Every weekday in December, tED magazine is counting down the Top 20 Stories of 2014. Below, the #2 story of 2014, originally posted on April 9, 2014.
By Bridget McCrea
In February, Pittsburgh-based decorative lighting OEM sales rep agency Lighting Solution Development, posted a call for new lighting vendors on AmazonSupply’s behalf. In AmazonSupply Seeking Commercial Lighting Vendors, the company stated that the lighting and electrical buyer at AmazonSupply recently challenged Lighting Solution Development to bring him commercial lighting and electrical lines. The article goes on to say that Amazon seeks vendors that can do the following:
- Submit detailed product attribute spreadsheets. This is how the product specs get uploaded onto the Amazon website. These spreadsheets may have up to 50 columns (model #, voltage, wattage, CCT, etc).
- Warehouse their own inventory. The buyer is willing to commit to some stock. His goal is that vendors will put 95% of their SKUs online and sell a couple units of each to Amazon, to get started. He would then reorder based on demand. You could initially present AmazonSupply with the SKUs that you currently stock. There would be no extra risk to your company, and you would meet the buyer’s needs for those models.
- Ship product with bar codes. If your shipping cartons already have UPC bar codes, that is acceptable. If not, you would have to add Amazon bar codes. AmazonSupply would arrange shipments of your products to their distribution centers.
- Meet the following co-op requirements: 6% marketing allowance, for promotional emails, SEO, HD photos, etc.; 2% freight allowance, for Amazon handling all freight; 2% return allowance, for Amazon eating all customer returns. Amazon would not return products to the vendor, even if defective.
Anyone looking to pursue the AmazonSupply opportunity was prompted to email Lighting Solution Development’s president, David Shiller. When invited to comment for this tED Magazine article, Shiller gave the following response via email: “Unfortunately, my AmazonSupply contact is not authorized to speak on behalf of AmazonSupply, and declined to provide me a spokesperson. They have also not authorized me to conduct interviews on their behalf.”
From the Horse’s Mouth
Two NAED members were more than happy to speak up about this new development and its potential impact on independent electrical distributors. Jim Dunn, executive vice president of sales and marketing at Warshauer Electric Supply in Tinton Falls, N.J., says he’s not surprised by AmazonSupply’s announcement. “When Amazon and Google initially announced that they were getting into our space, most electrical wholesalers probably had the same reaction of, ‘Well, most electrical contractors want their material the same day or next day, and you can’t do that over the Internet,'” Dunn says. “Then obviously Amazon and Google both figured out how to get products out on those [tight] timetables.”
And with that, Dunn says the brick-and-mortar distributor’s advantage literally went away over night. Instead, electrical distributors began playing up value-added services like inspection work and the sale of commercial switchgear and lighting – the latter of which require brainpower and design skills to tackle. Dunn says it probably won’t be long before the online platforms figure out how to overcome that obstacle. “Obviously Amazon has its finger on the pulse and knows what our strong points are,” says Dunn. “They’re going to do whatever they can to take that advantage away from us.”
The fact that AmazonSupply is seeking out commercial lighting vendors could be the first step in that direction, says Dunn, knowing that commercial lighting and switchgear likely pose the highest barriers to entry for the online seller. “I’m certainly not going to assume that they can’t figure it out,” says Dunn. When that does happen, where does it the leave the independent distributor? “We’ll figure out some other thing that the online stores can’t do well and then, eventually, they’ll figure how to do that too.”
Was it Inevitable?
Doug Borchers, vice president of sales and marketing at Dickman Supply in Sidney, Oh., says it’s “inevitable that Amazon or some type of online provider” would decide to get into the lighting market. “Electrical distributors can’t put their heads in the sand and say it won’t happen in our market just like it has in hundreds of other markets,” remarks Borchers, who feels that the key to combating the online retailer’s latest move lies in how traditional electrical wholesalers support those manufacturers who choose to aggressively target this market from a price standpoint.
“If those manufacturers keep the pricing reasonable (like some of the key plumbing fixture manufacturers have so far) and set an internet minimum allowable price at which their product can be sold,” says Borchers, “we should be able to continue to succeed as long as the playing field is level from a cost standpoint.”
If the game is played fairly from a pricing standpoint, Borchers says it shouldn’t have any impact on electrical distribution. “Electrical distributors will win most battles from their traditional customers because of all the other things we offer (expertise, terms, staging, design, packaging with the balance of materials needed, training, fast response, dedicated deliveries at desired times, relationships, etc),” says Borchers, “while the manufacturers may pick up some business in markets where they do not currently have distribution, or from customers who are online shoppers with no wholesaler relationships. That business may come at the expense of the Big Box stores though.”
And while the typical NAED member may feel little to no impact from moves like the one AmazonSupply made in February when it posted a call for lighting reps online, the very thought of the online retail giant in the commercial lighting space could push distributors to improve their online marketing strategies. “One positive for electrical distributors in the long run is that it will force us to step up our online games,” says Borchers, “which we should be doing anyhow, but perhaps more quickly that we are now.”
A Constant Eye
In today’s competitive business environment, Borchers says electrical distributors should keep a constant eye on this and other developments – particularly those that may put the NAED member at a price disadvantage and a sales tax disadvantage (due to online seller’s ability to sell to some customers without charging sales tax). “The price and tax issues have the potential to swing business decisions from the price-shopper contractors who will do anything they can to meet budget on the jobs that they took at negative profit or made mistakes on, which they now have to cover up with discount buying.”
At the very least, Borchers says AmazonSupply’s announcement could cause a severe hit to distributors’ bottom lines in order to meet new market prices (provided the pricing issue arises). “The national chain distributors and buying groups will need to keep their fingers on the pulse of what their lighting manufacturer partners are doing,” he adds, “and react accordingly.”
McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at email@example.com or visit her website at www.expertghostwriter.net.Tagged with tED