Every weekday in December, tED magazine is counting down the Top 20 Stories of 2016. Below, the #7 most-viewed story of the year, originally published on January 4, 2016.
By Bridget McCrea
Business-to-business e-commerce is on a tear and set to grow even more over the next few years. Are industrial distributors keeping pace or falling behind?
Ask electrical contractors if they’d like the option of being able to check stock, review product specifications, and place orders online – without having to pick up the phone or send an email – and the answer is usually “yes.” Ask the same group if any of their electrical distributors offer this type of business-to-business (B2B) online functionality, and the answer is usually “no.” That’s because unless you’re talking about a huge, multi-location conglomerate, for the most part the electrical distribution industry has yet to fully embrace the web as a selling platform.
“We’re still using a lot of phone and email to go back and forth with our distributors when placing orders,” says Jared Kredit, executive vice president at K2 Electric, Inc., in Phoenix. Given the option, Kredit says his firm would take advantage of the opportunity to not only buy online, but also to review product information and specs and get pricing. “In most cases, I just use Google to do my research,” Kredit adds. “Other than Platt Electric Supply – which isn’t in our area – no one else has an online marketplace where you can see product availability and pricing.”
Paving the B2B E-Commerce Highway
To fully grasp the growing power of B2B online commerce, one need only look at how its predecessor and larger cousin – the business-to-consumer or B2C marketplace – has blossomed over the last two years. On Cyber Monday alone, more than $3.09 billion was spent online, according to e-commerce platform provider 3dcart. This marks a 16 percent increase from 2014, with the final reported figure surpassing experts’ forecasted number by 3.2 percent. The numbers are based on activity from the 12,200 U.S. online stores and the more than 17,000 merchants that use 3dcart’s platform.
And while the final e-commerce numbers for 2015 aren’t published yet, market research firm EMarketer, Inc., was projecting such sales to eclipse $3.5 trillion by 2019. In Global e-commerce sales set to grow 25% in 2015, Internet Retailer said the research firm projected North American e-commerce sales of $375.89 billion for 2015, up 14.3 percent from $328.6 billion the prior year. E-commerce sales in the U.S. are expected to account for 92.9 percent of that total, or $349.06 billion.
As a player that’s been on most electrical distributors’ radar screens over the last few years, Amazon is claiming a large chunk of the B2C e-commerce pie while also moving into the B2B arena. In Amazon Dominated Nearly Everything This Year, Mobile Commerce Daily said the company posted substantial profits during the second and third quarters of the year and that it was on track to break $100 billion in revenue for the first time in 2015. According to Macquarie Research, Amazon accounted for $0.51 of every $1 of growth in U.S. e-commerce during 2015. Moreover, it grabbed 24% of total retail growth in the United States.
New Republic’s Alex Shephard gives a few solid reasons for Amazon’s domination – all of which should be of interest to the independent distributor: Amazon has detested middlemen for its entire existence and believes it can do everything more efficiently itself; the company has made significant investments in infrastructure (particularly warehouses); and it’s well on its way to creating an efficient “same-day delivery” scenario – perhaps made possible through the use of airborne drones. “Amazon wants to make every aspect of human life, not just commerce,” Shepard writes, “more efficient.”
Are Distributors Falling Behind?
As both consumers and companies strive to become more efficient in today’s tech-centric world, the question is: Is the typical electrical distributor keeping up with the trend, treading water, or falling behind? With global B2B e-commerce projected to reach $6.7 trillion by 2020, according to Frost & Sullivan’s Future of B2B Online Retailing report, this year could be a turning point for distributors that want to jump into the e-commerce pool or risk getting left behind.
Defined as “all sales transactions between businesses—including manufacturers and wholesalers, and wholesalers and retailers,” B2B e-commerce is conducted primarily through the Internet, including via mobile commerce. According to Frost & Sullivan, online marketplaces like Alibaba and AmazonSupply are leading the B2B charge, as are growing expectations among companies that want to buy and sell online and the popularity of mobile devices for placing orders online. (Side note: Forrester expects mobile commerce [or, Mcommerce] sales to reach $142 billion this year, with Amazon and eBay capturing approximately one-third of those revenues. If this happens, Mcommerce will account for 49 percent of total e-commerce sales [up from a current 35 percent].)
“If your customers aren’t already demanding online transaction platforms, they will be soon,” says George Dowse, president at Del City in Menomonee Falls, Wis. “As an industry, we really don’t have a choice. This is the direction that the business is going in.” Dowse says his firm has had an online presence since 2001 and that it started putting more time, money, and effort into that aspect of its business in 2010. (Read more about Del City’s e-commerce strategies here.)
Offering the Online Experience
Acknowledging the fact that there are certain aspects of the electrical distribution industry that can’t be serviced online, Dowse sees e-commerce as an adjunct to a distributor’s existing sales model. “While it’s true that a player like Amazon is probably never going to replace the strong relationships you’ve formed with your customers,” says Dowse, “people are still going to want to interact with you online. As distributors, we have to be able to offer them that experience.”
Susan Marshall, CEO and co-founder of Torchlite Marketing in Indianapolis, expects customers to slowly lead many of the more “traditional” B2B companies (i.e., industrial distributors) to the e-commerce light. “At this point, a lot of these companies still don’t think they can sell effectively online, but that’s slowly changing,” says Marshall. “People love immediacy and real-time and they’re used to having both in their personal lives. At this point, if distributors don’t at least start implementing some simple, digital B2B tactics, their competitors will.”
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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 bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.
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