Part 1 of this Amazon business series (see July 2017 issue) touched on Grainger’s current profit woes.

Why have legacy channel players underrated Amazon for 20 years? In this second installment in the series, we take a look at the new lenses we need to better assess Amazon’s future threats.

My favorite example of a channel player underestimating Amazon is Barnes and Noble. In 1999, Barnes and Noble unveiled a website that, according to Barron’s, was going to crush what it referred to as “Amazon dot bomb.” But by April 27, 2017, the company had announced its fourth CEO in four years and 645 stores were down 9% for 2016. Meanwhile, on May 8, 2017, Barron’s targeted Amazon shares to hit $1,100 (+20%) in a year.  

Narrow-frame expert forecasting

So-called experts generally extrapolate forward in a linear, incremental fashion. For example, they will narrowly praise the details of Grainger’s 90-year-old highly-evolved moats that Amazon can’t imitate. But, Amazon isn’t imitating the traditional channels. It is inventing an entirely new customer-centric channel that starts with ordering online. Then, it invents whatever is needed backwards to its factory sources in China. For example, Amazon even bought cargo jets and semitrailers to have better, cheaper delivery at peak times — not to compete with FedEx and UPS.

Customer-centric metrics

Amazon’s 500 customer-centric metrics guide its nonstop innovation to create value for digital buyers. It is looking ahead to what’s new. It’s inevitable that in a short two years: 

1) Your 5G bandwidth phone will have merged with the evolving Alexa/Echo to instantly retrieve all your product information needs, including price and delivery speed comparisons.

2) Amazon achieves breakthroughs for 30-minute delivery and cost, which easily could look like driverless vehicles to ZIP + 6 zones and drones for last-block delivery.

What’s in your value-innovation pipeline?

By 2019, more than 50% of all purchasing will be by millennials, who see reps as time wasters. Are you reinventing your reps’
cost/benefit per-call proposition? Keep in mind Amazon just wants your zero-attention-needing, digital customers and orders. You can keep the unprofitable, high-service-cost, small-order customers.

Selling direct?

Factories are selling Amazon direct. Manufacturers and distributors-to-retailers resisted selling Amazon direct for fear of channel retaliation. Now that all items are available through the Amazon Marketplace, direct selling of the most popular SKUs to Amazon is snowballing.  

What to do

Your best, most profitable customers want you to match Amazon’s web shopping and ordering experience with a range of delivery options and prices. How will you keep the 5% of your most net-profitable customers and get even more of their total spend? We’ll answer those questions in the next installment of this series.   

As we wrap up, here are two things to think about and discuss in your organization.

1) If Amazon is inventing an all-digital customer-centric shopping channel (factory to doorstep), wouldn’t it make sense that it can’t or won’t take away most existing channels’ business? The question then is what cream will they skim? How big a profit loss will that be?

2) Can you think of any factories that sell your distribution firm that have started to sell Amazon direct? What’s the implication?