By Brian Baskin and Laura Stevens
Melanie Lichtfeld, owner of a Madison, Wis.-based plumbing
company, used to tell customers they could wait weeks to buy their
new kitchen sink from a local supplier. Now she orders the parts
she needs on Amazon.com and they arrive two days later.
Ms. Lichtfeld is one of a growing number of plumbers,
electricians and other contractors starting to buy industrial parts
online. As part of its business-to-business marketplace offering,
Amazon.com Inc. now sells everything from light switches to
hydraulic valves, and last month boasted it had one million
customers across fields that also included health-care and office
supplies.
Amazon is joining a host of online sellers shaking up the
roughly $130 billion U.S. market for items that keep factories
humming and the plumbing working. They threaten a business largely
still conducted via salespeople working out of local shops and
national distributors that cater to large businesses, as customers
are lured away with instant comparison shopping and free
delivery.
The largest industrial supplier in North America, W.W. Grainger
Inc., with sales topping $10 billion annually, said it cut prices
by up to 25% this summer after years of losing customers to cheaper
online competitors.
MSC Industrial Direct Co., a leading supplier to metalworkers,
is printing fewer copies of a 4,500-page catalog it calls "The Big
Book." The company now generates about 60% of its sales
electronically, from 41% five years ago, including vending machines
installed on factory floors that automatically order refills.
Online sellers' push into the market has nabbed much of the
industry's sales growth, analysts say, and sparked concern about
the future of traditional suppliers. Ms. Lichtfeld said Madison's
local suppliers have stopped carrying many items easily found
online. She also started selling spare parts on Amazon.
While parts accounted for a sliver of Amazon's $136 billion in
sales last year, the company is a proven disrupter of industries
ranging from apparel to video to cloud-data services. Like
retailers before them, industrial suppliers risk getting caught in
a race to the bottom on prices, where online-only sellers have an
advantage because they don't maintain costly networks of branch
offices and salespeople.
"You do not need a specialty salesperson to buy cleaners or a
mop," said Deane Dray, an RBC analyst.
Amazon is shaking up the traditional format for selling
industrial parts by allowing distributors and manufacturers to sell
products directly to businesses on its marketplace, eliminating
middlemen and often undercutting traditional local suppliers. It
also offers one-click ordering and transparent pricing, features
that are the norm in online retail but less common in the
industrial world.
Customers "just want the Amazon buying experience at work," says
Prentis Wilson, vice president of Amazon Business, which was
launched in 2015.
He said many customers make one-time "spot" orders for parts,
but Amazon is converting some larger businesses to manage their
shopping on the marketplace.
Shon Altbaier-Meere, the owner of a Mason, Ohio, home
construction and remodeling business, said she has used her
personal Amazon account to buy supplies. She also buys parts on
other sites she finds via Google's comparison-shopping service.
"I don't have time during the day, I need to be on the job," she
said. "I'll put the kids to bed at 9 p.m. and start looking for
plumbing fixtures in my pajamas."
Big customers, including manufacturers and government agencies,
are where distributors like Grainger make most of their money.
Sales to these buyers are still growing, with volumes rising 1%
last year and 7% this year, the company said in July. But spot
purchase volumes are down 25% since the start of 2016, totaling
about $3 billion annually.
After cutting prices, Grainger is starting to win back more spot
purchases and smaller customers, which it has failed to attract in
recent years, said Elizabeth Ubell, the company's head of
e-commerce. She said the goal isn't to beat online sellers on
price, but to stay close enough that Grainger's expertise and
reliable delivery can complete the sale.
"Grainger is competing as a premium service provider," Ms. Ubell
said. "Portions of our prices just got out of whack versus where
the market was."
Some distributors have a head start compared with Amazon. Many
have offered next-day delivery for essential parts for decades and
are experts in fulfilling orders fast, from warehouses around the
country. Even smaller firms like United Electric Supply, a regional
distributor based in New Castle, Del., are adding services like
order tracking and same-day delivery.
The industry is "just not going to let somebody come in and take
our business without a good fight," said Chief Executive George
Vorwick.
Distributors also offer extra services, which would require
significant investment from Amazon to match. For example, United
Electric Supply will work off a customer's blueprints to determine
the parts needed to build a $10 million electrical system, Mr.
Vorwick said. Grainger embeds employees in manufacturing plants to
manage inventory. MSC cuts or dyes metal to meet customer
specifications, said Steve Baruch, head of strategy and
marketing.
Employees "are at the machine with our customers making
recommendations, " he said. "It's not something that is easily
duplicated."
Others remain concerned that buying supplies online would
increase the risk of ending up with knockoffs or faulty parts.
Counterfeit products have become a bigger problem for Amazon in
recent years, causing the retailer to sue sellers allegedly
offering fake goods on its site and most recently to issue mass
refunds for solar-eclipse glasses.
Amazon said that "sellers must abide by performance standards
that ensure business customers get the trusted Amazon
experience."
Doug Workman, owner of Liberty Pure Solutions in Phoenix, Md.,
says he still buys most of his plumbing supplies from local
distributors, despite near daily pitches for cheaper supplies
online. He said he worries about his liability if he buys a poorly
made part.
"You can't touch and see [the products] and hold anybody
accountable online," he said.
Write to Brian Baskin at brian.baskin@wsj.com and Laura Stevens
at laura.stevens@wsj.com
(END) Dow Jones Newswires
August 20, 2017 08:14 ET (12:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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