Real Issues. Real Answers: The Amazon Factor
For retailers in a growing number of industries, Amazon.com has proven to be a relentless competitor. (Fun fact: relentless.com actually redirects to Amazon.com). Thanks to the bulk and logistical realities of lumber and building materials, lumberyards have historically been essentially untouched by Amazon. However, as the e-commerce behemoth continues to grow, adding warehouse locations and product categories, it is beginning to eat into the sales and margins of brick and mortar LBM dealers. That’s why this month’s Real Issue focuses on… The Amazon Factor.
This month’s question came from a reader who opted to remain anonymous, who wrote, “Amazon is becoming a real issue for our high-margin products with their next-day delivery. Other than adding to our inventory, what should we do?” As we do each month, we sent a brief survey to readers who have opted in to receive our e-mail communications. A big thank you to the nearly 200 readers who took the time to weigh in with their insights on this issue. If you’d like the opportunity to weigh-in on future Real Issues surveys, please drop me a line at [email protected], and I’ll make sure we get you added to our list.
Do you view online retailers, like Amazon.com, as a threat to your business?
To start, we wanted to understand what share of readers view e-commerce competitors. As you’ll see in Graph A, just over half of LBM dealer-respondents (53.9%), view online retailers like Amazon.com as a threat. Wholesale distributors’ responses are shown in Graph B, where just under half of respondents (47.4%) view Amazon as a threat. In contrast, only 30.6% of specialty dealers/distributor respondents (i.e., roofing and siding, windows and doors, etc.), and 16.7% of manufacturers/ service providers see Amazon as a threat to their business.
One reader commented: “Amazon is not making profit on sales of anything other than their content, its devices, or cloud services. In fact, the 10% of their revenue that is cloud services makes up 75% of their profit. So in the long term, Amazon cannot succeed as an online retailer.
“That said, at this point in time, Amazon investors are subsidizing a losing business and that puts pressure on traditional channels that do return profit on sales. However, Amazon’s recent efforts clearly indicate they are beginning to shift away from online retail and put their focus where there is profit. That will clear things up at some point. In fact, the biggest threat in business is the panic that has taken over too many manufacturers and retailers when they allow their fears of Amazon to overrun good business practices.”
If not, do you think the day is coming when Amazon will become a threat, or do you think your products and services are beyond Amazon’s reach?
For those respondents who don’t view Amazon as a threat today, we wanted to see if they believe that to remain true in the future. As Graph C shows, just 30.4% of LBM dealer respondents believe it’s only a matter of time until Amazon becomes a threat, compared to 44.4% of wholesale distributor respondents (Graph D). Landing right in the middle, 34.8% of specialty dealers/ distributors view Amazon’s threat as inevitable, along with 42.1% manufacturers/ service providers.
One LBM dealer had this comment: “I tell my clients that if there are defects, shortages, or wrong items received from Amazon that delay a project from going forward, that I will not be held responsible. Also I will not guarantee the product and or installation. I have no recourse or relationship with the supplier to get a replacement because we have no representation with the manufacturer.”