77. How Amazon Will Skim Your Cream SKUs

At the upcoming Advanced Profit Innovation Conference, I will delve into what Amazon (AMZ) is doing and why you should be paying attention. I’ll present a case, based on real data, showing detailed facts about six of the most profitable, and the most unprofitable, items from a contractor-supply distributor’s total of 5000 active warehouse items.

The Profitable SKU Facts

The case distributor uses line item profit analytics to calculate a profit or loss on every SKU. For 2016, the average stats for the six most profitable SKUs were:

  • On average, 150 customers bought these items 750 times per year or five picks per customer
  • The average sales per pick for all six was over $1100
  • The average margin rate (22%) generated an average margin dollar per pick of $250
  • The average cost-to-serve dollars per pick ranged between $82-88
  • The profit equation:  $250 – 85 = $165 (less another $62 for rep pay)

The Unprofitable SKU Facts

The average stats for the six unprofitable SKUs were:

  • On average, 300 customers bought these items over 2000 times per year
  • The average margin rate (32%) generated an average margin dollar per pick of only $6
  • The average cost-to-serve dollars per pick ranged from $9 to 19
  • These SKUs were often returned by counter customers with no restocking fee
  • The profit equation: $6 – 14 = ($8) (less another $1.50 for rep pay)

We know that next-gen customers are turning to AMZ. The question I want to answer is: Why wouldn’t a growing number of your customers spot-buy the top fifty most profitable items from Amazon for 10%+ less and continue to buy the losing items from you?

Most distributor executives are older than their customers, who are often millennials. And while many are AMZ Prime members and have checked AMZ prices on bigger ticket items for personal needs, few had the app on their phone. A recent survey found that 35% of millennials rate the AMZ app as their number one most essential app.  There’s no doubt that these next-gen customers will increasingly buy cream items through AMZ.

Come to APIC with these questions in mind:

  1. How fast will your (millennial) customers start checking prices at AMZ?
  2. How will you explain why your cream SKUs are 10%+ higher?
  3. What happens to profits and sales compensation when cream sales drop?
  4. Is there already an AMZ reseller that is selling your cream items for less (like Aldi does in groceries)? Why not you?
  5. Are you ready to learn how line item profit analytics can help you protect and build on your cream SKUs, fix your losers, and partner with AMZs customer-centric digital channel?

I’ll tell this story and more at the Advanced Profit Innovation Conference (APIC) in Toronto on October 26th. It’s not too late to register

at: http://www.apicconference.ca/

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