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, AmazonSupply.com 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…)