the game.”
The same can’t be said for the MRO business, where customers buy goods on a per-piece basis online and don’t always need the technical support or expertise. “I can see where MRO would be an area where we need to be more aware of what Amazon Business is doing,” says Ezop, who notes that even the MRO segment presents opportunity for distributors that go above and beyond. “That could mean showing up at a customer’s location on a weekly or monthly basis to find out what they need and how we can help them. Amazon isn’t doing that.”
For now, at least, Ezop says independent electrical distributors still have something that Amazon Business doesn’t: the personal touch. “It’s about finding the customer pain points and then solving them in person, over the phone, via email, or some other type of communication,” says Ezop. “That’s what we as distributors do best, and it’s going to be the way to go.”
Businesses Come and Go
As he ponders how the business world works—and how companies often start up, disrupt, and then close up shop—Kuchenmeister tells NAED members to keep the Amazon Business threat in perspective. “If you look at the history of business over the last 100 years, there have been a lot of emerging companies that have scared their competitors to death,” he says, pointing to examples like Sears, Blockbuster, Kodak, and Woolworth as some of the more serious threats that came on strong and then dwindled over time.
“Sears was the first ‘real’ distributor and while it did put some of its competitors out of business, it’s bankrupt now,” Kuchenmeister says. “Amazon may be this big, scary monster, and it could remain that way for a long time, but businesses do come and go. We all need to remember that.”Tagged with Amazon, B2B, e-commerce