Many phrases have been used to describe Amazon by members of the office products industry – some more colourful than others – but one word seems to be repeated more than others: intelligent. The e-commerce giant is continuously moving in many directions, and though its actions are undoubtedly well planned, they are surprisingly hard to predict. The company knows what it’s doing, but isn’t letting on.
“They’re really clever and they know it,” says Jay Baitler, EVP of Staples Advantage. “They make announcements so their competitors start chasing their tails, which is a waste of time. Competitors need to focus on their own customers.”
This article was prompted by recent speculative reports that Amazon is looking to offer same-day delivery across the US. While Amazon CFO Tom Szkutak quashed these predictions during financial report, saying “we don’t see a way to do same-day delivery on a broad scale economically”, questions still surround the news that created the speculation in the first place; namely, the huge investment that Amazon is pouring into its distribution facilities across the US. To name a few, $130 million has been earmarked in New Jersey, $135 million will go to two centres in Virginia, and $500 million will be spent on developing warehouses in California. These facilities will bring customers much closer to products, so it is no surprise that commentators mentioned same-day delivery.
To Amazon, investing in these facilities must be a no-brainer. Just to recap, previously limiting its distribution facilities meant that the company did not have to pay sales tax in many states, as it didn’t have a physical presence, resulting in lower prices for the consumer.
However, when Amazon caved in and agreed to start collecting sales tax first in Texas from July, soon across other states – undoubtedly because it was inevitable that enough lobbying would take place to make it happen at some point or another – the downsides to establishing a physical presence were removed. In came the builders.
The same-day question
Amazon has actually been offering same-day delivery in the US since 2009 under the banner Local Express Delivery. At the moment only certain cities, such as Chicago, Las Vegas, Phoenix and Washington DC, receive the service. But suppose that Amazon actually is considering rolling out a wider same-day delivery plan, even though it has been denied – there’s a chance Amazon could be playing it safe by not making promises; after all, Szkutak said on a “broad” scale, not “any” scale. Would this have a major impact on OP resellers?
Yes, according to 79% of respondents to a recent poll on opi.net that posed this question. However, others say it won’t mean a great deal to the B2B market.
“I believe same-day delivery is a waste of time for Amazon,” says Staples’ Baitler. “If they did offer it, the more important issue is how they would convert that into a variable delivery model that asks Prime members if they would accept a three-to-five-day delivery deal for a rebate in the form of Amazon vouchers, for example.
“We’re not worried from where we’re standing. We’ve always believed in shared value – sharing it with customers to work on the lowest possible delivered cost.”
Sid Lerman, President of New York-based dealer Weeks Lerman Group, has a similar view. He doesn’t see the same-day customer as a commercial customer.
He says: “Amazon is a real threat to the SMB market, but for commercial dealers like us, people don’t need same-day delivery. I can’t see large corporations doing that. People are very comfortable getting stuff next day. It doesn’t take a whole lot of planning if you have a reliable source.”
Many people seem to believe that offering same-day delivery isn’t actually viable for Amazon. The e-tailer already reportedly loses money through Amazon Prime; according to an article in Time magazine Amazon loses $11 per customer by supplying Prime’s services. The argument is that it makes up the loss by securing repeat business, which would perhaps be the case with same-day delivery too.
“Same-day service is not an affordable service standard in today’s business world for everyday product needs,” says Steve Danziger, Partner at California-based AAA Solutions. “All of us can, and most of us do, provide a same-day service today, but usually via a messenger service at a premium to the user. It is very infrequently utilised.”
Speculation aside, there’s no doubt that Amazon’s investments in distribution facilities are going to make a difference to the way it carries out business. Amazon is already renowned for its good service and quick delivery times, and this is only going to improve.
On top of this big spend is Amazon’s recent acquisition of pick-pack robot maker Kiva Systems for a giant $775 million. As Baitler says, this acquisition “indicates that Amazon wants to become more extensive, not just in the marketplace”. Staples itself uses Kiva and reportedly sped up orders in its facilities considerably when it first started using the system. Though Amazon has not yet made any suggestion as to its plans for Kiva, Staples says that it will continue to use the system.
However, Amazon now has an advantage over its competition in the form of bargaining power; the e-tailer could, for example, supply last year’s robots and keep newer models for its own use. This acquisition does seem to highlight Amazon’s intentions to even further establish itself as the champion of warehouse efficiency.
But it has come at a price. Amazon’s most recent financial results revealed a net income for the second quarter of $7 million, down 96% from the $191 million it achieved in the same quarter last year, partly due to the acquisition of Kiva. There is also a chance that Amazon will lose customers when it collects sales tax more widely.
Says Danziger: “The biggest news is that Amazon will be less competitive once it starts operating in California and other states, losing the unfair competitive advantage it has enjoyed and which has helped to spur its sales growth. The expenses it will incur to build its new infrastructure, plus having to now charge sales tax and compete on a more even playing field, will likely impact its growth and financial position over the next several periods, if not permanently.”
In a recent article, CNNMoney reported that some of its readers had voiced the opinion they will now shop elsewhere. One reader even said: “If you own Amazon stock, SELL, SELL, SELL!” While not a scientific study of Amazon shoppers, there’s a chance the readers have a point.
The B2B/consumer debate
Back to the point that no one knows exactly where Amazon is heading, OP opinions are mixed. Moves such as its launch of AmazonSupply are aimed squarely at B2B customers, but this doesn’t have everyone convinced. And, of course, there’s always retail to consider.
“If I were Staples I’d be extremely concerned,” says Tony Ellison, CEO of e-tailer Shoplet. “Retail is not doing a great job; it’s a ghost town and they can’t keep talent in stores. The story is what Amazon is trying to address, and it more shows that Amazon is serious about taking on retail, but not B2B. It won’t be successful there. B2B is a very different consumer; there are so many other requirements. AmazonSupply is a headline grabber. Amazon has been selling B2B for years and nothing has changed.”
Danziger has a similar view: “I think Amazon’s market share will continue to grow, but more with home users than office users. I do think they will experience some nice growth among office users, but the traditional superstores and local dealers, along with Costco business delivery (and Sam’s for the home user), will continue to dominate the industry.”
However, Mark Miller at Eakes Office Plus, a Nebraska-based dealer that has both retail stores and a delivery business, has a different view. He says: “They will likely have an impact on our retail sales, but we do not consider this significant. Our initial discussion on the topic [of Amazon’s potential same-day delivery plan] was based on the impact it would have on our non-retail business. The overall struggle of retail is threatened not just by Amazon, but by the internet in general.”
Miller is backed up by his colleague Paul McKinney, whose response to the question whether Amazon is moving towards B2B is: “I would say the B2B space is moving more towards them. Traditionally purchasing groups did the buying, now companies are giving free reign and a $100 budget to staff – and those people are buying from Amazon.”
A similar view comes from Dave Guernsey, CEO of Guernsey Office Products. “The real concern is the relationship they have with the younger folk,” he says. “Formidable. Folks in their 20s and 30s are doing more office products purchases and even making decisions on the vendor. Amazon will always be on their list of who to get a proposal from.”
President of manufacturer Ghent’s Visual Communication Products Group Janet Collins also believes that because Amazon is almost unfailingly at the top of the list, at least in terms of search results, it will inevitably take B2B market share.
“We’re seeing a lot more people use Amazon to purchase B2B,” she says. “Purchasing people are increasingly sourcing by searching online and it will be interesting to see if it’s just an initial purchase on Amazon or if they’ll continue. Amazon is always the lowest-priced.”
While it’s hard to find two resellers with the same view on where Amazon’s focus in concentrated, it would be hard to find a manufacturer that doesn’t look at Amazon favourably. Not only does Amazon facilitate bringing products to market more quickly than through traditional catalogue means, for example, but there is no limit to how many products can be listed.
“It’s undoubtedly an opportunity for us,” says Collins. “We started by putting a few SKUs in their warehouses and it’s growing every month substantially.”
Ghent’s products are stocked and dispatched from Amazon warehouses, and this is a further threat to resellers. While some dealers have had success selling products through Amazon Marketplace, which so far seems more consumer than B2B, Amazon’s tactic seems to be to watch which products are successful then stock them itself while offering a lower price. The recent news involving Spicers UK & Ireland’s foray with Amazon highlights this, as CEO Alan Ball explained (turn to page 16 for the news). While this is good news for manufacturers, Amazon is also getting a whole load of useful information about products that can only aid it to grab market share.
But Collins doesn’t believe Amazon is on a home straight just yet. She says: “Amazon sales will never be a major component for us because of the value that the dealer brings to the transaction. You can’t do everything through a picture on the internet; you have to have human interaction.”
There’s a strong argument to be had that Amazon’s one major failing is a lack of interaction with its customers. While this is seen as a help by some – its transactions are quick, easy and efficient – others see it as a hindrance. Taking retail, a store can certainly offer elements that no e-tailer can.
Miller of Eakes says: “Our level of service is our main way to combat shoppers; services that aren’t available on the internet such as custom printing. They want the personal touch that you can’t get online.”
Going to an office products dealer with years of experience that can be relied on to deliver may well still win for businesses. AmazonSupply is attempting to appeal to customer service expectations by offering services such as a returns policy, lines of credit and bulk ordering, and has even enlisted an external customer support agency. But can these services be tailored for each customer? Can Amazon whittle down the thousands of SKUs it has available to what most meets a business’s needs, as a sales rep should be able to do? Can Amazon make recommendations for a greener product, if a customer asks?
It is extremely unlikely that Amazon’s customer support team knows anywhere near the amount that an office products reseller’s staff knows about its products. The personal touch just isn’t there. Yet.
Baitler says: “I believe the winner in the new world will be the one who creates electronic intimacy. When Amazon bought [shoe e-tailer] Zappos it changed the practice of women in America – shoes were always an item that needed to be tried on, but Zappos convinced them that they don’t need to. That says to me that Amazon understands the need for electronic intimacy and is working on finding it.”
Let’s see who gets there first.
A same-day battle begins
Same-day delivery fever has spread; now online auction site eBay has started to offer the service to shoppers in San Francisco, California, using an iOS app. It’s even offering delivery within an hour. Called ‘eBay Now’, users can pay $5 for same-day shipping from local retail stores that have partnered with the website – current partners include Best Buy, Target and Macy’s. Initially, only shoppers that are invited by eBay can access the service, and there is a $25 minimum order.
Many commentators are seeing this as a direct move to take on Amazon. The system works by gaining the support of bricks-and-mortar retailers – which have already uploaded their inventory to Milo, eBay’s online marketplace that it acquired in 2010 – and having couriers deliver products and collect payment for the service on arrival. However, eBay doesn’t have the distribution strength of Amazon, particularly given Amazon’s current mammoth investments, so whether this service will dent Amazon’s collection of Prime and current same-day users is uncertain. The very low charge of $5 certainly seems unsustainable in the long term.
Staples UK plays host to Amazon
As this issue of OPI went to press, it came to light that Staples stores in the UK are now acting as locations for Amazon’s expanding locker programme. This scheme of the e-tailer is aimed at overcoming problems associated with deliveries to private addresses when the customer is not at home when the parcel is delivered (see ‘Homing in’ in OPI #219 for more on this scheme).
This is certainly an interesting partnership. Clearly Amazon cannot be ignored and Staples is looking to find new ways to attract customers to stores. Whether this is a case of keeping your friends close and your enemies closer, or whether we are about to see a wider partnership flourish is as yet unclear.