Eaten by Amazon

In April this year, Amazon launched their B2B platform in the UK. The tech behemoth has some pretty lofty ambitions in the distribution space which leaves a big question mark over the fate of the traditional distributor network. In this article, David Dungay dissects Amazon’s ambitions and what that means for the Channel.

When Amazon decides to create a new supply chain which targets businesses in the UK you know it is going to have a big impact on the sector. To date, Amazon has created huge change in every market it has decided to enter. In the cloud space they have forced the likes of Microsoft, among others, to really up their game. In the retail space, and probably the area they are known best, the high street has been massively hit by their strategy which has caused some less innovative retailers to go under. We are also in the golden age of TV, Amazon Prime and Netflix are continually pouring vast amounts of resource into making original content which has caused everyone else to react. The result? Now there is more quality content available than ever before and even the traditional broadcasters are having to adapt their content strategies to compete.

Jeff Bezos has never shied away from investing and his strategy mantra has always been to reinvest large percentages of profits into R&D and new markets rather than paying out dividends. Whilst this approach has built an incredibly impressive business, for those companies in the way of the beast it will invoke a stomach curdling fear as they know when Amazon come into a market they go big… really big!
The B2B distribution space is expected to be worth around $8 trillion by 2020 and Amazon makes no bones about the fact they want to be the top dog in the space. In the US, where the platform is already established, this has hit the traditional box-shifter type distributors. In terms of pure box-shifting the Amazon model is practically unbeatable.


Jonathan Wagstaff, Country Manager – UK & IE at CONTEXT, said, “From what we’ve seen so far of Amazon B2B, the focus is on saving vendors money as a more direct route to market, rather than value-added services.”
Looking at the US model much of the wholesale distribution space has disappeared. It is also clear from Amazon’s investment strategy that this is a global play.”

Wagstaff says, “Amazon is great at getting media attention on fluffy things like drone deliveries and flying warehouses etc. In the background they are investing massively in two air hubs in Cincinnati and Kentucky and have been buying up aeroplanes. All that investment is where the story is really, rather than the drones and all that stuff which draws attention away. They are building a massive distribution network across the globe.”

He continued, “In other countries, their MO was to start by using the existing distribution network. Then they started buying up local logistics companies or building their own and then disintermediating local distributors.
It’s an odd situation because in the UK there are distributors that have a large chunk of their retail business going through Amazon. At the same time I have heard of several vendors that have been talking to customers and saying to come directly to them and don’t bother going through a distributor because they now have the logistics in place to handle orders.”

David vs Goliath
So what does all this mean for the UK distribution space and where can our distribution network compete?
Wagstaff says, “This is going to impact revenues from several traditional box-shifter type distributors but there is still plenty of things Amazon can’t do. The big things are the value-added piece: omnichannel offerings, services and support.

For example, Amazon B2B have said they want to have a big push into the education sector but the sector has a lot of special requirements and isn’t a box shifting type deal. There is a lot of installation, servicing and support with extended credit agreements etc. that are required too.

Amazon can’t do all of that right now. Distributors are also playing a key role in supporting traditional retailers in setting up omnichannel offerings where complex logistics are needed for multiple points of delivery.”
Where Amazon can’t compete right now is the build to order or the server market, basically anything that is pre-configured or requires large amounts of support.

Wagstaff continued, “They are concentrating on building the supply chain infrastructure first. I’m not sure they will get involved in the configuration piece, it doesn’t seem to be in the model. Amazon is about hyper scaling which enables them to grow very fast. As soon as you get involved in the complexities it slows you down.”


Steve McIntyre, Chief Marketing Officer from Nimans, responded, “Like us, resellers have worked hard over many years to build long term customer relationships which are based on much more than just cheapest price. Advice, support and understanding the needs of customers are an inherent part of any successful company.

“Potentially in time, Amazon’s reputation could start to bite into the Channel but I would suggest it will only be a limited number of peripheral products in any event. It could be argued some consumers have been buying these items for their homes or businesses for many years already.”

“Amazon Business? A predictable arrival and one which UK distributors need not fear. Yes AB will deliver “dashboard & management” features to customers but client facing firms already provide these services. The UK distribution market is well run, managing stock and cash well and from these fundamentals those that bespoke services and continue to build service revenues i.e. add value and adapt will thrive. Obviously the opposite is also true & we will continue to see ‘players’ in the market disappear with an escalation of defensive mergers & consolidation.”
Adrian Barnard,
Industry Expert & former
CEO of The Change Organisation

Heard it all before?
How many times have we heard in this market that a product or service is dead? How many times has distribution had to reinvent itself to remain competitive? The death of the Channel has long been predicted and the challenges from disruptive entrants are not new. If you look back at the mid 90’s when Office Depot and Staples entered the supplies market there was a similar fanfare.

Are things any different now?
McIntyre commented “The role of resellers and their distributors is to become a trusted advisor and at Nimans we continue to work hard to build on our reputation as the ‘logistics engine of the industry’. We note Amazon’s plans and no one should get complacent but we should raise our game even higher.”

Wagstaff continued “It will force distributors to up their game in the areas they are good in. Yes they will take business away from them, but Amazon will impact distribution in the same way they impacted the high street. It will force distributors to play to their strengths and evolve.”

Ed says

When a huge player like Amazon comes into your market you have to take note. If you are sitting there and logistics makes up a large part of your business I would be worried. Interestingly, some vendors are already happy to enter into direct conversations with customers and cut the distribution channel out entirely. This is likely to happen in part across the whole sector but distribution is still very relevant and partners will likely continue to recognise the value, services and support they deliver. However, the one good thing we know will come from Amazon B2B is that the whole market will pull up their socks and look to improve, that is great news for the Channel.

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David Dungay

Editor - Comms Business Magazine