AmazonSupply – Another Nibble from the Channel?

Much has been written and discussed about Amazon’s entry into the industrial supplies space through www.amazonsupply.com over the past couple of weeks.  While today they don’t have much, if any, electrical offering on www.amazonsupply.com, we’re confident that it isn’t far behind – especially given that

• www.amazon.com does offer electrical materials, hence it wouldn’t be hard to reposition them onto www.amazonsupply.com
• www.grainger.com offers many electrical SKUs online, providing a roadmap for Amazon
• They can easily source from other electrical distributors (and are doing so)

Some observations and questions

• How competitive is its pricing? Distributors always say price is important and their margins aren’t high enough. Customers, including industrial customers, state price is an issue.  If price is so much of an issue, then how come Grainger and AmazonSupply can either have much higher margins than distributors (Grainger) or source from distributors (Amazon)?
• Or are manufacturers providing SPAs (special pricing allowances) to distributors to allow them to sell to Amazon?
• Is Amazon committed to this space? There is precedent in the incentive merchandise industry where Amazon entered an industry, gained share and then decided to abandon the industry. What are their goals? Are they committed to marketing the name through various channels to gain awareness or do they expect it to solely be generated through PR and the Amazon brand?
• One of the reasons Grainger is successful is because it markets to its core customer base, has salespeople to sell the value and its local stores also provide an additional resource for customers.  Will Amazon market itself? Will it be able to compete for multi-facility opportunities? Or does it want to be a convenience / ad hoc resource?
• Amazon entering the industrial space validates the observations that industrial, commercial and institutional customers are more apt to purchase online than contractors. Our Industrial End-User / Contractor Insight Research Report shared how this is a growing procurement process for these types of customers.
• We’ve had some distributors ask “why would other distributors want to sell to Amazon and hence marginalize their value?” To which we respond, “first, maybe they are looking at this as another channel / customer base for themselves are are only interest and increasing the number of units that they sell and second, perhaps they think, ‘if I don’t, someone else will.””

The one thing we do know is that Amazon has transformed retail for a number of product categories (books, electronics) and is the largest internet retailer (and interestingly Staples is also right up there). According to eCommerce Insights, a blog on ecommerce for B2B manufacturers and wholesalers, “AmazonSupply.com will be a major competitor and influencer in the B2B ecommerce space and that B2B organizations should not dismiss the potential impact. Rather, they should create a strategy that boosts their performance in the ecommerce space before AmazonSupply.com eats their lunch.”

While we don’t think www.AmazonSupply.com will eat electrical distributors’ lunch, they could take a nibble … and the more nibbles that are taken from the industry, the smaller the pie.

The key is not thinking you know what your customers want, but knowing and anticipating what they need or will need.  An electronic order entry system will become an expectation – especially given the proliferation of ordering methodologies and electronic hardware that is available (phones, tablets, text, punch-outs, etc). Distributors need a strategy for addressing their local customer needs and can also consider ecommerce as another sales channel to pursue additional business (and take a nibble from someone else).