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2014 NAW AEC MeetingJuly 16, 2014

The Amazon EffectHow e-commerce is transforming the distribution industry

Thomas P. GalePresidentGale Media

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Market research in wholesale distribution

Agenda

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• E-commerce channel transformation• Threats, opportunities, strategies• How members can adapt & thrive

– Ann Arnott

– Ralph Suppa

Real agenda

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Google, Amazon are accelerating, not creating competitive trends

E-commerce transformation

Pricing visibility, alternate channels have been around for more than 100 years!

• More complex channel competition– Global– Cross-industry– E-commerce– Multi-channel

• Branch• Catalog• Relationships• Digital platforms

– Integrated functions: Market, sell, service, order– Convergence: Industrial > Retail > E-tail

E-commerce transformation

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E-commerce transformation

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Type of Site Common Functions

Corporate website Public corporate information

Online catalog Browse products - Attract new customers

Online store B2C New customers – Purchase products

Online store B2B Existing customers – Purchase products

Customer portal Existing customers – Order, check status

Sales rep portal Quote, order, check status, configure

Customer Svc portal Order management, place order, check status

Marketing portal Manage & distribute product content

Punchout portal Enable customers to export orders to us

Source: Insite Software

E-commerce transformation

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Source: Forrester Research - May 2013 Global eBusiness And Channel Strategy Professional Online Survey

Threats, opportunities, strategies

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September 2013 January 2014 June 2014

• Aggressive SKU/category growth

• Partner, competitor, co-opetitor

“Amazonization” of customer expectations

– Convenience, transparency, loyalty• E-commerce functionality• Ease of ordering• Fulfillment infrastructure• Speed of delivery

Threats, opportunities, strategies

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• Slow build-out: smallparts.com in 2005

• Revenues = $150 million?• Not multi-channel service• Targeted segment of spot buys• Emerging product technical expertise• Evolving supplier relationships• Deep, deep pockets

Threats, opportunities, strategies

• Online sales = $3B (30%)• Spanish site• More mobile – traffic more than

doubled• 30% of mobile orders picked up at

branch• Closed 70 branches• Print catalogs reduced 20% in 2014• 300 IT/E-commerce hires

Threats, opportunities, strategies

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• Relationships aren’t what they used to be

• Disruptive technologies increasing

• Strengthen core differentiated value• Embrace multichannel strategically• Redesign service & business models

Takeaways today

If you don't know where you're going, you might not get there.

Yogi Berra

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Takeaways today

“Any distributor still in business stays in business by providing a lot of intellectual capital along with the tangible products.”

Todd YoungbloodCEO, The YPS Group

Business models have to evolve with shifting channels & customer

behavior

Sell

Stock

Credit

Expertise

Service

Product

Thomas P. GalePresidentGale Media/Industrial Market InformationPublisher, Modern Distribution Management303-440-3857tom@mdm.com

www.mdm.com @mdmnews

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Thank you

Seeing Beyond the Threat to the Opportunity

In order for distributors to thrive in the new ecosystem, they need the support from the manufacturer community. Typically, the B2B market is much more profitable for a manufacturer than the retail market. The manufacturer needs to help level the playing field…

Denise Keating in “AmazonSupply and the Great Data Divide”

on TedMag.com

The Role of the Association

We can support our members by doing what we’ve always done

• Provide networking opportunities to foster partnerships and strengthen relationships with manufacturers

Seeing Beyond the Threat to the Opportunity

These companies [e.g., e-commerce giants] cannot replicate what we do for our customers. They can’t demonstrate how a product or system can reduce the total cost of operations. They aren’t recommending solutions to a process problem. We can provide the same product in the same way a company like Amazon does. It’s up to us to offer the right solution.”

Distributor member panelist at 2014 PTDA Canadian Conference

The Role of the Association

We can support our members by doing what we’ve always done

• Provide networking opportunities to foster partnerships and strengthen relationships with manufacturers

• Offer research and information about their customers to help them be the expert in the customer’s business

Seeing Beyond the Threat to the Opportunity

Avoid competing where you just can’t compete…Use [your size] to your advantage. Being personable, forming strong relationships, focusing on above-par service and responding to requests quickly are all very good starting points.

Bill Burnett in“Going up against the Web’s 800-Pound Gorilla”

on TedMag.com

The Role of the Association

We can support our members by doing what we’ve always done

• Provide networking opportunities to foster partnerships and strengthen relationships with manufacturers

• Offer research and information about their customers to help them be the expert in the customer’s business

• Develop resources for members to use in demonstrating their nimbleness, deep product knowledge and ability to add to the customer’s bottom line

Strategic Implications

What should we anticipate in the future?

• Changing the rules about membership

• Fostering co-opetition—partnering with your competitors.

• For our members, the reliance on ecommerce will only accelerate as the digital natives move into decision-making positions. So to will it change the way we as associations do business.

Seeing Beyond the Threat to the Opportunity

Distributors must continue to adapt, innovate and increase their relevancy and value to the customer whether Amazon is in the marketplace or not.

Dirk Van Dongen as quoted in TedMag.com

The Amazon Effect: A Perspective from Up North – Canadian Institute of Plumbing & Heating

Presenter: Ralph Suppa, President & General Manager

NAW AEC Summer Meeting

NAW Association Executives Council (AEC) Summer Meeting

July 14-16, 2014,Omni La Costa Resort and Spa,Carlsbad, California

Agenda

1. What is CIPH?

2. The Way we Were/Are

3. Current Realities & Challenges

4. Strengths/Opportunities

5. What does this mean?

6. Closing Remarks

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What is CIPH?

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CIPH is a not-for-profit trade association founded in Montreal in 1933. The Institute provides members with the tools for success in today's

competitive environment. Over 260 companies are members.

Members are the Manufacturers, Wholesaler Distributors, Master Distributors, Manufacturers' Agents and Allied Companies who

manufacture and distribute plumbing, hydronic heating, industrial, waterworks and other mechanical products. CIPH wholesalers operate

more than 700 warehouses and showrooms across Canada. Total industry sales exceed $6 billion annually.  

The problems which Wholesaler Distributors have to deal with are:

a.) Lack of Volume

b.) Cost of Distribution

c.) Rebates

d.) Cash Discounts

e.) Returns

f.) Credits

g.) Classification of Contractors

h.) Faulty Trade Practices.

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The Way we Were/Are

CIPH President’s Address,Annual General Meeting,October, 1934

In dealing with these problems, Wholesaler Distributors should set up standards:

1.) To handle high-class products only and to discourage the manufacture of inferior materials.

2.) To carry sufficient stocks and not to pose as Wholesaler Distributors expecting the profit of a Wholesaler Distributor when they are in fact only agents in certain lines.

3.) To decide on a fair trade policy of selling as well as buying and outline this policy:

a.) To have a fair selling price.

b.) To protect in price the contractor, having due respect for the consumer and not restricting markets.

NAW AEC Summer Meeting

The Way we Were/Are

c.) To decide that where protection is given, the installer must accept responsibility for the merchandise.

d.) To sell direct to the industries having their own installing staff.

e.) To not sell to other Wholesaler Distributor, except as an accommodation.

f.) To do a fair amount of independent advertising to sell more and better products.

g.) To discourage mail order and direct selling.

4.) To agree on a uniform, fair and complete credit policy.

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The Way we Were/Are

CIPH President’s Address, Annual General Meeting, October, 1934

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Bricks & Mortar

1. Amazon will not go away.2. Internet sales in plumbing is about 1.5% of

Wholesaler Distributor volume.

3. Impact on certain categories.

4. Internet minimum advertised price.

5. Geographical complications to distribution rights.

6. Retail vs. Wholesaler Distributor impact.

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Current RealitiesChallenges (Amazon.ca)

Online

• Relationship of CIPH Wholesaler Distributors with professional contractors will continue to be key.

• Amazon has forced Wholesaler Distributors to be more technologically innovative and be more readily able to adapt.

• Manufacturers are now more involved in the Wholesaler Distributors’ plans.

• Wholesaler Distributors continue to use the internet as a sales and marketing tool.

• Wholesaler Distributors continue to embrace showroom sales.• Data synchronization to help match Wholesaler Distributor

and Manufacturer data to provide customers with the most robust sales data available.

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Strengths/Opportunities

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“To date I've never bought anything from them, and in truth wouldn't know how they could benefit my company. But if they sold the same materials, had great delivery service, could take back the overage materials ordered without a restocking charge on the normal day-to-day materials that our industry uses, they stood behind the products they sold, any warranties were the same or better, they were knowledgeable about the product used, and they didn't finance my competition, then maybe we would look to them as a possible supplier. I seriously doubt they could ever do all of that, but again I wouldn't rule out what they can and can't do. Its certainly a ever-changing society. In truth there was a time I wouldn't have ever believed you could send a document through a machine and have it replicated elsewhere, and then I bought a fax machine. Lol. And now they are not used nearly as much as they were a few short years ago, since the Internet and e-mails became the norm. I can't wait to see what's next.”

- Past Chairman, Mechanical Contractors Association of Canada

What does this mean?

Questions?

NAW AEC Summer Meeting