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It was somewhat ironic that Amazon officially announced its launch of its industrial supplies website, AmazonSupply.com, offering more than 500,000 items across 14 categories, during the Industrial Supply Association’s annual Product Show and Conference last week. It was the focus of many conversations and speculation, with much confusion over how much this entity is friend, enemy or frenemy to traditional distribution models. MDM is preparing further coverage to further define what AmazonSupply.com means to wholesale distribution markets.
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Amazon’s sales of many of these products have been growing quickly over the past three years or more. But the announcement of this more formal move into the space had an impact on investors. On April 20, WW Grainger’s (GWW) stock price hit an all-time high of $219.90. The following Monday, Amazon announced the launch of AmazonSupply.com and by Tuesday Grainger’s stock price dropped 9 percent to $200.12. It has bounced back some since.
Here are some initial thoughts from the many conversations I’ve had on the topic in the past week:
The pace of commoditization has ratcheted up. Customers now have another mega-catalog. But the right marketing and customer service pieces are critical in the catalog business.
Brand and channel management get more complex for manufacturers.This announcement sounds threatening to distributors who are in selective relationships with suppliers.
Grainger, McMaster, MSC are clearly in the crosshairs as well as some other large online marketers. But these distributors have built well-defined relationships and branding that won’t be displaced overnight. It will be interesting to see how these distributors respond.
Low-price competitors always make crowded markets more price-sensitive. Alternate supply sources are not a new phenomenon. One with the scale of Amazon is.
Many times I have seen smaller distributors leverage acquisitions by the largest distributors as an opportunity to market very successfully. But both national and independent distributors have the same opportunity now. The Amazon announcement reinforces what all distributors, especially independents, have had to address to stay competitive over the past five years of change:
Migrate core branding online. You do not need to throw big money at a gold-plated e-commerce solution. But you need to strengthen the content and knowledge base online to reinforce the core difference your company offers. Make it really easy for customers to think about going to your site to find out most of what they need, including higher level product and application information, without having to leave a voicemail.
Leverage partners, including pure wholesale and redistribution resources, as well as buying and marketing groups to extend your catalog and SKU capabilities. The strategy is not to compete head to head, but to offer a bigger basket more efficiently. The customer will spot buy as they always have with Grainger, McMaster, MSC or Amazon. Make it easier to capture as much wallet share as possible on items customers aren’t price-sensitive about.
Tighten profitability and demand-generation models, including supplier alignment and consolidation. You can’t afford to carry boatloads of commodity B and C items on shelves or maintain those relationships when there are excellent redistribution options available. Independent distributors have to get more sophisticated about serving markets, customer niches and knowing their cost-to-serve.
Be clear about why you are better. Most distributors can do better at communicating value, productivity improvement and total cost versus price. (Read: Want to Differentiate? Stop Sounding Like Everyone Else)
We will see national distributors market heavily on the above items to differentiate their service capabilities against Amazon’s. Independents need to figure out how to hug their customers more often and better. AmazonSupply.com is an accelerator. It will take out the weakest me-too competitors sooner. There has already been an email and direct mail race amongst national catalog companies. Amazon’s “grand opening” underscores that it is more important than ever to be able to get your message out in a much more crowded marketplace.