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According to MDM’s annual Economic Benchmarks for Wholesale Distribution, there are 240,663 distributors in the United States. In my opinion, all of them will be affected by Amazon Business. So, you can write in your company’s name in one of the blanks above or you can accept the reality that widespread disruption has reached wholesale distribution and you need to do something about it.
You might be thinking something like, “Not us! We sell building products like windows and doors and our orders go out on large, flatbed trucks with specialized jobsite forklifts on the back, requiring expert delivery on jobsites. Amazon Business isn’t going to enter that market!”
Maybe. But some major building contractors are nonetheless asking their distributors to turn over their product data to Amazon Business as part of their eProcurement program. Amazon Business may not want those orders for doors and windows, but they want all of the tail spend business, made up of hard-to-find products that can be delivered by common carrier.
Or perhaps you think you’re immune to Amazon Business because you sell fasteners that require technical expertise to identify. In which case, I have bad news for you: Amazon’s new Part Finder functionality on its mobile app identifies fasteners via your phone camera and directs you to the product pages on its website. No need to take your fasteners to a distributor’s counter; just point your phone camera at it and order it online.
I could go on, but you get the point. Across all 19 verticals we cover at MDM, Amazon Business carries a growing number of products (many of them sold by distributors on the company’s marketplaces), meaning your customers now have an easy, online alternative to buying from you, at least in many situations. The company is buying and developing new technology all the time to take more share from traditional distributors.
However, if you’re not persuaded yet, here’s a quote I took out of a job description Amazon posted recently:
“Our vision is that Alexa will be the world's most knowledgeable product expert who knows you, in a store that sells everything. We are building a digital product expert that is always available, with super-human knowledge of every product ever made.”
What to Do About It
More and more distributors are making the decision to sell through an Amazon Marketplace (the company operates retail and B2B versions). MDM’s research indicates that these distributors are pretty happy with the experience and intend to continue the relationship. Personally, I’m skeptical that this is a good idea. Some major companies that have partnered with Amazon in the past have found good short-term success followed by bad long-term results.
The problem isn’t that Amazon isn’t trustworthy. The problem is that distributors ignore the reality that Amazon’s leadership can be trusted to do exactly what its shareholders rightfully expect it to do: maximize the company’s long-term profitability.
The challenge for distributors is that they tend to think about making quarterly earnings commitments while Amazon plans and thinks in 10-year cycles. Sometimes, that means that partnerships that work for both sides in the short-term don’t serve Amazon’s long-term needs very well. So, once the company decides it can generate more profits by competing vs. collaborating with its current partners, it switches its approach to the detriment of those partners. What do you expect from a company led by Jeff Bezos, who famously said, “Your margin is my opportunity”?
I have been accused of being an Amazon critic. That’s not true: I think Jeff Bezos is one of the most impressive corporate entrepreneurs and titans ever – not many people in the history of capitalism have built a company from a tiny home business into one of the largest enterprises in the world. Additionally, the company continues to innovate and grow at a ferocious pace. It’s incredibly impressive.
However, neither Mr. Bezos nor Amazon are altruistic in their business pursuits, their substantial charitable investments notwithstanding. Doing the right thing in terms of charity work means helping needy people without expecting a return. In capitalist economies, the right thing in business is maximizing profits and – in my opinion – that’s how it should be.
So, while I admire the tremendous talent throughout Amazon and especially at the top, that doesn’t mean I think it’s a great idea for distributors to create partnerships with the company. Lots of thought leaders in distribution disagree with me and it’s an especially critical time to debate this issue, given that Amazon Business recently announced it would achieve $10B in sales this year.
Join in the Discussion and Plan Your Company’s Future
You can be part of the debate and gain invaluable intelligence by attending MDM’s upcoming event, How Distributors Should Respond to Amazon Business. We have a stellar line-up of speakers and we are also building in breakout sessions so that distribution executives of non-competing distributors with responsibility for digital strategy can share views with each other, discuss what they’ve learned and figure out how to respond to this new and totally unprecedented rival in our industry.
Check out the website for more information and take a look at the agenda. We’d love to have you at our forum and we hope you’ll become part of the discussion.
As always, we welcome your input, so please leave a comment below or send me an email at email@example.com.