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Is Amazon auto parts a friend or foe to the aftermarket?

Friday, April 21, 2017 - 07:00
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An article in the New York Post by Josh Cosman reported how Jeff Bezos and Amazon plan to become an even more significant player in the do-it-yourself auto parts and accessory market. With total revenue of $128 billion in the 12 months ending September 30, analysts project Amazon’s goal is to grow its auto parts business by 50 percent this year to $5 billion. Those numbers are why Amazon is the gorilla in the room when any industry discusses e-commerce and online retailing.

No single topic fuels more passionate debate from boardrooms to classrooms and spilling over into cocktail receptions – where some of the most insightful observations can be heard. Yet, with all this energy being invested in the discussion of a competitor, little consensus has been reached on whether selling to or through Amazon is a good business strategy or a short path to certain doom.

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Can you find successful automotive businesses that are convinced Amazon is a strategic friend? Yes. And, are there equally successful automotive businesses that recoil at the thought of partnering with Amazon in any fashion? Certainly.

I am fortunate to have enjoyed a long career in the automotive parts and accessories business. I attended my first AWDA conference in the early 80’s. In those years, the store count for chains like AutoZone, Advance Auto Parts and O’Reilly were measured in the hundreds. But, the fear and suspicion with which these operators were viewed was off the chart. There was certainly discussion about how to limit their involvement and participation in industry events and association governance.

As recently as this decade, a collaborative point-of-sale data sharing program was undone by the suspicion of the traditional parts channel participants that the retailers were going to gain assortment insights and become more successful at the expense of the wholesalers. “If we share this data, then they’ll use it to take share from us. Therefore, we’re pulling out of the program” … ensuring that no one can benefit from an industry-wide category management pool.

Today’s Amazon is yesterday’s AutoZone. They don’t feel an obligation to do things the way they’ve always been done. And they are constantly innovating to hone in on those things that customers value the most (reviews and ease of shopping) and eliminate the things that are not valued (shipping charges). After all, if you are still requiring that your customer pay for services and expenses that they don’t value, they will find someone else. But, if there is value in those services, you’ve got to remind them of what’s built into your price. It’s called marketing.

In the search for continuous improvement and exceeding customer expectations, the channel is continuously evolving and seeking even more efficient ways of getting what is needed to the point of consumption in the fewest steps and at the lowest cost.  Whether it’s three-step or two-step or even one step – it’s all “distribution.” And whether it’s off-line, on-line or some hybrid – it’s all “commerce.” The economic decision-makers of today and tomorrow are the millennials – a generation that has never known a day without the internet. And the way they want to shop and buy products, for personal use or business, is digital. There’s nothing “traditional” about the parts business anymore. Constant innovation and investment in digital distribution is needed to hold the wolves at bay.

Now, a word about those wolves. Whether they go by Amazon or Alibaba, there is no magic in what they do. They buy and sell products, just like any automotive distributor. But they do it on an unprecedented scale and they are not afraid to innovate and stretch the envelope. Whether it’s delivery by drone, fully automated distribution centers or the gold standard for a web shopping experience, they are performing the same functions as any other automotive distributor – just better.

What is often lost in the discussion are the things that they cannot do as well. Product knowledge, domain expertise, cataloging and technical support, assortment planning and stock adjustment, warranty and core management, and personal customer service – just to name a few. The profit margin in a step of distribution is justified by the added-value services it pays for. The auto care industry has a long list of services that should be marketed and celebrated as the things you cannot get from any pure e-retailer.

Is Amazon a “friend?” There are many who regard Amazon as just another retail channel of distribution. A number of auto parts suppliers justify the decision to sell directly to Amazon as a way to ensure that those customers who chose to buy through that channel got the full benefits of their brand. The decision to go straight to the customer through Amazon is not cannibalistic of the distribution chain. It’s preservation of the brand in a channel that values price more than service. It’s not everyone’s cup of tea. But for some, it is a way to ensure that their brand is featured on the results page and available for purchase.

Online retailing is the fastest growing channel of distribution in the auto parts business. It is a force of nature, like the wind and the tides, and will not be stopped. It forces competitive pricing and ruthless business efficiency and constant innovation. But, more than 500,000 auto parts businesses turn the lights on every day to deliver the best service and shopping experience for their customers.  They’ve succeeded against competition, by one name or another, for 100 years. Whether its OE parts and service, big box retailers, two-steppers or other non-traditional forms of distribution, competition is healthy and forces innovation. Is Amazon a friend or foe? Only you can decide which it will be.

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