Amazon Acquires USPS & Target; Walmart Acquires FEDEX!
Greetings Regular Readers,
For this article, I’m forwarding a well-written piece by Bill Wade. Bill is a career player and consultant within the heavy-duty truck parts channel as well as automotive parts. He’s done a great job at connecting Amazon dots (because they are so super secretive).
What SKU-level pressure will each type of distributor get? What will distributors’ strategic responses be?
All strategic decisions will be 40 to 100% better, if you have net-profit analytics at the SKU level. Cutting costs and trying harder at past, best practices won’t succeed against on-rushing cloud ecommerce. It’s time to rethink – channel, business and e-selling- models. And, reinvent service-value for most net-profitable customers and customer niches. A provocative read for all!
Bruce
Amazon Acquires USPS & Target; Walmart Acquires FEDEX!
OK…None of these have happened—YET. But they are all scenarios that were discussed vigorously on the Internet over the holiday break, mostly by financial strategy analysts. There are all kinds of considerations needed before any of these could come to fruition. They can, however churn up some great ‘what ifs.’ After all:
Amazon revenue for the twelve months ending September 30, 2019 was $265.5B, a 20.14% increase year-over-year;
Amazon revenue for 2018 was $232.9B, a 30.93% increase from 2017;
Amazon revenue for 2017 was $177.9B, a 30.8% increase from 2016.
Dangerous Thoughts?
My good friend and top distribution guru Bruce Merrifield bought a case of motor oil from Amazon recently for a an old, oil-burning, beater of a car that he had inherited from his college-age daughter.
While oil shopping on the Internet he started thinking (always a dangerous thing). Instantly we had great fodder for an aftermarket ‘what if’ discussion. He detailed these critical points:
1) AMZN is opening a 4-story inner-city warehouse and now a 5-story one is being planned. Only humans are on the first floor, the rest is limited to robots using elevators. The automation possibilities can be exponentially more efficient, as the little ‘pickum’ bots have to travel a small fraction of the distances involved in 800,000 sq. ft. traditional layout. (Personal note: this represents full circle for me…from Warshasky in Chicago, Jack Young in Boston, Western Auto in KC and even Standard Motor Products in Long Island City, the multi-story behemoths were all humming when I started in the biz).
- How many shipments per day will these warehouses scale to? How may shipments per hour to tighter delivery zones in the urban area?
2) AMZN is opening up cross-docking, AMZN Delivery Partner facilities. The one for the Denver metro market started out with one partner and now has over 12. The typical partner has 75 drivers and 40-45 routes. The route densities continue to shrink.
- The deliveries per mile driven are 5X what UPS and FedEx are averaging. Cuts down on delivery response time. Beyond next day is half day; some items already are 2 hours.
3)The AMZN delivery locker folks are selling/installing lockers wherever deliveries statistically get to some pre-determined level. This in turn speeds up route deliveries and lowers costs, while extending available delivery times (routinely avoiding inner-city traffic snarls).
- Don’t think that more innovations for delivery to your car trunk (at your company parking lot) and ingenious porch pirate protection solutions aren’t being imagined.
4) AMZN uses other delivery services for outlying areas. This represents a classic application of the “take the cream in-house and leave the cross-subsidized, expensive stuff to others” dictum.
5) AMZN has been experimenting with a “Shipping with Amazon” (SWA) platform in LA, London and perhaps other monster cities. The idea is that AMZN resellers that do their own shipping within their home metro market would use the platform for delivery. For shipments out of the local market, they would still use UPS, FedEx, etc.
- A lot of other shippers’ volume consists of picking up distributor shipments in a given city, taking them to and through their area hub to deliver back into the same city the next day. This business model will get creamed by AMZN.
6) For a platform to operate (and dominate), the operator must have best total liquidity of – buyers, shippers and delivery folks. They must leverage the network effects to gain the lowest costs with the fastest and most trackable, reliable delivery times.
AMZN can contribute their own capacities – Prime Buyers, Flex drivers, bulk-delivery flex drivers, 5-story shipping fulfillment centers and local resellers. The Amazon Delivery Partners can jump in and out depending upon their steady volume from AMZN.
Bruce reminded me that here are, of course, other factors that can enable the big switch from buying from regular-calling-reps/distributor sales forces to on-line buying.
24/7/365 Instant Orders, Next Day (Hour) Delivery
Even the BIGS who set up their own websites for on-line buying don’t have the selection, redundant availability, the pricing, the information/reviews, the ever-improving experience that AMZN offers.
They will continue to get new small customers and orders on which they lose money. Our WayPoint operations analysis program proves this (call me for details). It is difficult to see a workaround, as they don’t have AMZN total cost effectiveness, nor do they make money by monetizing the Prime buyer’s clickstream.
Bruce Ended the Discussion with These Questions:
1) How easy would it be to fold an automotive or heavy-duty parts distributor into a 5-story warehouse?
2) In big cities, there are usually zones loaded with auto and truck repair centers/ shops, truck dealer branches and lease/rental facilities for both trucks and industrial rental equipment. Won’t these locations be the most receptive to buying from AMZN?
3) What will be the trajectory and speed of AMZN’s inroads into parts distributors in cities that get SWA platforms? Besides the urban core area, how far out to rural areas will the on-line shift go?
Before Marc Karon organizes a posse to run me out of HDAW… This is just a factual report on today’s competitive directions. Nobody mentioned surrender - but maybe a change in your local market (and marketing group) tactics should be considered.
For the next couple of columns, we will concentrate on WINNING... what can distributors and dealers do to blunt (and defeat) the ‘parts monster?’ We have some pretty good ideas... and we need to get going!
PS : Walmart Delivers with Electric / Driverless Vehicles
Walmart and Nuro have teamed up to bring autonomous grocery deliveries to Houston households. The pilot program – a “natural extension” of the retail giant’s Grocery Pickup and Delivery service – is initially open only to select customers who have opted in. Soon, people can “go to Walmart” in their pajamas (actually some do already) and still stay at home.
Bill