Posted by Ranga Bodla, Wholesale Distribution Industry Lead at NetSuite
Wholesale distributors can expect variable markets, changing business models and steady, but fairly stable, economic growth in the year ahead, according to a recent report. One thing, however, is all but certain, AmazonSupply’s growing threat to the future of wholesale distribution.
The 2014 Wholesale Distribution Economic Trends Report, recently released by Modern Distribution Management, NetSuite, and Industrial Market Information, examines the business prospects of wholesale distributors in 19 industry segments and what they are likely to experience in the coming months. The good news is that almost all sectors are experiencing some form of growth, but, at the same time, grappling with the constant change in customer purchasing preferences and the digital technologies that enable it.
According to the research, 12 out of 19 distribution sectors enjoyed positive revenue growth last year, while the rest experienced just slight dips in revenues. The highest growth sectors were computer and software distribution, agricultural products, home furnishings, electrical and electronics, and industrial distribution. The report was presented in the "2014 Mid-Year Economic Update" webcast.
But whether a couple percentage points down or 20 percent up, these micro verticals shared one trend with every other distribution sector—a constantly evolving business model. Customers are increasingly seeking out different purchasing channels, and partners are dabbling in new approaches to their business. For example, a distributor might begin leveraging its online contacts to sell products to consumers right from its website.
Likewise, manufacturers are beginning to use their online presence to sell directly to consumers or retailers, cutting out distributors completely. Wholesale distributors therefore need to be alert and aware of these new opportunities, or threats, and prepare.
A rapidly growing threat is AmazonSupply. Already it counts 2.2 million SKUs covering 17 product categories, and it's only two years old with the site still officially in beta! If 2.2 million products doesn’t sound like a staggering figure on its own, consider that the average wholesaler sells closer to 50,000 products online. AmazonSupply’s success has come about quickly.
With business models constantly evolving, what will distributors need to have in order to do well in the near future? Following are the technology and commercial factors that will play a crucial role in determining who will succeed and be able to compete against AmazonSupply in the next few years.
- Agility will be a requirement for commerce in the future. Technology changes are occurring so rapidly that distributors should also be testing new product ideas and distribution models to roll out. Look at AmazonSupply.com. While long-term planning will always be a critical component of success, the ability to add new channels, tweak a business model, set up new partnerships, and make new strategies on the fly is becoming imperative.
- Global perspective. The only businesses that won't be global in the coming years will be the lemonade stand, and even then—it's likely that owners should be considering whether outsourcing the citrus wouldn't be a cheaper route.
- Rising technical expectations of customers. Technology has made shipping faster, websites more responsive, information easier to get, and communication possible over just about any channel you can think of. It has also proved to be quite a challenge for sellers who have to stay on top of it to keep on top of technology trends and consumer expectations.
- The workforce as a whole is getting older. Younger millennials are entering the workforce, replacing telephones and email with Skype, FaceTime and texts. Employers and commerce companies must gear up quickly to stay with whatever is driving the market today, because these are brittle connections that must be mastered, and then discarded as new channels take their places.
Finally, remember that all of this is going to help you get started, but you need a highly flexible, adaptable, cloud-based IT infrastructure to keep your business momentum going. Distributors need to be commerce ready in everything they do, from B2B and B2B2C to whatever is coming around the corner.