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The President's Message The Amazon Effect and What it Could Mean to Our Industry L Brad Wasserstrom, President The Wasserstrom Co. BradW@wasserstrom.com ast month I wrote about a dan- gerous precedent that has been set by one of the industry's buying groups:allowing end users to enjoy the benefits of an E&S buying group by cre- ating an entity that qualifies for mem- bership.This month I am writing about another move that could have a big impact on each of our businesses and the distribution side of our industry as a whole. In this instance, the threat is fromthe online world and one of the largest, most aggressive and overall best per- formers when it comes to selection and cus- tomer service. The impending move However, Amazon can be a heavy- of Amazon toward our industry is one of the hottest topics of discus- sion these days and was talked about at length at the most recent FEDA Convention in Tucson. Amazon has approached several of the top manufac- turers in our industry to buy a "signifi- cant" amount of inventory for it to sell on its new industrial supply website, Amazon Supply. If you haven't visited it, they are currently selling more than 500,000 scientific, industrial and busi- ness supplies.They offer lines of credit, free second-day shipping on orders over $50, the execution of Amazon's distri- bution network and they even take phone calls. Currently, it looks likeAmazon is posi- tioning itself to be a competitor to Grainger. If this is the case,theywill gain some sales in our traditional categories but at prices that are typically higher thanmost fullservice dealers sell at and, therefore, the impact to our traditional channels of distribution may be limited. 4 FEDA News & Views The impending move of Amazon toward our industry is one of the hottest topics of discussion these days and was talked about at length at the most recent FEDA Convention in Tucson. weight player in any industry it chooses to compete in. It has the size to leverage its per order costs lower than any of us, potentially the largest product offering anywhere, speed to market, the ability to shift as changes in the marketplace demand, and the wherewithal to exe- cute at a near flawless level.Others have tried to come into our industry with limited success. Some may have the size and low-cost model but not the vari- ety; others have the cost model and variety but not the execution. Amazon might be the whole package and if you rememberNewton's second law, force equals mass times acceleration, then Amazon has the potential to be a truly disruptive force. As of now, our industry's manufactur- ers have not jumped into sellingAmazon on a direct basis and I applaud them for that. If this should change, the reverber- ations through our industry could have a permanent impact. In aworst case sce- nario, many established E&S dealers could go out of business. For those that do survive, margins would be driven lower, customer service devalued and order fulfillment costs would be driven higher by the expectations set by Amazon. For our industry's manufacturers, as tempting as selling direct toAmazonmay be with lots of initial volume and the promise of growth for many years to come, it would come at a price. Margin continued on page 32