Amazon.com is kicking into full gear – including lucrative supplier contacts to help them corner the $50 billion do-it-yourself (DIY) auto care segment. When the New York Post published an article in January, they portrayed it as bad news for the national retailers, who could lose their DIY base to Amazon.com.
However, while investors, the press and many industry executives are preoccupied with this DIY threat, they should not downplay Amazon.com’s interest in the commercial repair shops, which represents $95 billion in market share. They should also entertain the strong possibility that Amazon.com may need a partner to connect them to the industry’s tech-savvy repair shops.
On February 8, O’Reilly Auto Parts CEO Greg Henslee assured Wall Street investors that he isn’t afraid of Amazon.com’s entry into the DIY segment. “Unlike an online site, a parts store employee can narrow a problem down to a single diagnosis. Given the complexity of selecting parts and repairing vehicles that DIYers face,” Henslee said, “we’ll get them lined up with a technician to help solve their problem if they can’t.”
Two dozen industry experts interviewed for this column agree that parts stores like O’Reilly Auto Parts, one of the industry’s largest, are better suited to identify and recommend the right item than an online site such as Amazon.com. Managers who work for warehouse distributors, manufacturers and consulting firms also noted that an online store may struggle to handle product warranties and labor claims. Most parts stores have in-house customer service processes set in place that allow them to haggle with their suppliers, which can take months to settle.
Currently, Amazon.com is far off from serving every marketplace with same-day and one-hour delivery. According to their 2015 annual report, this service is limited to about 30 cities worldwide, which is not enough to win the daily trust of thousands of repair shops that need products quickly while the vehicle is on the lift. As Henslee pointed out, when there’s a high immediacy of need, the nation’s 36,500 auto parts stores can deliver their products faster.
Manufacturers and consultants contend that Amazon.com and their traditional brick
s-and-mortar rivals are competing in an evenly priced marketplace. Five years ago, Dorman Products unveiled Minimum Advertised Pricing, where sellers can lose their license to sell products if they advertise a resale price below a set figure. An afternarket sales executive who offers the company's products to the eCommerce channel explained that they price their products up to 30 percent higher to all of their online customers to prevent them from undercutting their physical competitors.
With these arguments in mind, consider why Amazon.com is capable of giving the likes of O’Reilly Auto Parts fits over losing their commercial business. For starters, by signing contracts with major brands like Dorman Products, Cardone, Bosch and Federal-Mogul, Amazon.com may have a better shot at selling brakes, chassis and ignition parts directly to the shop technician, who is less dependent on a counter person for advice.
As well, given the scale of contracts of billions of dollars at stake, it would be naïve to presume that topics such as claims, delivery, pricing and troubleshooting were ignored when the suppliers were negotiating with Amazon.com. Although Amazon.com has never provided details about how it may navigate the auto care industry, its founder Jeff Bezos has confidence in his vision that in the long run his online platform will thrive. He wrote to his shareholders that his customer-obsessed company culture is about an ”eagerness to invent and pioneer, willingness to fail, the patience to think long-term and the taking of professional price in operational excellence.”