Is it time to think out of the box and create an entity that’s 100% focused on the online customer—without the constraints of your traditional, legacy business? It might be worth a shot.
We’re all aware of the power of Amazon and the impact that this e-tail behemoth is having on nearly every corner of the business world. From the clothing store that’s expected to deliver orders in two days or less to the logistics manager that has to overhaul his warehouse to accommodate smaller, faster orders to the traditional bookstore that’s all but been buried by Amazon, everyone is feeling it right now.
Amazon’s B2B arm hasn’t been around as long, but its influence has oozed over into the industrial distribution space, where people like Christa Hart of global advisory firm FTI Consulting says that the e-tailing giant isn’t just awaking to the opportunity—it’s taking charge. Pointing to the industrial, medical, and auto sectors as being particularly vulnerable to Amazon Business’s moves, she calls it “the company’s slumbering giant” and warns companies not to underestimate it.
“Amazon’s biggest play is in the maintenance, repair, and operations (MRO) segment, where customers purchase goods on a per-piece basis online, and do not need technical support or expertise,” Hart writes in Amazon Business: A giant awakens. “Amazon’s greater catalogue depth and lower prices, compared to top distributors in items such as switches, conduits, and wiring connectors, give it an advantage.”
To compete, Hart says distributors should focus on the value-added distribution services and technical expertise that they’re known for. “Examples include knowledgeable customer service, tailored relationships, and executive attention when an issue arises,” she writes. “The focus should be on large contracts, as opposed to small- and medium-sized.”
It’s no secret that companies across all sectors are worried about Amazon’s next move. A recent Unilog survey of 244 manufacturers, distributors, and wholesalers pinpointing Amazon Business as the biggest threat right now paints a similar picture. Surprisingly, 52% of those same survey respondents admit they don’t have a strategy for competing with Amazon Business. And 43% of manufacturers surveyed said they sell direct on Amazon Business, often bypassing their traditional distribution channel, Unilog reports.
The survey also found that about 80% of distributors said their e-commerce channel sales have grown over the past 24 months, while just 20% have seen stagnant or slowly decreasing sales. Forty-four percent of companies claim that 20% or more of their revenue comes from online sales (not including EDI), and 37% of distributors are focused on converting traditional buyers to online customers. Finally, 31% are concentrating on generating incremental revenue online — and 22% of distributors – 1 in 5 – lack a good e-commerce strategy.
“To fend off Amazon, B2B companies should focus more energy on product content,” Unilog’s Suchit Bachalli said in a press release. “Better product content drives more e-commerce. That could mean the basics, such as cleaner product descriptions and specs, standardization of naming conventions, and crisp photos taken from various angles. It could also mean diagrams, videos, companion product information, and other useful content to help the buyer make an informed decision.”
Old Ways Vs. New Ways
Historically, the electrical distributor that wanted to keep online sellers like Amazon Business from taking their piece of the e-commerce pie simply upped their online selling games. That meant “layering” an e-commerce strategy into the existing business, usually with the same employees, systems, processes, and customer service approaches.
The strategy worked for some companies, but hasn’t worked so well for others. Knowing this, Justin King, co-founder of the DigitalBranch, and senior partner at B2X Partners, has a better idea: what if you spun out an entirely new entity dedicated to e-commerce? Pointing to the commercial restaurant supply and equipment industry, for example, he sees WebstaurantStore as one entity that’s quietly carving out a niche for itself by doing just that.
According to the company’s website, WebstaurantStore has been in business since 2004, providing an innovative, easy-to-use website to meet the purchasing needs of foodservice professionals internationally. “Developers, programmers, content writers, technical support staff, purchasers, and warehouse employees work together to ensure we provide the best in price, service, and industry knowledge to our customers,” the company’s website states.
King says the company now has the potential to completely disrupt its corner of the B2B distribution market, with or without giants like Amazon Business threatening to thwart those plans. “WebstaurantStore looked at its existing distribution-based business and realized that it was going to be incredibly difficult to change enough to be able to compete with an Amazon,” he explains, “or frankly, compete with any of the big players in its space. It knew it would be able to fit a digital model in its existing sales model.”
And with that, the commercial restaurant supply firm created a new entity specifically targeting the online buyer. This essentially allowed it to do what it needed to do to serve the modern customer, and without all of the legacy constraints associated with its long-standing business (i.e., veteran employees fearful of losing their jobs, traditional enterprise resource planning (ERP) systems, etc.).
“They built something brand new,” says King, who compares the move to Grainger’s Gamut launch. The strategy appears to be working: in 2010, WebstaurantStore had $60 million in sales, says King, and today it has $1.3 billion. “That was almost all organic growth for both sides of the business (both traditional and online-only).
King says these types of examples are “changing his mantra somewhat,” namely in terms of just how much change a traditional distributorship has to go through to be able to compete effectively in the digital world. “A lot of companies are in a place where the amount of change that they have to go through to enable digital may be too great,” he explains. “Instead, this is about separating and creating something that’s 100% focused on the customer—without the constraints of your traditional, legacy business.”
In the second installment of this article series, we’ll take a deep dive into some of the top strategies that B2B distributors can use to think beyond the “fear factor” of doing business in an Amazon Business world.Tagged with best practices, e-commerce