Counselor

Should the Promo Industry Be Scared of Amazon?

The ultimate disruptor is coming for the middleman.

Walmart is now a player in the promo products industry. When – and how – will rival Amazon follow suit?

British magnate Sir Martin Sorrell is the CEO of the world’s largest advertising group – a self-made man who has risen to knighthood while steering a nearly $20 billion company, WPP.

And yet, for all the 72-year-old’s success, all his decades of demonstrated ability to adapt and prosper in an ever-shifting business landscape, Sorrell sometimes has trouble sleeping.

What keeps him up at night?

Amazon.

Sorrell revealed his anxiety about the e-commerce colossus earlier this year. He’s not alone. Leaders across industries feel a similar apprehension about Amazon’s ability to disrupt traditional marketplaces and seize control of new models of commerce – a tension that’s also tugging at the nerve strings of everyone from executives to boots-on-the-ground salespeople in the promotional products industry.

Indeed, discussion about what Amazon might be planning for the promo market – and what disruption that could potentially cause – has heated to a boil. Speculation intensified in mid-August with the emergence of Walmart PromoShop, an e-commerce website where anyone can customize and buy promotional products. With Amazon’s big rival establishing a presence in promo, many ad specialty professionals began asking with heightened interest and concern: When will Amazon start competing in our industry?

The answer is this: Amazon is, to an extent, already here.

What’s more, industry leaders expect the online shopping juggernaut is only just getting started.

Here, Counselor explores Amazon’s initial salvos in the promotional products arena, examines how the king of e-commerce could potentially expand in promo, and explains what distributors can do to compete in a world where Amazon starts playing seriously in this space.

Amazon Custom & Merch By Amazon
“Discover millions of customizable items for all of life’s moments.”

That’s the tagline for Amazon Custom, a component of Amazon.com that’s home to an array of products that consumers can customize online and purchase. The 28 product departments advertised on Amazon Custom include clothing, shoes and jewelry, pet supplies, cellphones and accessories, office products, automotive parts, home and kitchen, and more.

For a mini experiment, Counselor searched the site for popular branded products like T-shirts and mugs. We found those items could be customized with text and uploaded imagery using an online design tool.

Clearly, end-users can do the same thing – a reality that some companies in the promotional products field are scared of, while other businesses are embracing. For several years now, Holmes Custom has been selling customizable products like nametags, plaques, banners and awards on Amazon Custom. These days, the Jacksonville, FL-based firm snaps up about 17% of its sales through Amazon. “It’s a matter of figuring out how to grow the family business, and Amazon has so many eyeballs already, it made sense to be on there,” says Bryan Croft, CEO/president of Holmes Custom.

Once a customer uses Amazon Custom to buy a Holmes product, Croft’s company handles the fulfillment, following up on any additional details, if need be. Amazon receives a portion of the sale. It also closely monitors Holmes’ performance. “They grade you on how quickly you ship orders, on whether you answer questions in a certain period of time, things like that,” says Croft.

As the Holmes example indicates, Amazon Custom is partnering with outside sellers, who apply for approval to sell their products through the platform.

Interestingly, Amazon is also moving into imprinted merchandise with a business model that takes direct aim at the Zazzles and Café Presses of the world. Merch by Amazon allows creators to upload a design for T-shirts and then set a price at which to sell the tee. Amazon prints and ships what sells, allowing creators to earn royalties on their designs without an inventory risk.

As of late summer, Merch by Amazon was invitation-only, effectively meaning would-be sellers have to apply to Amazon to have their T-shirt designs featured on the platform. While space is limited, purveyors using Merch by Amazon included everyone from independent sellers to household name brands like Disney and Marvel.

Taken together, the Custom and Merch platforms indicate that Amazon is interested in selling custom-imprinted products while also being capable of producing imprinted items on demand. A variety of leaders in the promotional products industry think this could be just the tip of the iceberg – that Amazon hasn’t even really begun to make its presence felt in logoed merchandise. “My sense is that they’re dipping their toe in the water,” says Larry Cohen, CEO of Top 40 distributor Axis Promotions (asi/128263). “It could be that they’re testing things out, seeing what works, what they want to do. And then they’re going to expand it.”

Middlemen in the Crosshairs
Cohen – and the growing list of others in promo who feel the same – could be onto something.

While an Amazon spokesperson declined to discuss with Counselor any strategy the company might have for penetrating promo more fully, it’s increasingly apparent that Amazon is intensifying what could be a full-court press into B2B – the very space promotional products companies operate in.

Want evidence? Look at the recent meteoric growth of Amazon Business – an online B2B marketplace that allows various end-buyer businesses to buy products directly, explicitly cutting out the middleman.

This July, Amazon announced that Amazon Business had more than one million customers, more than tripling in size from the previous May. The number of sellers on the platform nearly tripled too, rising from about 30,000 in 2016 to a reported 85,000 as of the summer announcement. Debuted in 2015, Amazon Business sales reportedly surpassed $1 billion during the platform’s first year of use. Plus, per the latest available data, there were more than nine million product listings.

“If the business unit keeps up its pace, it could surpass $8 billion in sales and 15 million listings in 2017,” researchers from firm Applico wrote in a February 2017 white paper. “However, given Amazon’s considerable resources and focus on the B2B market, those estimates might end up being conservative.”

Some marketplace analysts believe the stellar growth is part of Amazon Business’ bold, potentially paradigm-disrupting mission to become the top distribution space in B2B sales. The more gains Amazon makes toward reaching that goal, the heavier the pressure on B2B middlemen, analysts say.

“If you don’t make the object you are selling, or don’t have some sort of intellectual property, or solve a pain point for a customer, then you’re just a middleman, and you are increasingly more vulnerable,” wrote CNBC’s Bob Pisani earlier this year. “The concern is that these middlemen will start losing volume because sales in general are going to the internet and because it’s increasingly difficult to get pricing.”

Certain middlemen are already feeling the heat from Amazon Business. For example, industrial distributors – companies that sell parts like screws, pumps and fasteners to heavy industry – are under intensifying pressure.

As Pisani reported, Goldman Sachs wrote in a note to clients that the “value proposition of the industrial distributor is not keeping pace as new entrants like Amazon are disrupting traditional models. As a result, we see $130bn of industrial distributor TAM [total addressable market] on the line.”

Applico’s white paper, “Disruption at the Gates: Monitoring the Threat of Amazon Business,” details how the scale and fragmentation of the industrial supply sector make it an attractive target for a web-based platform marketplace. The scale is sizable enough – $75 billion a year – and the industry is fragmented, with 30% of companies earning less than $10 million annually and the top 50 companies producing only about 50% of industry revenue, according to Applico.

“The concentration of small suppliers gives a platform an easy route to building a modern monopoly,” Applico researchers wrote. “A platform would start by targeting smaller suppliers and offering them greater access to consumers. Once it consolidates the 30% of the market made up of small businesses, it would have the scale on the consumer side to attract some of the larger regional players in the industry.”

Such a scenario supposes a lot, but it’s something to be aware of in the fragmented $22.9 billion promotional products market, where the Top 40 largest distributors account for about 25% of annual industry sales.

There are more than 3,000 ASI-listed suppliers. In theory, a marketplace platform like Amazon Business could make an impact in promo by signing up a plethora of small suppliers to sell directly to end-buyers through its platform. Or, Amazon could flip the script, winning over top suppliers to gain a strong foothold. Even so, it must be stressed, such possibilities are conjecture, with Amazon’s definitive intentions for promo unclear. However, they are food for thought.

How Will Amazon Cometh?
Despite the uncertainty, execs in the promotional products space have their theories about Amazon’s plans for branded merchandise.

Jason Lucash believes Amazon ultimately intends to make a big splash in promo. The co-founder/CEO of California-based Origaudio (asi/75254), one of the industry’s fastest growing suppliers for several years running, thinks Amazon will enter the market in the next year or two. He suspects Amazon will act as both supplier and distributor, a hybrid that focuses especially on basic styles of commodity products in categories like T-shirts, drinkware and writing instruments. It’s a model, Lucash says, that puts distributors and commodity-providing suppliers at risk.

To help execute this model, Lucash believes Amazon will look to form key partnerships with manufacturers and printers who can meet Amazon’s demands on quality and rapid turn-time. Then, Amazon will use its web platform, bolstered by an online designer, to sell and ship directly to anyone interested in buying branded products. “I think,” says Lucash, “they’re going to want to keep it under their own roof as much as possible because that gives them the control to do everything to their high standard.”

Like Lucash, Chuck Fandos anticipates that Amazon will enter the promo arena in a more significant way within the next couple years, possibly after first making a major acquisition within the industry. Fandos, the U.S. CEO of international distributor Brand Addition, didn’t say definitively what the Amazon business model might look like. Nonetheless, he notes that the “vertical provider of promotional products to the end customer is coming fast in a big way. Combine a large supplier with great product development, sourcing and compliance with a large distributor with a sales force and great technology and you have your first billion-dollar distributor – or whatever this unicorn will be called.”

Meanwhile, Jill Albers envisions that Amazon could move into promo with a robust offering. “Everything Amazon does is intentional, so I would see them producing a turnkey end-user solution,” says Albers, VP of business development at Shumsky (asi/326300). “They could possibly buy a distributor and pump some money into them to create great technology to be able to do this online in a made-to-order way, dependably and on time.”

Even so, Albers thinks Amazon will mainly impact the business-to-consumer piece of the imprinted merchandise industry. “An example order would be, ‘I need 40 T-shirts for granny’s 80th birthday party, and I want to check out on Amazon Prime like I do for everything else I order in my life,’” says Albers.

Mark Graham, CEO of distributor Rightsleeve (asi/308922), offers another perspective. Graham, who is also chief platform officer at cloud-based software developer commonsku, thinks Amazon could create an online marketplace through which suppliers sell promotional products directly to the public.

“You could have suppliers viewing it as another channel through which they sell product,” says Graham, who thinks distributors whose core business is e-commerce sales would be most negatively affected by such a model. “Suddenly, you have Amazon, who does e-commerce better than anyone, offering a possibly better, less-expensive experience. If I was heavy on the e-commerce side of our industry, I would be worried.”

As president of Top 40 distributor ePromos Promotional Products (asi/188515), Steve Paradiso leads one of the most successful web-driven distributors in the industry. In his view, Amazon could become another Google to the promotional products industry – effectively a search engine where promo companies will have to pay for search placement and master “SEO” techniques that help them rank higher in searches related to products they offer.

“I see it eventually being another cost for us, another vehicle through which we compete to acquire customers,” says Paradiso, who believes that Amazon could also make a play in promo for enterprise level accounts to which it might already be selling other products, such as office supplies. “I think they’ll look for enterprise clients across multiple channels.”

From another perspective, Henrik Johansson suspects Amazon will not make a “concerted thrust” into promo so much as it will start adding more and more brandable SKUs for online shoppers to snap up. “I’m oversimplifying here, but in a way they can simply add the products to their platform and their existing customers will start buying,” says Johansson, CEO of Top 40 distributor Boundless (asi/143717). “I’m sure they will complement with marketing too over time.”

Johansson believes Amazon’s growing presence under this envisioned model has potential to cause significant disruption within promo products. “Traditional distributors are already used to competing with the online players, but it’s going to get worse,” he says. “Just wait until your buyers get free shipping from Amazon. Amazon will drive the shift to more e-commerce orders, and take market share from everyone, including the e-commerce players. On the supplier side, I think Amazon will further accelerate consolidation. Amazon is likely not going to partner with hundreds of suppliers. They will pick a few that will be big winners, and everyone else will lose market share.”

Still, other promo leaders don’t foresee a huge impact from Amazon – at least not in the immediate future. Several, including Vantage Apparel (asi/93390) President Ira Neaman, believe Amazon is focused on expanding business in more lucrative verticals. “I don’t think promotional products are a priority given what else they are working on,” says Neaman. “The acquisition of Whole Foods requires the company’s immediate focus.”

Compete & Thrive
But even if, as many believe, Amazon ramps up its presence in promo, a range of industry pros say distributors who focus on providing creative, consultative branding solutions and outstanding, technology-backed service will continue to thrive. “I don’t think Amazon is going to disrupt the B2B consultative side of our industry,” says Albers.

That’s a position Bobby Lehew gets behind.

In fact, the longtime distributor and current chief content officer at commonsku believes it’s a waste of time to fret about Amazon. Not because Amazon isn’t a competitive threat, but because it takes mental energy away from focusing on how you can improve offerings and ROI. “Your customer will only care about Amazon and other competitors when you make doing business difficult,” says Lehew. “Make things easy, and they’ll never think of the ‘A-word.’”

How do you do that? Start by eliminating every possible buying hassle, says Lehew. “Ask your customers about the buying process with you. Find out what’s irritating and change it,” says Lehew. “Pour resources into tech and infrastructure investments that focus on resolving friction in the buying process. As a corollary, start shifting outmoded commission splits that reward temporary sales. Shift all resources toward long-term sustainability.”

For sure, some top distributors are already implementing next-generation strategies. At Boundless, for example, a consultative approach and strong supplier partnerships combine with a patented technology platform to help enhance speed, accuracy, uniqueness, and ease of buying. “You have to add value beyond just being an order taker,” says Johansson. “That has been true for a while, and it will only be more important going forward.”

To be a standout distributorship, firms should train sales professionals to ask questions and engage in dialogue that allows reps to gain an understanding of each client’s brand, audience and goals for every campaign. “Customers buy a promo product for a reason – discover the ‘why,’” says Lehew. “The closer you get to ‘why’ with your customers, the more you’re able to advise and avoid transactional tendencies in customer buying habits.”

As important, distributorships should foster a culture where sales pros are encouraged to be proactive in conceiving creative solutions rooted in clients’ particular needs. “We should have effective consultative meetings with our customers on a frequent basis,” says Lehew. “We need to get in front of the sale instead of behind the product inquiry. This takes a hell of a lot of work, but mostly a shift in our thinking and in our sales planning. Reactive selling is marginal and temporary; proactive selling builds futures.”

Additionally, distributors can keep clients loyal by providing services that increase the value of their total offering. Think everything from graphic design, fulfillment and packaging to providing comprehensive brand management that ensures consistent messaging across a wide variety of promotional campaigns. “If you’re just selling on price, your days are numbered – and they have been for some time,” says Graham. “But we all have the power and the tools at our disposal to construct businesses that can not only compete, but thrive in today’s marketplace. If you’re willing to adapt, there’s a lot of business out there for you, and there will continue to be.”

Industries Amazon Is Disrupting

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Email: cruvo@asicentral.com; Twitter: @ChrisR_ASI