Want to expose the ways you in which you can beat Amazon (AMZ)? Start with a line item cost-to-serve model for your distribution company or for several of your most innovative distributors. Then, create profit and loss rankings for every SKU and vendor, as well as for customers, territories and niches. Get ready for some shocking revelations. The biggest: big profit/loss cross-subsidies fault lines likely exist between your most profitable and unprofitable customers and SKUs.

The most profitable warehouse items:

• Are popular (highly picked) commodities
• Have high-dollar sales per pick averages
• Have margin percentages that seem low but gross profit dollars (GP$s) per pick that exceed the cost to serve dollars (CTS$s), yielding the highest profit dollars (P$s)

Another way to think of this is using the Profit Equation: GP$s (-) CTS$s = P$s.     Continue reading 81. Find (and Fill) Your Cross-Subsidy Fault Lines →

Amazon’s digital channel has eclipsed much of the information value and cost efficiencies once enjoyed by traditional distributors. When a disruptor eats into your space, you need a dual response strategy:

1. Downsize to your core profit customers (niches) and renew the relationships
2. Use your incumbent capabilities to create a new business model to join the disruption growth party

Don’t Be Kodak   

Back in the day, Kodak had a massive camera film franchise. They also invented the first digital camera. But, they let the technology languish. As others began to chomp into their film sales, Kodak put film veterans in charge of a catch-up digital-camera strategy. The strategy was to get digital photographers to print out their best photos in order to stimulate film sales. Mighty Kodak collapsed. Continue reading 78. A Dual Strategy Against Amazon’s Digital Channel Disruption →

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)

Continue reading 77. How Amazon Will Skim Your Cream SKUs →

Recently, Wall Street investors ignored Amazon’s (AMZ) latest lower earnings report and bid for $49B in new bonds. AMZ nibbled only $16B (at lower than projected interest rates) and bought Whole Foods for $13.7B. What will they do with the extra $2.3B? It is likely they’ll add to their already huge innovation budget. In 2016, AMZ spent $6.74B on fixed assets, with overall estimates for “innovative activities” exceeding $17B.

How does AMZ’s investment in innovation increase value for B2B buyers? 

Following the news feed for AMZ’s daily innovation announcements is a full-time job. Most of these innovations indirectly increase value for Prime customers, while also bringing in new Prime customers and increasing retention. Then, there is a domino effect as these Primers take their AMZ shopping expectations to work, causing an accelerating increase in B2B sales.

Continue reading 76. Amazon Begs Your Innovative Response →