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Why Bricks Will Still Matter

Dot-com companies may offer one-click access, but customers will still rely on distributors to deliver the goods.

In Act I of B2B Web purchasing drama, early implementers led by W.W. Grainger, Inc., Lincolnshire, Ill., bolt into cyberspace with their online storefronts. Few other distributors follow their lead, and no one is quite sure if anyone is making any money at this new game. At about the same time, the word "disintermediation" creeps into the industry's vocabulary, as many distributors worry that the Internet will tear apart the existing distribution channels, and replace them with electrical manufacturers and new online competitors selling direct over the Internet.

Integrated supply advocates gunning for MRO business from Fortune 500 companies, and smaller plants and facilities provide the action in Act II of this unfolding story. Grainger again is at center stage with its Web-based initiative to provide large national accounts online ordering capabilities for a big basket of MRO supplies. Competing with the Grainger offering are nationals promoting their own packages, as well as independents banding together in various buying consortiums.

Online auction sites come onto the scene next, as Web-based marketplaces allow buyers and sellers of electrical supplies to troll for interest across all existing market boundaries for their requests for proposals, surplus inventory and mainstream product offerings.

Now we are all focused on the Web portals promoted as virtual online communities that offer your customers 24/7 ordering access to a broad array of products, product auctions, and many other features. These companies often rely on distributors to provide warehousing and delivery.

Where do we go next? Will Web clicks chip away at the electrical industry's proud bricks? The latest thinking is that the winners of these Web wars will be built with a mix of "clicks-and-mortar" that offer the Web's instant ordering capabilities and the dependable local delivery, on-staff expertise and warehousing that the best distributors now offer.

The next chapter of this industry drama will be the inevitable sorting out of winners and losers. Once Wall Street starts treating dot-coms like other publicly held companies and values them based on profits instead of potential, only the soundest of the "Internet Clicks" will survive. At the same time, electrical distributors will have to either embrace-or avoid-e-commerce and have battle plans for either strategy as they compete against the victors from the online side of the business.

The manager of a mutual fund that has placed a few bets on publicly held distributors had an interesting take on the inevitable shakeout:

"Almost across the board, publicly held distribution companies have been terrible performers, as investors fear that the Internet will somehow disintermediate their economic role. Clearly, the Internet may reduce the role of many intermediaries/distributors, but it will also prove quite beneficial to others. Until the winners and losers get sorted out, the market is taking them all down."

He says Wall Street's fascination with the dot-com world has evolved to the point where the second round of the all-important IPO funding will be available only to profitable companies. "If the new company doesn't produce some revenue, chances are that Wall Street won't fund the next round and the new company is toast. It's an all or nothing, boom or bust game...Many new Internet companies may be approaching this point over the next year or two."

Tune in for the next chapter in this ongoing saga.

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