Amazon’s Wholesale Slaughter

Thursday, May 15th, 2014

Jeff Bezos hasn’t exactly talked up AmazonSupply — “You can get industrial motors, flanges, valves, fasteners, materials, janitorial supplies,” is all he has said about it — but it could lead to wholesale slaughter:

While U.S. retailers took in more than $4 trillion in revenues according to the most recent U.S. Census, wholesalers brought in $7.2 trillion selling everything from Bunsen burners to toner cartridges. Even better for Amazon: Of America’s 35,000 distributors, almost all are regional, family-run companies pulling in annual revenues of $50 million or less, and only 160 have more than $1 billion in sales annually. “The industry is largely ignored,” says Dirk Van Dongen, president of the National Association of Wholesaler-Distributors. “You can go your whole life without having a single thought about it.”

Amazon, meanwhile, booked more than $74 billion in revenues last year, selling everything from beds to server time with a viruslike strategy that values opportunity and disruption above short-term profitability. Almost identical to the company’s flagship website, albeit without ads for its ubiquitous Kindle e-readers, launched quietly in April 2012 with 500,000 items for sale.

Two years later, with the site still officially in beta, that list of products has grown to more than 2.2 million–covering 17 product categories from tools and home improvement to janitorial supplies, stocking everything from 12-packs of Hawaiian Punch to schedule-40 stainless steel pipe. If 2.2 million products doesn’t sound like a staggering figure on its own, consider that the average wholesaler sells closer to 50,000 products online.


“The challenge of distribution is to have orders big enough to make money,” says Scott Benfield, a B2B consultant who’s been following the wholesale and distribution game for 20 years. “It’s a very thin-margin business: 2% to 4% for traditional businesses in this sector.” Amazon’s scale is ideally suited to compete in this kind of high-volume, low-margin operation. A Boston Consulting Group study found AmazonSupply’s prices to be about 25% lower than the rest of the industry on common items.

Margins are 2–4%, and Amazon sells for 25% less than its competitors? (They make it up in volume…)


  1. Take a loss for long enough to kill all their competition then raise prices?

  2. Sconzey says:

    I think the key phrase is “2–4% for traditional businesses in the sector”. Amazon’s margin may be wider than that, which is why they can undercut.

  3. That’s much more likely, Sconzey, if much less Blofeld.

  4. Bruce says:

    Back in the day one of the major publishers switched from selling books to selling brown paper bags. Bigger profits, easier work. If Amazon can make a buck selling books, I won’t be surprised if every other market is easier.

  5. Felix says:

    “Take a loss for long enough to kill all their competition then raise prices?”

    Has anyone has ever tried to get a fair count of times someone looks like they could be doing that and then???

    Count how often they raise the price, Blofeld style.

    Count how often the price never really goes back up.

    I just wonder what those counts are in real life.

  6. Slovenian Guest says:

    Karl Denninger from The Market ticker argues that it’s all hype:

    “This is a company that has ridden the Internet Bubble 2.0 game to an extreme degree, becoming both a household name and immune to the ordinary sort of analytical process that leads to the conclusion that you’re simply spinning your wheels and floating on your stock price instead of your improving performance.”

    “It had deteriorating ratios for more than a year and now it’s so-called investment is in fact only about 50% effective in doing anything; the rest goes into the ether. Worse, the portion of that so-called “investment” in the business that is effective has failed to improve margins (that is, operating efficiency at the end of the day) or arrest the slide in sales growth.

    While this might be a sustainable model if you have a 20% after-tax operating margin when your net operating margin is in fact under 1% this is a recipe for disaster, with the only hope of it not materializing being found in the pump monkey job that comes from so-called financial media.”

    “Essentially 10% of Amazon’s business disappears where they have to collect sales tax, and large purchases are close to three times as negatively-impacted as smaller items!

    Now who has been talking about this is going to be massively material to them as it rolls out nationally? Uh, yep.”

    “At today’s price, Amazon has a negative Price-Earnings ratio on current earnings – or forward projections out 12 months.

    What happens when those who are margined up to their necks in these – and you know damn well a lot of people are – start hearing the phone ring?”

  7. AAB says:

    Take a loss for long enough to kill all their competition then raise prices?

    That sounds like it has a similar effect to ‘dumping‘ (i.e. a company that sells its goods cheaper than it costs to manufacture them and then saturation-dumps them on the market in order to force its competitors out of business).

Leave a Reply