Parts Suppliers Take a Hit From the Amazon Effect

Melanie Lichtfeld, owner of a Madison, Wis.-based plumbing company, used to tell customers they could wait weeks to buy their new kitchen sink from a local supplier. Now she orders the parts she needs on Amazon.com and they arrive two days later.

Ms. Lichtfeld is one of a growing number of plumbers, electricians and other contractors starting to buy industrial parts online. As part of its business-to-business marketplace offering, Amazon.com Inc. now sells everything from light switches to hydraulic valves, and last month boasted it had one million customers across fields that also included health-care and office supplies.

Amazon is joining a host of online sellers shaking up the roughly $130 billion U.S. market for items that keep factories humming and the plumbing working. They threaten a business largely still conducted via salespeople working out of local shops and national distributors that cater to large businesses, as customers are lured away with instant comparison shopping and free delivery.

The largest industrial supplier in North America, W.W. Grainger Inc., with sales topping $10 billion annually, said it cut prices by up to 25% this summer after years of losing customers to cheaper online competitors.

MSC Industrial Direct Co., a leading supplier to metalworkers, is printing fewer copies of a 4,500-page catalog it calls "The Big Book." The company now generates about 60% of its sales electronically, from 41% five years ago, including vending machines installed on factory floors that automatically order refills.

Online sellers' push into the market has nabbed much of the industry's sales growth, analysts say, and sparked concern about the future of traditional suppliers. Ms. Lichtfeld said Madison's local suppliers have stopped carrying many items easily found online. She also started selling spare parts on Amazon.

While parts accounted for a sliver of Amazon's $136 billion in sales last year, the company is a proven disrupter of industries ranging from apparel to video to cloud-data services. Like retailers before them, industrial suppliers risk getting caught in a race to the bottom on prices, where online-only sellers have an advantage because they don't maintain costly networks of branch offices and salespeople.

"You do not need a specialty salesperson to buy cleaners or a mop," said Deane Dray, an RBC analyst.

Amazon is shaking up the traditional format for selling industrial parts by allowing distributors and manufacturers to sell products directly to businesses on its marketplace, eliminating middlemen and often undercutting traditional local suppliers. It also offers one-click ordering and transparent pricing, features that are the norm in online retail but less common in the industrial world.

Customers "just want the Amazon buying experience at work," says Prentis Wilson, vice president of Amazon Business, which was launched in 2015.

He said many customers make one-time "spot" orders for parts, but Amazon is converting some larger businesses to manage their shopping on the marketplace.

Shon Altbaier-Meere, the owner of a Mason, Ohio, home construction and remodeling business, said she has used her personal Amazon account to buy supplies. She also buys parts on other sites she finds via Google's comparison-shopping service.

"I don't have time during the day, I need to be on the job," she said. "I'll put the kids to bed at 9 p.m. and start looking for plumbing fixtures in my pajamas."

Big customers, including manufacturers and government agencies, are where distributors like Grainger make most of their money. Sales to these buyers are still growing, with volumes rising 1% last year and 7% this year, the company said in July. But spot purchase volumes are down 25% since the start of 2016, totaling about $3 billion annually.

After cutting prices, Grainger is starting to win back more spot purchases and smaller customers, which it has failed to attract in recent years, said Elizabeth Ubell, the company's head of e-commerce. She said the goal isn't to beat online sellers on price, but to stay close enough that Grainger's expertise and reliable delivery can complete the sale.

"Grainger is competing as a premium service provider," Ms. Ubell said. "Portions of our prices just got out of whack versus where the market was."

Some distributors have a head start compared with Amazon. Many have offered next-day delivery for essential parts for decades and are experts in fulfilling orders fast, from warehouses around the country. Even smaller firms like United Electric Supply, a regional distributor based in New Castle, Del., are adding services like order tracking and same-day delivery.

The industry is "just not going to let somebody come in and take our business without a good fight," said Chief Executive George Vorwick.

Distributors also offer extra services, which would require significant investment from Amazon to match. For example, United Electric Supply will work off a customer's blueprints to determine the parts needed to build a $10 million electrical system, Mr. Vorwick said. Grainger embeds employees in manufacturing plants to manage inventory. MSC cuts or dyes metal to meet customer specifications, said Steve Baruch, head of strategy and marketing.

Employees "are at the machine with our customers making recommendations, " he said. "It's not something that is easily duplicated."

Others remain concerned that buying supplies online would increase the risk of ending up with knockoffs or faulty parts. Counterfeit products have become a bigger problem for Amazon in recent years, causing the retailer to sue sellers allegedly offering fake goods on its site and most recently to issue mass refunds for solar-eclipse glasses.

Amazon said that "sellers must abide by performance standards that ensure business customers get the trusted Amazon experience."

Doug Workman, owner of Liberty Pure Solutions in Phoenix, Md., says he still buys most of his plumbing supplies from local distributors, despite near daily pitches for cheaper supplies online. He said he worries about his liability if he buys a poorly made part.

"You can't touch and see [the products] and hold anybody accountable online," he said.

Write to Brian Baskin at brian.baskin@wsj.com and Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

August 20, 2017 08:14 ET (12:14 GMT)