Sunday At The NAED National Meeting: Brad Stone On Amazon, Part I

We’re at the NAED National 2014 Speaker Series. What could persuade NAED members to come listen to a speaker bright and early on a Sunday morning in San Francisco? One word – Amazon.

Stone gets right to the meat with an introduction to the core strength of Amazon’s success – logistics and the supply chain. The driving force behind Amazon’s success is the answer to one question: “How do we centralize inventory and get it to people’s homes as quickly as possible?”

Amazon, and founder and CEO Jeff Bezos, has been fierce in their mission to make that idea a reality. They started in a garage, then moved to a warehouse, hired a former Wal-Mart insider (then subsequently realized that person knew nothing about getting specialized orders to people), and then moved their distribution centers to a tax-free state. Not only does Amazon do what it takes to be the best physically, they also work to stay ahead of the competition with data, ideas and innovation.

So how does Amazon impact the businesses it enters? Stone gives books (Amazon’s first business) as the prime example. When Amazon started selling books, it was a happy relationship with the publishers. They were reaching customers they never would have been able to reach otherwise. Their books were readily available at everyone’s fingertips. Fast-forward to 2004, and Bezos called in his book team and told them it was time to renegotiate their contracts with booksellers. He told them to make a list of publishers, find the ones that were the most dependent on Amazon, and “go after them like a cheetah after a sickly gazelle.”

Scary, right? Well, not necessarily for the electrical distribution industry. “When the business includes massive amounts of SKUs and lots of hand-holding, Amazon tends to not be as successful,” says Stone. However, Amazon is very patient, and very interested in learning new skills, new businesses and new industries. So never count them out. Stone says the best way to fend off online threats is to look inward, as Amazon does tirelessly, and find, “what is my unique, unmatchable advantage to my customers?”

After the session, we opened the floor to some Q&As for Stone:

Q: We’ve been competing with big box stores for years. How is Amazon different from them?
A: Amazon offers infinite selection and superior customer service. You can sit at home, and the product will appear at your doorstep two days later. They also have a superior business model. Their ability to set low prices is directly related to the leanness of their organization and the internal cost structure; this is the key advantage of Amazon. They are the “online Wal-Mart.”

Q: Is Amazon dependent on Jeff Bezos?
A: Bezos is only 50 years old and shows nothing but a long-term appetite for business. He has figured out how to scale even himself, and is the CEO of other companies, and has even bought a newspaper. He is incredible at time-management. When the time comes that he is gone, things may change, but he has set up the foundation of a revolutionary company.

Q: Will Amazon ever figure out the “job business”? (i.e. Selling customers services in addition to the products.)
A: One example of this can be the HDTV business. Service is something that Amazon is not focused on. Therefore, companies like Best Buy have doubled down on the service component of their business. Something that Amazon is focused on, though, is moving their distribution centers closer to their customers. Stone doesn’t see Amazon getting services to customers any time soon. They tend to move horizontally in a business, then vertically deeper into the stack (i.e. they took over the physical books business, then created the Kindle to get ahead of possible future competitors).

Q: Are they able to handle large cube-type shipments?
A: Short answer is yes. They have certain distribution centers that are able to handle non-conveyable products.

Q: Do you see Amazon acquiring a large number of companies?
A: No, not really. Amazon has an “invent here” attitude. They are hesitant to make acquisitions, and sometimes make small acquisitions, such as Zappos and These are two very customer-focused companies that Amazon saw as a threat, possibly taking some of their customers away.

Q: Is anyone a competitor? Can anyone catch up to Amazon?
A: Amazon is focused mostly on their original competitors – Apple, Google, etc. They are currently concentrating a lot on not only offering digital media, but also the technology/device to go along with it. For example, they recently released a set top box for streaming media, and it is likely that we will soon see them release a phone. Their focus is on major internet competitors, digital competitors and Wal-Mart (they have a huge international reach that Amazon has yet to come close to).

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