Industrial distributors and Amazon: Competing with retailers and the internet

by | May 16, 2018

Industrial distributors and wholesalers have begun competing with retailers, providing products to do-it-yourselfers and enthusiastic amateurs at retail pricing. But now they’re going to have to start competing with the internet and e-commerce retailers on a larger scale.

The Amazon threat

Last October, Amazon announced that it had launched Business Prime Shipping, a membership program that offers multi-user business customers free two-day shipping for all users of an Amazon Business Account. On that news, there was a dip in the stock prices for Grainger, Fastenal and MSC Industrial and for good reason, as we’ve all seen what Amazon did to retail and what Amazon is doing with Whole Foods.

Amazon Business offers business-only prices on millions of industrial and office products to customers of all sizes. It reached $1 billion of sales within its first year and 1 million customers in July 2017, up from 300,000 customers about a year earlier. The program is currently being offered in the United States and Germany.

This is a similar program to the consumer Amazon Prime program, which offers the same free two-day shipping on all Prime eligible products. The Business Prime will likely have a negative effect on industrial suppliers who have themselves started relying on technology to provide e-commerce support to their business and retail customers.

Industrial distributors in the online mix

It’s only going to get more complicated, as the growing market presence of online wholesalers will change customers’ preferences and expectations. We’ve already seen Amazon Prime’s free two-day shipping change how e-commerce everywhere works and now Amazon Business Prime will undoubtedly have the same effect. This means many distributors who have embraced e-commerce will have to adopt similar shipping policies and the distributors who have hesitated in getting into online sales will have to take the plunge if they want to stay competitive.

Still, many industrial distributors will be fairly insulated from online competition, because most of them serve niche markets and sell fairly specialized products that require technical expertise and education. But that doesn’t mean you can rest and rely on the market staying this way forever. Retailers and distributors are already making inroads into Amazon’s Marketplace and other online specialty marketplaces. How soon before your competitors decide to take advantage of Amazon’s infrastructure and start offering their own niche products through the online giant?

The growing popularity of e-commerce has already amplified price transparency in the industrial distribution market, which has opened the door for internet-based competition. We believe Amazon will continue to expand its business-to-business operations and keep the venture as one of its top priorities.

This means industrial distributors that want to stay ahead of the curve, or at least keep up with Amazon, will need to focus on the technology they use to source their products, share product details from their suppliers and share inventory counts online for shoppers.

Additionally, similar to how Amazon is a retailer, a grocer, a marketplace, a book publisher, a cloud web hosting provider and a peddler of many other services, distributors may need to consider expanding their services, too. E-commerce and online sales is putting a strain on every link in the retail supply chain. Retailers and other buyers are especially ready to work with distributors that can make their lives easier with shipment tracking, drop shipping, sales insights, returns management and other valuable services.

To learn more about how SPS retail technology can support industrial wholesaler and industrial distributor profits through direct-to-consumer sales, marketplaces or service offerings, please visit the SPS Commerce website and ask to speak to one of our online retail experts.

Connect to Amazon Marketplace or a marketplace you choose.

Connect to Amazon Marketplace or a marketplace you choose.

Marketplaces are great for both retailers and vendors to sell products directly to customers.

Scott Bolduc

Scott Bolduc

Director of Supply Chain Strategy at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros to Know. He has worked with e-commerce retailers on their growth strategies and helped retailers transform their freight spending strategies to maximize efficiencies.
Scott Bolduc

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