Forbes’ Electrical Folly with Amazon Supply

Over the past week a number of distributors and a few manufacturers have sent me the Forbes article and asked what I thought, how it would impact the industry and what they could / should do. And at the same time there have been a number of observations shared by MDM, TED and others, so, here’s some more food for thought.

• For an entity that reportedly wants little press, perhaps it didn’t want much press until it was ready for prime time? Consider this.  What better outlet for Amazon Supply to unveil itself than Forbes’ reach key buying influencers. Perhaps congratulations are in order for Amazon’s PR agency?
• The $8 trillion market, as MDM outlined, is much too high.  But let’s also consider some other things:
  • I’m not saying that Amazon Supply won’t be important in a number of the industry’s that they are pursuing, however, our focus is on the electrical market.  In my opinion, those who understand distributor know that Amazon Supply will take some share but the industry won’t, in Forbes’ term, be “slaughtered”.
  • Knowing the electrical industry is a $90B or so market, what percent could Amazon Supply earn?
  • Will it capture much from the project market? They would need to invest in personnel, have access to manufacturer quotation tools, develop systems to allow for multiple manufacturer product quotations, consider take-offs, etc…
  • From the OEM market? … Doubtful unless manufacturers provide them with SPAs)
  • From the commodity aspect of the contractor market (and speaking of which, what % of your contractor business is “same day” needs?)
  • All of the MRO market or the remainder of the contractor stock business?
  • And will manufacturer reps and direct people who are driving specifications promote Amazon Supply or a distributor? Much depends upon how their getting compensated (will manufacturers receive POS information from Amazon Supply so that they can compensate their sales organizations?)

• Agree they have 2.25M SKUs but remember, this is multi-industry and could be a significant competitor to Grainger, MSC, WESCO’s initiative to broaden its product offering and other multi-line distributors.  The biggest benefit to Amazon Supply at this time is to the industrial and institutional markets, apparently for more MRO type materials and for individuals who prefer self serve.
  • As an electrical distributor, how many SKUs do you have access to. Consider the total number of SKUs at the manufacturers you represent, not just what you stock.  You know most don’t need everything right away.
• Which brings up the issue that Amazon Supply currently is an “old world” distributor on a new ordering platform.  They stock material, accept orders, provide a credit vehicle (credit cards) and delivery products.  Their process is their value-added.
  • For distributors this means that you need to emphasize your value-addeds (and be prepared to charge for services if sales decline precipitously at an account due to Amazon Supply) and invest in a robust e-commerce platform as this will be the price of retaining accounts for distributors that are in the $50M+ range (smaller ones may be able to compete on local service and relationships).
  • IDEA, and potentially Trade Service, need to accelerate their content sourcing to be of value to distributors.  How did Amazon Supply gain content so fast?  They “requested” it and manufacturers were afraid to be left out. So they are opening the crown jewels and sharing content, product specs, videos, etc.  And if they don’t provide, Amazon Supply has the resources to develop it.
• For those distributors who are providing inventory and logistics services for Amazon Supply, don’t forget that those customers may need additional items and/or services? Isn’t it also interesting that customers who purchase from Amazon Supply aren’t interested in negotiating for price, but with you they do daily (and by order)!
• The article mentions an item where Grainger was more expensive than Amazon Supply but, I’m sure, if that was a Grainger customer they probably had customer specific pricing when they logged into the Grainger system.

I thought this album cover from this rap band was appropriate

Bottom line.  The electrical distribution industry will continue to have “new-comers” enter into the market to take slices of share but none will individually slaughter the industry.  The big boxes came and too share. Grainger, MSC, McMaster Carr and others have taken a slice, power transmission distributors are dabbling into the electrical business and there are countless other examples of non-traditional distributors (think about manufacturers that sell direct?).  The industry will survive.  The more important question is “how can you thrive in a changing marketplace that will continue to have new competitors, where many manufacturers are willing to sell any channel (can’t afford to miss a sale) and where customer needs / expectations will continue to evolve”?

You can be the master of your destiny … and it doesn’t have to be to the slaughter house.

If you’ve been approached by Amazon Supply to be a fulfiller for them, why did you decide to participate / not participate? What do you think about Amazon Supply? More importantly, what do your customers think about Amazon Supply?