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I work for an Industrial Supply company and have monitored this since they bought SmallParts. Needless to say, Industrial Supply is a low margin, volume busine
by amac 14y ago
I work for an Industrial Supply company and have monitored this since they bought SmallParts.
Needless to say, Industrial Supply is a low margin, volume business that requires high service levels. Most Industrial Supply companies sell the same products, there really isn't a differentiator. As always in retail, price, selection and availability are crucial in making sales.
This is a good match for Amazon, and obviously they have everything in place already to make this a success e.g warehousing, payments, ordering channels etc. It's worth noting most companies who seek industrial supply want credit - amazon already accepts credit lines though obviously these are not as nice as the cash they get instantly from credit cards and payments.
I guess the only thing Amazon lacks in this regard is a physical presence, something that Grainger, Fastenal, Airgas etc and other Industrial Supply companies have in hundreds/thousands of stores.
In terms of the market opportunity and potential success for Amazon, Industrial Supply is a huge and fragmented sector. The leaders mentioned above have low single digit market share, the same applies world-wide. The business itself is not hugely profitable, but it moves slowly and hence is relatively straight forward in regards to operation, forecasting and numbers.
- HeyLaughingBoy 14y agoDon't underestimate the benefit of physical presence. When I need something now, it is a huge benefit to be able to walk into Fastenal and buy it on the spot. Also, metal is heavy, again using Fastenal as an example, I can order online and pickup instore without paying shipping. Prices are higher than onlinemetals.com, or speedymetals.com but the convenience and no shipping cost often trumps that.
- karlmarxman 14y agoIn addition, isn't a big part of Amazon's appeal the excellent customer service (especially effective in mitigating the cost of no physical presence when competing against big box stores)? I'm by no means an expert, but I'd assume that factors like speed and price are higher up on the list of priorities for a firm buying industrial supplies vs. the average customer shopping for books or a new TV. I just don't know how much of what Amazon is known for would translate into growing a market share in raw materials.
- avar 14y agoThe corollary of that is: Don't overestimate the benefit of physical presence. Sure sometimes you need to buy metal on the spot, but you could say the same thing about books and electronics. Amazon's targeting the customer that can forcast his needs a few days in advance, and that's a very big slice of the market.
- sliverstorm 14y agoWell, you are a single 'end user'. Perhaps Amazon is hoping to go for slightly larger operations that keep a buffer of stock on hand, like small fabrication companies?
- ippisl 14y agoAmazon can offer an option for rapid pickup at their warehouse in major cities, and it would be pretty easy to implement it(especially using warehouse robots). But i guess that it's a small non-strategic business, so they won't bother.
- blake8086 14y agoYou realize you still pay for shipping, right?
- sonar_un 14y agoI spent a year developing a website for an industrial supply company. (in it's many iterations). You are right about the low margin and the fragmented market. It can be a tough sell to the mom and pop stores that are trying to compete with Grainger or Northern Tool in the same marketplace. I think the biggest problem with Amazon is it's hands-off approach to selling products. The reason why there hasn't been any innovation in this sector is because of the interconnected relationships between managers of firms needing products and the salesmen that sell the product. More often than not, the firms have no idea what they actually need, and the sales people have the knowledge to deliver exactly the part they require. I think that unless Amazon has a very large, and more importantly knowledgeable staff, what you will find here is a lost leader. The only thing that I see amazon bringing to the table is their warehousing.
- amac 14y agoIronically, I have also been a buyer of Industrial Supply in the Oil industry, so I know both sides of the table and agree that the relationship between buyer and seller is key. I guess that's the difference between consumer and business to business in many respects - one knows what they want, the other not so much.