A quiet revolution has been unfolding in B2B distribution over the past few years. For those who haven’t been paying attention, Amazon Business has quietly become the largest distributor in a large number of categories.
Just how big is Amazon's Business? To start, it is projected to top $50 billion in gross merchandise volume (GMV) by 2023 and is expected to hit $83 billion in gross merchandise volume by 2025. But to get a good idea of this massive shift, we need to dive into the different industries and categories fueling this growth.
Just looking at their top categories gives you a good idea of where Amazon's Business is heading. The maintenance, repair, and operations (MRO) category is by far its largest, with about 174,000 MRO sellers listing more than 18 million products on Amazon, according to marketplace tracking firm Applico. Compare that to Sonepar, the largest MRO distributor, which did approximately $28 billion in global sales in 2019. While that sounds good, their seven percent YoY growth rate is dwarfed by Amazon Business’ projected 500 percent growth over just five years (they reported having a $10 billion GMV in 2018).
Across a wide variety of categories such as automotive supply (which crosses B2B and B2C), janitorial supplies, medical supplies, occupational health and safety, and others, Amazon Business has steadily increased the number of sellers and products on its B2B marketplace (and that doesn’t even account for office supplies, Amazon Business’ third largest category).
These figures should send a clear message to any executives at B2B distributors (and maybe even a chill down their spine). To stay competitive, distributors must learn from what Amazon is doing and develop a strategy for retaining and growing their customer base.
The big advantage that most distributors have, of course, is their industry knowledge. Distributors hang their hat on their expertise in their vertical, and in today’s world, that needs to be translated to a bespoke digital experience that’s simultaneously specific to their customers but doesn’t reinvent the customer experience. That means offering industry-specific product categories, navigation, search, etc., as well as a clean and effective user experience.
Unfortunately, that’s just par for the course and won’t be enough to stay relevant. One reason why Amazon's Business has grown so fast is because of its massive selection, as noted above, and distributors need to find ways to broaden their product selection to stay competitive.
If you’re a distributor, you might be thinking that expanding your assortment is a potential nightmare. More products to track, more warehouse space needed, more staff to support it, etc. Luckily, there are two strategies for expanding assortment without making a major financial commitment.
First, you can expand your assortment with drop shipping. Drop shipping is where products are sold on a website, but shipped directly from the manufacturer. This is a common practice in B2C and is starting to catch on in B2B. A great example is Grainger, whose online channels grew 19 percent in 2019 thanks in part to drop shipping. Services like CommerceHub make this approach relatively easy by providing a platform to develop relationships between sellers and manufacturers.
If that approach isn’t fully appealing, distributors can look into developing their own online marketplace, which enables other vendors and manufacturers in their industry to sell their non-competitive but relevant products. A classic example of this is Honeywell, who launched GoDirectTrade.com, an online marketplace for the aerospace industry. Launched in late 2018, the site boasts an impressive inventory of “1.5 million parts over 20 product categories,” but those aren’t all warehoused and managed by Honeywell. Instead, they’re offered by the marketplace’s 2,000 sellers. And this approach is a winner for Honeywell, who sold a $100,000 jet engine on their marketplace last year.
So why do these approaches work? The key is understanding today’s B2B buyers, specifically that they’re busy, don’t have a ton of time, and want their buying tasks to be fast, easy, and efficient. What better way to do that than to provide a one-stop shopping experience? And by expanding product assortment, distributors can meet a wider range of customer needs, all while reducing the likelihood that their customers will shop elsewhere. Best of all, these strategies provide an effective means to do that without necessarily making a huge financial commitment.
So far, I’ve talked mainly about the impact of Amazon's Business on distributors. But what does all this mean for manufacturers? Well, it’s pretty much the same story. The key is to understand not only the buyer but also the end customer. Every manufacturer (and distributor) must understand the complete customer journey from start to finish. That is, they need to understand how the end-user of their products shops and makes purchases. For manufacturers, there’s the added layer of understanding how customers use distribution channels.
A great example of this is our friend and colleague Kari Faubert, Director of Ecommerce at Keysight Technologies, which makes a wide variety of measurement equipment. The $4.5 billion company has recognized the need to not only sell a wide product assortment online but to balance that with traditional distribution channels.
We have a lot of business at risk, a lot of our effort has been to balance our product mix, to balance Ecommerce with direct selling from the sales force and our channel partners. It’s a fine line to walk.
--Kari Fauber
Keysight needs to look at its end-user's needs, in addition to its resellers’ needs. They spend a lot of time developing an understanding of the customer journey from start to finish and what their end-users' preferred channels are so they can meet them where they want to buy.
If you’re a distributor or manufacturer today, you’re likely facing some steep competition—from Amazon Business and elsewhere. Amazon's Business didn’t explode overnight, though it did grow a lot faster than most businesses. Even if you’re the biggest business in your industry, there’s a good chance that Amazon Business poses some level of threat. This revolution might not happen overnight, but it will likely happen at some point. The question is how ready will your business be when it happens?