Amazon.com last month introduced AmazonSupply, an e-commerce b2b business that offers industrial supplies such as fasteners, janitorial products and power tools.
The new service directly challenges Fastenal Co., McMaster-Carr Supply Co., W.W. Grainger Inc. and other industrial suppliers, and raises the question: Can Amazon do to these companies what it did to Borders and Circuit City?
Industry observers differ on the level of threat AmazonSupply poses, but they agree the e-commerce giant's aggressive entry into this fragmented market will require industrial suppliers to strive to match its famously frictionless online user experience.
“There's a real threat to some companies but not necessarily all companies in b2b,” said Andy Hoar, senior analyst at Forrester Research. “If you're a small company that has a single channel, I'd be worried. What do you do to counteract Amazon?”
Ryan Merkel, senior analyst at William Blair & Co., sees less reason for concern. “The reality for Grainger and Fastental and MSC [Industrial Supply Co.] is that they have large customers who have complex MRO [maintenance, repair and operations] needs.”
Merkel said AmazonSupply may not be able to combat the advantages that Grainger and other large MRO suppliers have: technical salespeople, often stationed on the factory floors of their customers; same-day delivery from bricks-and-mortar branches; and seamless connections to their customers' accounting and other business software.
“We are truly a multichannel business,” said Paul Miller, VP-e-commerce U.S. at Grainger.
Hoar also sees hurdles for AmazonSupply. “Shipping small, high-frequency consumer purchases is not the same thing as moving units in bulk on pallets and shipping LTL [less than truck loads],” he wrote in a blog post. “In addition, integrating with back-end vendor replenishment systems is no walk in the park. And providing quality domain-specific customer service is hard.”
Amazon.com, Merkel pointed out, has been selling industrial supplies on its website for several years without wreaking too much havoc on the industry. What's different this time, though, is that there is a dedicated domain name: AmazonSupply.com. AmazonSupply is also offering businesses lines of credit and technical sales support.
“We're excited to offer a wide range of items—from basic supplies like drill bits and automatic hand dryers to hard-to-find parts like laboratory centrifuges and miniature polyimide tubing—enabling business and industrial customers to streamline their buying processes,” Prentis Wilson, AmazonSupply VP, said in a statement. “Low prices combined with fast, free shipping and a vast selection, make shopping on AmazonSupply a great experience for customers.”
AmazonSupply did not respond to requests for comment for this story.
Industry observers see a three-fold threat from Amazon. The first is its user interface, which will challenge the current online transaction experience from established industrial suppliers.
“B2b customers are also b-to-c consumers,” Hoar said, adding, “b2b e-commerce is competing against a better and more established b-to-c experience standard.”
Many industrial suppliers have been aware of this reality for years and have responded accordingly. In Grainger's case, the company has improved its online experience for customers and embraced a multichannel approach to enable customers to interact with the company in the way they want.
“We don't hide our phone number,” Miller said. “We don't hide our click-to-call or click-to-chat buttons. We don't hide customer service. We want to elevate that level of service.”
Hoar said an example of Grainger combining digital prowess with customer service is its mobile e-commerce offering. “It plugs right into the accounting systems [of customers],” he said. “There's a lot of value in that.”
A second area where AmazonSupply could prove a menace is price transparency, which industry observers say will inevitably lead to reduction in pricing—and margins. “B2B sites often must focus on singularly objective pricing criteria, such as volume pricing, or risk potentially alienating long-standing customers or savvy new customers who believe they can get better deals elsewhere,” Hoar wrote in a report.
Merkel said large industrial suppliers may be insulated to some degree from pricing issues, because these suppliers already offer deep volume discounts to larger customers. “The pitch for MRO is not a price issue, it's a cost issue,” he said. “[Customers] want a salesperson, and they are willing to pay for it.”
A third threat is the potential for AmazonSupply to expand beyond MRO industrial supplies to numerous other b2b industries, such as electronics parts, where e-commerce transactions are possible. Many believe Amazon can ultimately move into a distribution position in a large number of b2b markets.
“This is a huge opportunity for them,” said Adam Hatch, VP-marketing at Hybris, which markets a b2b e-commerce platform. “It makes perfect sense. It may even make more sense than for consumer goods.”
The overall b2b e-commerce opportunity is huge. Using the most recent U.S. Census Bureau data, Forrester calculated that b2b e-commerce in the U.S. totaled $352 billion in 2009. That's up from $25 billion in 2000 for about a 30% compound annual growth rate for the decade. Hoar expects the strong growth to continue.
Grainger currently generates about $2.1 billion, or more than 25% of its overall revenue, from e-commerce. The company anticipates that by 2015, e-commerce will account for half its overall revenue.
In any case, b2b industrial suppliers and other businesses generating significant revenue from e-commerce should take note of Amazon's entry into the market, Hatch said.
“I think [Amazon's initial foray into b2b] was just a toe in the water,” he said. “This [AmazonSupply] is more of a foot, and watch out! They're about to jump in and they may land on you. Look at what Amazon did to Circuit City and now what they're doing to Best Buy.”
Hoar sees danger in Amazon's foray into this market, but how big that danger is may depend on Amazon. “That's the $64,000 question,” he said. “How serious is Amazon about this space? Are they just playing around or are they really serious?”
Traditional industrial suppliers are already preparing to combat Amazon by organizing their businesses around customer service and strong e-commerce options. And these established players may have the advantage that a wrong decision in buying industrial supplies can have bigger repercussions than buying the wrong book.
“Whereas B2C consumers will be disappointed if a purchase does not work out,” Hoar wrote in a report, “b2b customers can lose their jobs with one bad purchase.”