Amazon beat its quarterly earnings estimate last week and its stock surged by over 7% as a result, making Jeff Bezos the richest man in the world.
It’s estimated that Amazon will account for about 43% of US ecommerce sales in 2017 from 38% in 2016. As compared to Walmart growing from 2.8% to 3.6% in 2017. Fortunately, Walmart’s acquisition of Jet.com and promotion of Mark Lore to lead all of Walmart’s ecommerce efforts has been paying off because Walmart never had a successful platform business model.
But, not every company threatened by Amazon still makes over $10bn in net income every year. Walmart’s acquisition of Jet.com for $3.3bn was still less than 1/4th of its 2016 net income. So, what opportunities are available to traditional ecommerce players as we head into the busiest time of year for retail?
Opportunity Derived from Threat: Amazon Prime to Shipping/Logistics Providers
Threats present opportunity and aside from the obvious threat to retail by Amazon, there are other large industries also in Amazon’s path for marketplace domination. Shipping and logistics companies like Fedex and UPS to trucking companies like JB Hunt to 3PL’s like DHL or Kuehne & Nagel are all threatened by Amazon’s growing shipping & logistics infrastructure. Amazon is also reported to be opening up their own shipping & logistics services to other companies.
Recently, the CFO of UPS was interviewed about Amazon accounting for around 10% of UPS revenue, which is quite significant.
Competing with Amazon Prime is a tall order; however, if retailers don’t address this quickly, it will be even harder to catch up in the eyes of the consumer.
Amazon to B2B Distribution
Amazon announced Prime for Business last week resulting in many distributors’ stock to fall and rightly so.
There isn’t a B2B distributor as large or profitable as Walmart, but there are a number of distributors that have similar margins as Walmart. Walmart has a 2.83 net profit margin whereas Sysco and Arrow both fall in the same range. These companies don’t generate $485bn revenue, instead they are between $25-$50bn revenue; however, they have the appropriate level of profitability to take a stance against Amazon and follow in Walmart’s tracks.
Heavy industries like LBM (lumber & building materials), metals, plastics and others have been more insulated from the Amazon threat due to the increased logistics infrastructure needed.
The same insulation was applied to distributors in the food industry; however, it’s clear that if Amazon wants to enter your vertical, they easily can as represented by the Whole Foods acquisition. For heavy industries and other verticals in B2B distribution, Amazon Business is already operating and has hundreds of thousands of products in inventory. I discussed this topic at the LBM Strategies conference a few weeks ago.
E-commerce is still growing by over 10% a year in the United States and there is huge opportunity; however, industry players need to take action quickly and be bold in order to establish themselves for the long-term against a modern monopoly like Amazon.