Hot Topic: The kraken wakes

Not exactly a giant monster about to usurp all around it, Amazon has nonetheless become a threat - not to mention a formidable competitor and often a real opportunity too - to the OP industry. But how far-reaching are its tentacles?


Some products and concepts start with a bang and are instant successes – the launch of the first iPhone in 2007 put Apple very firmly back on the business map – while others, including the iPad in fact, are slow burners that take a little more time to mature. AmazonSupply is one of these smouldering slow burners. The B2B spin-off that was launched in the US in April 2012, has been largely under the radar – deliberately so from an Amazon PR point of view, presumably – for the past two years.

But that appears to be changing. Some of the most notable US publications – Forbes and The WallStreet Journal to name but two – have recently been giving the site and the threat it poses to the wholesale and distribution world plenty of column inches. The fact that Amazon has its tentacles around so many concepts – and some, like the recently announced delivery drones, may seem jut too outlandish to cause an instant panic – makes it hard to decide which ones to really monitor. But, says Rick Marlette, co-owner of OPSoftware, with 2.5 million products advertised, AmazonSupply is the sleeping giant that many in the industry have so far chosen to ignore – at their peril.

“Amazon is after a cut of everything and it doesn’t care where or who that cut comes from,” he says. “When AmazonSupply gets cranked up and goes after the dealers’ commercial B2B business, leveraging all that customer data it now owns (thanks to third-party sellers), the short-term profits some made selling on Amazon may all of a sudden seem inadequate. I would be amazingly cautious in dealing with Amazon.

It has already proven that it will convert to its own use what sellers so willingly hand over.” Greg Welchans, President ofSupplies Network, agrees: “I believe that AmazonSupply is a major threat to the independent dealer community and also to the branded manufacturer. As Amazon collects valuable data on both products and the customers, it will market to the consumer in ways the independent dealer cannot match.”

Beyond the big boxes

When AmazonSupply was first announced, the consensus was that it would add strong competition for the likes of Staples, Office Depot and Costco. Staples in particular has responded and massively ramped up its overall product offering, opened a new development centre that will focus on enhancing the company’s e-commerce initiatives and very recently announced that in the forthcoming back-to-school (BTS) season it will price-match items sold and shipped by (rather than AmazonSupply) or by any retailer that sells products in both stores and online under the same brand.

In its current fight against Amazon, Staples is resorting to price to win market share, no mean feat in the cut-throat BTS season where large retailers such as Walmart and Target have the clout to compete on price too. Independent dealers – Amazon Marketplace sellers aside (notethat AmazonSupply does not havea marketplace) – are for now still a little more on the periphery: on the plus side, they still draw on and capitalise from ‘Buy Local’ strategies as well as a unique personalised service, while on the minus side many have arguably never been real contenders in the online game for a whole number of reasons. But far from the initial threat

to predominantly the big boxes, wholesalers and manufacturers too are privately worried about AmazonSupply and with good reason, adds Marlette. “It’s clear by Amazon’s own statements that it wants to sell everything to everybody, controlling the flow of as many products as possible from manufacturer to consumer. If this did happen, it would be really bad news for the wholesalers and manufacturers.” Given that Amazon has built up an enviable logistics and data powerhouse in the US (though by no means exclusively there) and is intent on servicing as many markets directly as it can from its 40+ fulfilment centres, the wholesale and distribution world across many industries comes under threat and OP is no exception.

So what does that mean for United Stationers, for example, Amazon’s (officially unconfirmed) OP partner in the US? United declined OPI’s offer to comment, while others have been more forthcoming. Welchans says: “Logic would dictate that as Amazon develops more distribution capabilities that its current partners would see a decrease of business over time. If United is a major supplier to Amazon it could adversely affect its business. “We at Supplies Network made a decision long ago not to pursue Amazon’s business as it would hurt a large part of our customer base.”

The price point

The power to determine and drive down prices is another bone of contention that virtually all supply chain partners have to contend with (although it could be argued that Amazon is no longer the low price competitor that it once was). In fact, several people OPI spoke to named Hewlett-Packard’s (HP) reseller authorisation programme as a means to address that threat. Says Welchans: “Absolutely Amazon is driving down the price of goods. HP’s new authorisation programme is designedto help keep pricing and product integrity offered through companies such as Amazon.” And HP is not alone in trying to control Amazon.

Marlette adds: “Most OP manufacturers used to provide a Manufacturer Suggested Retail Price as the maximum price for their products. Now more manufacturers are creating a Minimum Advertised Price (MAP) to keep resellers from driving prices too low. When you see ‘add to cart for price’ on a website, that’s MAP in action. On the AmazonSupply site, they do have a few items with MAP pricing, but from the disclaimer they place next to the ‘add’ button, you can clearly tell they are not happy with the manufacturers that impose this restriction.” Although AmazonSupply delivers to, as the website says, 50+ countries, the B2B site itself is not actually hosted anywhere else but the US at the moment.

As such, the threat to resellers – and wholesalers – selling to the B2B space is perhaps not as acute as it isto those in the US. That said, it’s not to be underestimated either. One UK dealer that prefers to be unnamed and that has been doing a considerable amount of business on Amazon as a Marketplace reseller, says: “Amazon is already a clear threat in the B2B marketplace and I can categorically state that fact due to the orders that we receive from large companies (via Amazon marketplace) that we otherwise do not deal with.” What is increasingly happening in the UK too – much to the discontent of resellers that willingly and knowingly hand over so much data to Amazon in order to be part of the Marketplace – is that, once established, the e-tailer happily bypasses its resellers and heads straight to the manufacturers (and wholesalers) for certain categories.

Adds the UK dealer: “We have noticed that Amazon is reducing the number of resellers on certain lines and whilst this hasn’t affected us yet, it is something that we are aware of and something that we would be totally powerless to control.” It is that feeling of powerlessness, perhaps, that is hard to stomach. And there’s something else that affects both dealers and manufacturers, says Iain Howarth, Managing Director of Open Range, a UK-based e-content provider across a range of categories, including OP. As manufacturers foster close relationships with OP resellers, working with them on special promotions that are run at different times throughout the year, Amazon – aware of those favourable conditions – squeeze manufacturers for the same conditions, rendering any dealer promotion almost redundant.

“I am told that the only way around this is to synchronise the reseller promotions with a similar promotion on Amazon or risk being delisted,” says Howarth. “Because the promotions are time-limited and are not permanently sustainable, this can have significant adverse implications on profitability for the manufacturer and the reseller.” As Howarth adds, marketplaces such as Amazon – and eBay for that matter – can be useful marketing tools in attracting customers to your own company through initial purchases via Amazon and eBay stores. “It’s all about managing what you choose to sell on Amazon and eBay and at what price, and never losing sight of the fact that from a reseller perspective it’s part of the marketing mix rather than a replacement for your own, direct and online relationship with your customers. “It’s about choosing what works for your company and customers and avoiding what doesn’t.”

Sleeping with the enemy

And indeed, the same applies to the wholesalers. Like in the US, in the UK – and continental Europe – the debate rages as to whether wholesalers should be fulfilment partners for the likes of Amazon. Spicers has long had a tetchy relationship with parts of the OP reseller community because of its staunch stance on supplying companies like Amazon and Tesco (not to mention its brief foray as a – nominally – direct reseller on Amazon with Ernie’s Office Supplies. Dealers haven’t really had any real leverage in this debate, other than taking their custom elsewhere, but it’s not too far-fetched to assume that Alan Ball’s downfall can be in part attributed to his “lack of understanding of dealers”

Over in Germany, business supplies wholesaler soft-carrier made the same decision as Supplies Network in the US, inasmuch as a working relationship with Amazon is concerned. Says Managing Director Thomas Veit: “Soft-carrier does not cooperate with Amazon, either in Germany or in France. We’ve been approached repeatedly in both countries by the e-tailer to carry out order fulfilment, and it’s interesting to note that when this happened in France recently, we were told that they were amenable to certain concessions in terms of conditions. It hasn’t changed our policy of keeping this potential ‘customer’ Amazon at bay for now.”

That said, the Amazon Kraken in Germany remains a very different animal for now and could almost be viewed as where the UK and US were several years ago. Always regarded as a country that is deeply traditional and resistant to change while at the same time embracing technology with super efficiency, Amazon is already a colossal competitor in the B2C space (though not without a good dollop of controversy, particularly as regards working and pay conditions of seasonal workers in its distribution centres), but in B2B terms, the threat remains negligible, with many resellers seeing only a minor impact.

For now that is and it’s a very big ‘for now’. Says Christian Langvad, Director of Product Management & Business Development of OTTO Office, part of the OTTO Group, which is also a huge contender in the B2C online space: “At the moment Amazon is not a a real option for B2B OP customers in my opinion. The requirements to address the shopping needs of B2B customers are very different compared to B2C, and OP specialists that are active in e-commerce provide a considerably more attractive and competitive package than Amazon.”

Manufacturer naivety

But that’s changing and it’s a path well trodden. What is very different to, say, the UK, where the e-tailer is already clamping down on manufacturers, making demands and changing conditions, is the way in which a good part of German OP manufacturers are really embracing the ‘Amazon opportunity’. There’s much talk of how easy it is to deal with Amazon, how the company is uncomplicated and doesn’t ask for special prices, programmes or conditions… “It’s exactly the same tactics that Amazon has employed in other industries,” says an OPI source.

“The first step when it enters a new product area is to open its marketplace to companies in that space. It happened in books, it happened in clothing, it happened in office products. And it makes sense for many small office products dealers in Germany as a way of getting a small slice of the online cake. They don’t know how to get into the online world and they see an easy opportunity by placing their products and selling them via the Amazon Marketplace. “But Amazon now has access to all that valuable customer data and sales data,” the source adds.

“The second step is that it takes a close look at that data and where it sees some business potential, it smoothly begins to offer the products themselves by going directly to the manufacturers while the dealer on the Amazon Marketplace becomes somewhat redundant.” And after the small dealers – and before the manufacturers – come the wholesalers – adds Veit. After initially going for the small dealer, now it’s the turn of the wholesale channel, with its broad logistics competencies, to be targeted. Having gained a good understanding of the workings of the industry and having all that valuable data, the manufacturers will be next, he predicts, and history in the more mature online markets would certainly suggest he’s right.

It’s nothing new and shouldn’t come as a great surprise, but manufacturers – and resellers too – are not paying enough attention to their overall brand proposition, says Langvad. He says: “I don’t think some OP manufactures are aware of what’s happening with their brands in the online business. They don’t see that a broad presence of their products online will not necessarily bring any value to their brands or generate additional market share. In fact, it could lead to the opposite – making them comparable to product alternatives, where price-sensitive online customers increasingly will not be willing to pay extra for a brand. I am sorry to remind them, but we sell low-interest products…”

Beware the Kraken

There’s plenty to admire about the global phenomenon that is Amazon – nobody arguably does data analytics better, for starters – but putting all your eggs in the Amazon basket is not a good idea because the hatchlings could clearly be monstrous and all-usurping.