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Amazon’s ‘Wholesale Slaughter’? Not Exactly

Amazon’s ‘Wholesale Slaughter’? Not Exactly

May 13, 2014

AmazonSupply, the industrial supplies platform of Amazon.com, is already having an impact on select segments of the wholesale distribution industry. And certainly many distribution companies across sectors are watching AmazonSupply closely to see what it will do next.

That’s smart. And MDM has never been one to downplay that. (Read our analysis from late last year on Amazon and Google’s B-to-B Play.)

But the recent Forbes article’s characterization of Amazon’s foray into industrial supplies as a “wholesale slaughter” is overstated. The article says that Amazon has an $8 trillion part of the economy “running scared.”

(A point of clarification: The $8 trillion figure used by Forbes appears to be rounded up from $7.2 trillion, which is also not an accurate reflection of the market Amazon is targeting. The size of the wholesale distribution industry when you exclude manufacturers’ branches and sales offices is closer to $5.1 trillion in revenues in 2013.)

Calling AmazonSupply’s launch a “stealthy rollout” – not exactly the case in distribution circles over the past two years – the article barely touches on the very important role that wholesaler-distributors play for their customers, not to mention the very different ways distributors in different sectors go to market.

But as TED Magazine Publisher Scott Costa writes, the Forbes article does give AmazonSupply more credibility in the market. While distributors have known about AmazonSupply since it officially launched in 2012, those outside this fly-under-the-radar industry probably didn’t. It will be interesting to see if we will be able to get more information on the platform as a result. Amazon has historically been reserved about its strategy in the B-to-B realm.

In an MDM survey last year, just 1 percent of respondents – mostly distributors – said they had seen a significant impact from AmazonSupply, and 93 percent reported no impact. That will likely shift, and probably already has a year later, but there’s a long way to go before there's a “wholesale slaughter” based on that snapshot of the industry.

As is the case for many things in this world, the case for Amazon’s disruption of the wholesale distribution industry is not black and white.

AmazonSupply’s latest website figures show 2.25 million products available, which is up significantly from 500,000 when it launched in April 2012. It has been aggressively seeking manufacturer partners, as well as distributors, to supply its customers. Its inventory is broad, but not particularly deep, however, and in some cases Amazon’s access to a particular SKU is limited to just a handful – or even just one.

That said, AmazonSupply continues to recruit product managers for its business and has joined a number of industrial distribution associations. Amazon has a history of building out product reach and infrastructure at the expense of profitability. And that scale could have very real impacts down the road in certain sectors of distribution, starting with commodity items.

It is also offering products online that a lot of distributors in specialized sectors have always thought were not primed for sale via e-commerce. That’s challenging the way distributors are thinking about their online strategies, which I would argue is a good thing. Distributors need to consider a multichannel approach.

Still, AmazonSupply lacks on-site service capabilities, such as inventory management – in high demand from some B-to-B customers right now – and a deeper understanding of the B-to-B market. Amazon has always focused on how people buy, not what they buy. In some categories that may be very powerful and disruptive; in others, customers may need a much higher level of expertise on product selection and service from their suppliers, which may include installation and ongoing maintenance to keep, for example, a production line from going down.

Here are a few thoughts on some of the less black-and-white impacts Amazon is having already on the wholesale distribution industry:

  • The unplanned MRO purchase may be most affected by the growth of the AmazonSupply platform, at least in the near-term.
  • Amazon’s approach to usability online and fast reliable shipping has become what’s expected. And what’s expected in consumer circles frequently bleeds into B-to-B markets. That is having a very real impact on what customers are demanding from distributors and has sped the implementation of e-commerce and other online initiatives. However, many distributors are still playing catch-up.
  • While large national distributors such as Grainger, MSC and Fastenal are not claiming a big impact on their businesses from AmazonSupply, they have invested heavily in their online platforms and are prioritizing initiatives that make it easier for customers to do business with them. They are also continuing to diversify their product and service reach to increase customer stickiness.
  • More distributors are taking a closer look at their customer base, segmenting to discover which customers are transactional, which are willing to pay for services, which could benefit from cross-selling and so on. Amazon’s ongoing expansion and presence in the industry should spur distributors to continue prioritizing these initiatives to tie themselves closer to their customers. Still, distributors face challenges in utilizing data effectively.

Here are some additional resources on Amazon and the wholesale distribution industry from MDM:

And finally, gain a better understanding of all the competitive challenges traditional distribution companies are facing in MDM’s recent Special Report: The Shifting Competitive Landscape. 

Look for ongoing coverage from MDM on the impact of AmazonSupply, as well as other nontraditional competitors, on the wholesale distribution industry.

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