With Amazon Business still in BETA in the UK, Mark Thornton, Marketing Director at Maginus, an Episerver Premium Partner, takes a look at how the offering has developed in the US – and what the UK wholesale and distribution market should be prepared for.
Few businesses have shaken up the retail sector as dramatically as Amazon, which has developed from a small online bookstore to become one of the largest, most diverse online businesses in the world. Yet few could have predicted the success of the ecommerce powerhouse.
The company’s 1997 annual report, stated that it had served more than 1.5 million customers, yielding 838% revenue growth to $147.8 million, going on to say that “Amazon.com uses the Internet to create real value for its customers and, by doing so, hopes to create an enduring franchise, even in established and large markets.” The report committed to “obsessing over customers” and “working hard to expand business infrastructure to support greatly increased traffic, sales, and service levels”. 19 years later, those maxims have been the foundations of their success in the consumer market, seeing the latest annual statement reporting sales of $100 billion.
In less than two decades Amazon has proved itself to be ruthlessly capable and highly efficient, using technology to drive down costs and develop ever more product lines and service offerings. But while their initial focus has been on the consumer market, the organisation now has the B2B sector firmly in its sights. And if you don’t think Amazon is serious about B2B I urge you to take a look at what they have achieved with Amazon Web Services, their B2B focused cloud computing offering which cleared $10 billion in sales last year and accounted for more than 50% of the company’s operating profit.
And Amazon’s desire to dominate the B2B market doesn’t stop there. Last year the company launched Amazon Business, a B2B ecommerce offering, selling everything from office supplies to cranes. While still in beta, and being kept relatively low profile in the UK, this strand of the online behemoth has been recording truly remarkable growth rates in the US.
Amazon’s first foray into the wholesale and distribution sector was its Amazon Supply service, quietly launched in 2012 to the US market. It offered two million products in 17 categories. The service evolved into Amazon Business, which launched in 2015, offering a vastly extended 20 million items, with Amazon itself selling nearly 2 million products directly, cementing its status as a genuine wholesaler rather than simply a B2B marketplace for manufacturers.
Its success has been almost immediate. In May 2016, Prentis Wilson, VP of Amazon Business, outlined that the business had maintained a 20% monthly growth rate, now has 300,000 registered business accounts with new and growing customer segments including schools and universities, hospitals and medical clinics, small restaurants, construction contractors and government agencies. In the 12 months since it launched it has already recorded $1 billion in sales.
A broad range of additional services are offered to Amazon Business members. For example, business accounts now enable companies to add multiple users, so that individual staff members or departments can place their own orders under the main business account. Discounts for bulk buying are available, as are a variety of payment options and next day delivery.
Members can purchase from Amazon Business through integration to a range of software applications, and a workflow is provided for routing order approvals through a buyer’s purchasing processes. E-invoicing is also currently being tested; if successful, it will mean that businesses can purchase products from multiple sellers but receive and pay just a single Amazon Business invoice.
Amazon Business, much like its consumer arm in its formative years, is focusing much of its innovation on streamlining buying processes for customers, and adapting its consumer business model to work seamlessly for organisations that may incorporate dozens or even hundreds of different buyers.
Clearly, any entry Amazon makes into the UK market will have a significant impact on wholesalers, and for many it may seem like mission impossible to compete with the might of Amazon. But, aside from taking solace from the fact that many traditional retailers such as John Lewis and online specialists like ASOS have remained successful while competing against them, there are steps that wholesalers can take to remain competitive.
Many wholesalers have resisted embracing online for too long, either because they believe their business is too complicated or ecommerce is not relevant to their products or services. It’s a view that has prevailed despite some of the UK’s best performing wholesalers and distributors, such as Nisbets and Screwfix, using IT to gain a competitive advantage.
Yet, Gartner named Amazon as number one in the Top Supply Chain organisations of 2015 and recommended that, in order to compete, a bimodal IT strategy should be implemented – “one focused on being agile and flexible” (online and digital), “and the other centred on efficiency and predictability” (ERP and Order Management Solutions). Wholesalers should follow Amazon’s lead –innovate using online marketing and selling techniques, and integrate into efficient back office systems.
The latest B2B ecommerce products for wholesalers and distributors incorporate all the functionality offered by Amazon and more: account management, multiple online ordering methods, real-time stock inquiries, live order tracking, delivery information plus click-and-collect. Wholesalers should embrace this technology and integrate with Order Management solutions developed to meet the exact needs of today’s wholesale distribution companies. These solutions enable orders to be processed within minutes of receipt, give the ability to scale during seasonal peaks, and drive efficient pick, pack and returns processes. By levelling the technology playing field wholesalers will be able to maximise the advantages that they possess over the online giant.
For all Amazon’s strengths – and financial clout – there are weaknesses in its current business offering. Existing wholesalers are specialists in their chosen sectors and will have a deep knowledge of the products and the market, as well as a detailed understanding of their customer’s needs, that Amazon cannot match. And that is unlikely to change anytime soon.
Amazon don’t offer customer-specific pricing; you cannot phone Amazon Business for advice as they don’t have a B2B customer service call centre. They don’t have sales people that can actually visit customers and build personal relationships, and they don’t have physical outlets. Our recommendation to UK wholesalers and distributors is to play to your strengths: excellent customer service.
Amazon is coming to the UK B2B supply market, of that there is no doubt. We can also be sure that they will invest heavily and for the long term in technology and infrastructure to create the economies of scale on which they thrive. But by levelling the technological playing field, capitalising on Amazon’s weaknesses, and playing to their own strengths, UK wholesalers and distributors will be well positioned to genuinely compete, and thrive, as they go into battle with the world’s largest online retailer.