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Battling the Bigs: Online giants move into the electrical distributor's space

Feb. 11, 2014
AmazonSupply and Google Shopping for Suppliers are not going to put electrical distributors out of business, or not many of them, anyway. Some distributors will suffer — mostly those who stake their business on a niche that can be served from afar and refuse to adapt.

The worries can haunt your dreams if you let them. As you drift off, you’re transported to the near future. An unmanned aerial drone the size of a Sikorsky Skycrane hovers in the sky over the lot of your biggest customer, lowering a massive payload. You look at the shipping container suspended from cables and recognize the idiotic half-smirk logo. No telling what’s inside the container, it’s big enough for a truckload of conduit. Ernie from receiving, still wearing the logo cap from your switchgear supplier that you gave him on your last golf outing together, quick-draws a barcode scanner from his belt and squeezes the trigger as the container bumps onto the asphalt. You try to jump between the scanner and the code to block the laser, but your feet are too heavy, weighed down by bricks and mortar. You look on, aghast, and somehow in your dream state you see the numbers fly as an invoice balance bigger than any you’ve ever written for him transfers from Ernie’s company’s account and makes barely a ripple as it enters a colossal balance sheet in a far off data center.

Wake up. Distributors in all lines of trade have supposedly been having similar, recurring dreams, and we may soon see it affect their daytime performance. Don’t let it happen to you.

This is not to say that having some of the biggest electronic commerce companies in the history of the world show interest in supplying electrical products can be safely ignored. It can’t.

The point, rather, is that AmazonSupply and Google Shopping for Suppliers are not going to put electrical distributors out of business, or not many of them, anyway. Some distributors will suffer — mostly those who stake their business on a niche that can be served from afar and refuse to adapt.

Most distributors, on the other hand, will do just fine. The sharp ones will learn all they can from the new players and set themselves in position to thrive and grow and prosper.

In rough terms, AmazonSupply (AmazonSupply.com) is a rebranded subset of e-commerce giant Amazon that offers a streamlined interface for searching and purchasing products for industrial, scientific and business customers. It offers lines of credit, free two-day shipping on orders over $50 and boasts 1,500,000 products.

Google Shopping for Suppliers (www.google.com/shopping/suppliers/) is not really an e-commerce platform at all, not the way Amazon is. It’s more a portal that lets you search for suppliers and delivers you into the suppliers’ own e-commerce systems, however good or bad that may be. Along the way, of course, Google gathers data.

Here are some thoughts on how electrical distributors can adapt.

ACTIVE ENGAGEMENT

Active engagement with your customers will be your most lasting long-term advantage. The online players are fundamentally passive — they may advertise and market ingeniously, they may have global name recognition and the most advanced data-analysis systems the world has ever seen (which they do), but still all they can do is sit there and wait for someone to log into their system and start searching for products. You have the more active offense, seeking out customers, learning about their needs and creating a solution to help them.

Your field sales team is your biggest cost disadvantage compared with the online sellers, bigger than the pricing advantages they could get from larger volume. But that cost buys you a distinct advantage they aren’t set up to counter.

It will be much easier for Amazon or other online providers to match the level of product and application knowledge you find in the aisles of a home center than the expertise found in a distributor’s counter area. Neither big box or online sources are likely to show up at the customer’s factory with a manufacturer’s rep in tow to help him or her improve existing systems.

Over time, you need to upgrade your sales team and improve the way they operate in the field. You need the best sales athletes you can recruit, and you need to train them intensively. Look at discarding geographic territories served by generalists and focus instead on expertise related to customer type and technical application.

Active engagement will put you in a position to shift away from pricing battles that the e-commerce giants will win anyway. From the vantage point created by this active engagement, you’ll be able to see the touch-points and look for creative ways to add more value to help him or her compete. You need to move toward getting paid for that value and withholding it from those who don’t see or won’t use its advantages.

Two important and possibly disturbing caveats to this emphasis on customer engagement. One, Google and Amazon possess massive data-mining capabilities that will produce advantages you can’t foresee. They’ve invested in artificial intelligence and predictive algorithms to be able to understand your customers based on what they click on, even what they look at, in ways you can’t guess even knowing the individuals personally.

The other caveat is that even the customers you are most actively engaged with want the convenience of buying online. In an industry where even many of the biggest distributors have e-commerce platforms their customers consider inadequate, this means the importance of investing in e-commerce capabilities will only grow more intense in the years to come.

SYSTEMS UPGRADES

Your customers will demand multi-channel convenience. The active engagement with your customers will get you closer and build genuine connection, but research shows that to a large slice of industrial buyers, convenience trumps all else in building customer loyalty.

Distributors won’t easily match Amazon in terms of intuitive user experience, but they can and must study them and steal as much them as possible.

One option to consider is setting up shop as a supplier within AmazonSupply or Google Searching for Suppliers. Given the percentages the sites take it wouldn’t be a winning e-commerce play on its own for most distributors, but as part of a strategy keyed on serving your customers through every possible channel, it may be better than join them than to try and beat them.

If local stock is your key advantage, look over your shoulder. Amazon is now investing heavily in the infrastructure to serve your customers. Within those warehouses packed with all manner of industrial, scientific and business supplies it’s unlikely they’ll stock hard-to-handle products like wire & cable and conduit, but they will be able to support quick delivery on high-volume items.

Anyone who’s been inside an Amazon warehouse or seen video knows the operations are very advanced and highly automated. The company’s logistics expertise is already at the next level, whether or not they really make use of the delivery drones that gained them so much attention last year. Recent stories from sources such as Wired.com say the company has also secured a patent for a “speculative shipping” process that would use data analysis to predict where various products will be needed and put them on the truck that direction before anyone actually places an order. The final destination is assigned while the product is en route.

You won’t get your systems more advanced than theirs without their level of investment, but the reason they have to be so intensely focused on this is because they’re trying to compete with you, as well as local distributors in every other line of trade. They have the logistical expertise and long-term vision – not to mention the category-defining business-to-consumer e-commerce platform – to take a share of the business from all of them, but when it comes down to the street, where the purchase orders are written, it’s by no means certain that they will be more trouble for electrical distributors than home centers turned out to be. Drones or no drones.

As far as we can determine, no electrical distributor was ever put out of business by Home Depot. Most likely none will lose to AmazonSupply or Google Shopping for Suppliers, despite all the predictions of doom.

About the Author

Doug Chandler | Senior Staff Writer

Doug has been reporting and writing on the electrical industry for Electrical Wholesaling and Electrical Marketing since 1992 and still finds the industry’s evolution and the characters who inhabit its companies endlessly fascinating. That was true even before e-commerce, LED lighting and distributed generation began to disrupt so many of the electrical industry’s traditional practices.

Doug earned a BA in English Literature from the University of Kansas after spending a few years in KU’s William Allen White School of Journalism, then deciding he absolutely did not want to be a journalist. In the company of his wife, two kids, two dogs and two cats, he spends a lot of time in the garden and the kitchen – growing food, cooking, brewing beer – and helping to run the family coffee shop.

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