While many distributors are still struggling to move their businesses online, a new player has arrived and is making a lot of noise. Amazon’s business to business (B2B) marketplace, Amazon Business, already is making significant progress in multiple verticals, armed with low prices, an extensive international logistics network, and a universally recognized brand.
While some electronics distributors may not see Amazon as a real threat – believing that what worked in business to consumer (B2C) won’t work in B2B – they would do well to take a closer look.
As I’ve previously outlined, passive products and similarly commoditized product categories offer an incredibly vulnerable gateway for Amazon to penetrate the industry. Given the thin margins of most electronics distributors, they can’t afford to let Amazon Business take over even a small portion of their industry.
If Amazon is successful, the cost structures of large distributors will become untenable as they face increasing margin pressure. The only way for large distributors to prevent this scenario is to go on the offensive.
Waiting won’t win the war
Distributors may be inclined to take the wait-and-see approach with Amazon Business, but as Walmart has learned, the waiting game can be quite costly whenever Amazon targets new markets.
Last year, Walmart spent $3.3 billion to acquire Jet.com, an online marketplace for consumer goods, and has been grappling with integrating its startup culture while also trying to catch up with Amazon.
Similarly, many in the food distribution and grocery industry brushed off the Amazon threat. That is, until they collectively lost more than $20 billion in market cap overnight when Amazon announced its acquisition of Whole Foods.
In industrial supply, existing distributors are already feeling the impact of Amazon Business. Grainger notoriously missed its earnings expectations back in April and cost its investors over $2 billion over the following month. HD Supply also missed earnings recently, with its margins under continued pressure in its facilities maintenance unit.
Medical supply is also feeling some Amazon-related pains. The massive medical supply distributor Owens & Minor has suffered from declining revenues and margins, both down 5.2% in the first quarter this year compared to the same period from 2016. The company noted “ongoing margin pressure” on its distribution business in the U.S. A notable difference between Owens & Minor and many other distributors: it lists many of its products on Amazon Business.
It’s time to act
Before long, Amazon Business will turn its full attention to electronics distribution. The smaller firms will be enticed to sell on the marketplace with heavy subsidies for joining and they’ll find a low-cost channel for new sales growth.