210. The Future is Easier to Understand in Your Own Back Yard

(This week’s blog is from a frequent collaborator, Bill Wade: a career distribution expert especially for heavy duty truck and automotive parts.

Amazon is expanding US fulfillment capacity by 50% in just 2020 as they drive towards 12-hour delivery in a 24-hour day. They are doing heavy build outs in target cities including Bill’s hometown of Chicago. Parts distributors of all types will feel the heat.)

The Future is Easier to Understand in Your Own Back Yard

Amazon Will Not Target Heavy Duty Market Today, But It Will Set Expectations

In the Sunday paper, a short item really grabbed me. Under a headline of Amazon Leads Chicago Commerce, I learned a few things about their ‘pure’ distribution activities right here in the Windy City:

  • Amazon plans to increase fulfillment capacity by 50% in just this year.
  • They began building out their distribution network here about six years ago.
  • Amazon leased local warehouses totaling 14.2 million square feet this year.
  • The 2020 facilities will add to the 11 they already operate here (averaging about 800,000 squares each).
  • The new facilities will add 15,000 new employees, who will receive:
    • $15/hour to start
    • Full medical, dental and vision insurance
    • 50% match to 401k plan.

WOW… I sent it off to my partner Bruce Merrifield, guru of all things distribution and distributors. His take… “I still think AMZ’s new 5-story, high-density-storage warehouses with half-day delivery via delivery partners in big metros will dig into all kinds of repair parts.”

“Wholesalers can even be resellers in one local market at 30% over list (to cover AMZ fees) and still sell. Being able to 24/7 one-click buy and get half-day, trackable delivery will be price insensitive for some buyers.”

He finished “Who wouldn’t want to bill idle labor and get equipment up and going faster for the customer… who will pay for the parts with a markup anyway?”

Location, Location, Location

I no more finished reading Bruce’s note when I saw two more notices from Jeff Bezos’ demon child:

  • Amazon and Mall Operator Look at Turning Sears, J.C. Penney Stores into Fulfillment Centers…Hookup between Simon Property Group, Amazon would show retail and logistics are converging rapidly.
  • Goldman Bets Big on Warehouses, Online Shopping…Goldman Sachs Group merchant banking division has struck a deal to invest in warehouses across the U.S. in a bet that e-commerce will accelerate and drive demand for logistics facilities.

The bank is partnering with Dallas-based Dalfen Industrial on a group of 46 “last-mile” industrial facilities. The properties — in metro areas including Atlanta, Chicago, Phoenix, Houston and Cincinnati — are valued at about $500 million. The deal is thought to include Amazon as an initial participant in at least 5 to 10 target cities.

This was too much. Remember, Goldman is the original ‘great vampire squid wrapped around the face of humanity,’ at least according to Rolling Stone. I called Bruce right away. He dug in:

“Amazon shows graphics suggesting that there are currently 231 operating “delivery stations” (last mile, cross-docking from full trailer loads from fulfillment centers to the local delivery partner vans). And, 118 new ones are ‘planned.’ Amazon shares zero plans.”

“What happens is one of these facilities gets the green light (built by a contractor, funded by Goldman or other REIT investors), and then Amazon’s cover gets blown and it becomes another ‘planned’ spot. I wouldn’t be surprised if they don’t wind up with 500+ of these stations for the lower 48,” he concluded, and suggested I look at a few other releases in the last couple of weeks:

  • Amazon Unveils Small Business Credit Line with Goldman in Latest Combo of Tech and Wall Street. Small business owners who sell on the e-commerce giant’s platform will soon be receiving invitations from Goldman’s Marcus brand for revolving credit lines with a fixed annual interest rate of 6.99% to 20.99%.

By gaining data on thousands of Amazon merchants, Goldman can improve its lending models and accelerate its push into Main Street finance. Amazon had considered creating an online marketplace for many lenders competing to offer credit to small businesses.

  • Amazon Planning to Deploy ‘Smart’ Shopping Cart in Chicago. The Amazon Dash Cart uses computer vision algorithms and sensor fusion tech to scan items in its basket.

Amazon is planning to introduce cashier-less shopping carts at its new grocery stores that use cameras and sensors to scan what shoppers grab and charge them when they leave the stores (watch Whole Foods). The “smart” cart, called Amazon Dash Cart, was unveiled Tuesday at a Go Grocery store, according to the Chicago Tribune.

  • Amazon Today Announced an Expansion of its Chicago Tech Hub …plans to create 400 new tech jobs in fields including cloud computing, advertising, and business development. To accommodate this job creation, Amazon will expand its office in downtown Chicago by more than 70,000 square feet, allowing the company to double its tech workforce in the city.

I thought Chicago had LOST the mud-wrestle for Amazon’s second headquarters (HQ2)! I do not feel bad about letting New York, Washington or any other city spend their treasuries to ‘attract’ projects that generate more protests than growth. A couple of other notes:

  • Amazon Acquiring Zoox to Accelerate Autonomous Ride-Hailing Amazon has signed an agreement to acquire Zoox, a California company working to design autonomous ride-hailing vehicles from the ground up.
  • Amazon Logistics Continues to Expand. Amazon owns 60 big cargo planes, bigger than the national airlines of some developing countries. It runs 60,000 of its own delivery trucks, not counting the 100,000 now on order. And, perhaps most startling, it says it now delivers 60% of its packages through its own drivers.

In Space, No One Can Hear You Stream

  • FCC Greenlights Amazon Project Kuiper. The authorization allows Project Kuiper to deliver satellite-based broadband services in the United States, using a low Earth orbit constellation of 3,236 satellites to help expand internet access to all communities. This will compete with Space X Starlink project.

Here’s My Take… Why Does This Matter to the Aftermarket?

Amazon (and the skyrocketing cast of digital millennial buyers) will dictate how fast the producers may go-direct, making huge investments in (at least):

  • Best, total digital content (formerly referred to as ‘catalog and price lists’);
  • Follow-through, seamless buying journey services (logistics, billing, credit);
  • On demand, digital training for all tech levels;
  • Digital promotional support and advertising.

Distributors must shift to new e-selling for next-gen buyers (who don’t want facetime “relationships”) and rethink total channel models with key suppliers… We need each other!

Most distributors (and buying groups) have been incapable of change anywhere near this magnitude… OK- we have never been faced with a marketing train-wreck on this scale…

HDA and Vipar are expected to announce their own satellite plans shortly.
(Joke: Heavy Duty Association. Vipar is a HD parts-distributor, buying group.)

One Last Thing:

Car House Holding expects to raise $27 million to grow a marketplace that already has more than 3,000 sellers of automotive products and annual gross sales of more than $80 million.

Car House, a Guangdong, China-based operator of a B2B marketplace for automotive parts and a web retailer of related products, filed an initial public offering in U.S. on the NASDAQ. The company, which has been in business since 2004, looks to sell as many as 3.9 million shares at a price range of $6.50 to $7.50 and raise $27 million in the process.

Car House will use the proceeds to enhance the data analysis and operational capacity of its ecommerce platform, for marketing, for upgrading its manufacturing facility and equipment.

Car House says its B2B marketplace is growing. Approximately 3,100 third-party domestic and international merchants are selling about 210,000 types of automotive products on the Car House marketplace platform.

About 180,000 wholesale customers have registered to use the Car House eCommerce platform and mobile app, including auto product retailers, car dealers, commercial car shops, and consumers. Current inventory includes about 200,000 sku, according to the Car House filing with the U.S. Securities and Exchange Commission…. Who Knew?

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