Distributors aren't Amazon, nor should they be
Distributors underpin the American economy
According to NAW, the US distribution industry market size is $8.2T, or approximately a third of the US GDP. Exact market sizes are always more of an art than a science, but the magnitude cannot be ignored: distribution is one of the largest sectors of the American economy.
Distribution, when defined as a verb (which includes the actions of not only distributors but also B2B marketplaces, vertically integrated manufacturers, etc.) means to give out. B2B distribution therefore is fundamentally about serving end customers: getting them the right product when they need it. That is to say, distribution is an enabler - it enables companies to do what they do.
And yet, distributors are almost never talked about. Not a relevant or fair comparison (though humorous), but the term has less search volume than crypto or Bitcoin. There are some good reasons for this (after all, who talks about distribution of PLCs at family dinners…), but in the same vein as earlier, the magnitude cannot be ignored. Distribution just isn’t talked about very much, despite being a massive part of the American economy and being an industry that’s starting to see dramatic changes across people, process, and technology.
What the future holds for distribution
Note: as a disclaimer, distribution varies widely based on sector - foodservice distribution is immensely different from janitorial distribution, which itself is immensely different from construction distribution. In an effort to save myself from needing endless caveats, I’m going to broadly generalize the industry and focus my discussion from the perspective of a hypothetical medium complexity distributor, such as HVAC or electrical supplies.
As mentioned above, the distribution industry is starting to undergo significant transformation, driven by multiple factors, both external (e.g., changing customer demands and vertical integration threats of manufacturers) and internal (e.g., loss of tribal knowledge from the aging labor force and the difficulty of retention).
Distributors are addressing these challenges in multiple ways (like moving to employee ownership), with the vast majority undergoing some form of digital transformations. Of course, the specific digital initiatives differ based on where they are on the digital adoption curve: when I was a consultant at McKinsey, I saw one company mainly focus on moving to a cloud-based ERP (rightfully a business-critical initiative given the 75%+ failure rate of ERP implementations), whereas another company was testing dynamic product recommendations into their eCommerce website.
While there always be laggards, most distributors at this point have recognized the tablestakes nature of eCommerce websites, with the majority either having already implemented or currently building an online site. And so, the question is: where does distribution go from here?
There is a lot of literature suggesting that distribution eCommerce will turn into a pure Amazon-like shopping experience. However, I generally believe this is an oversimplification and not fully accurate - it ignores the inherent differences between B2C and B2B.
To illustrate this, I wanted to divide up shopping versus buying. I’ll define buying as the actual purchasing process, whereas shopping is the process of discovery and research to determine what to buy (and from who).
For the sake of discussion, I’ll use a recent purchase I made as an example - dumbbells.
While I ended up buying from Amazon, shopping consisted of me getting advice based on my needs (like what weights or brands should I consider, whether I should get fixed-weight or adjustable weight, etc.) from online forum posts - Amazon was simply a medium by which I completed the buying process.
In the B2B buying world, there aren’t online forums for shopping advice like there are in B2C. That’s why roles like inside sales reps and customer service agents are such a core value driver for distributors - they advise the customer on what they need. However, while human-to-human connections will always exist, this traditional model is starting to face significant headwinds. On the human capital side, it’s hard to train and retain experienced workers, and on the customer side, customers are starting to demand instant help whenever, even if outside of business hours.
Given these headwinds, I actually see many distribution verticals moving instead towards a Warby Parker shopping model, where customers can not only get self-service advice and recommendations (in Warby Parker’s case, getting advice on style and measurements via their apps), but also speak to human advisors if they want.
How Cohesive fits into the picture
At Cohesive, we’re focusing on helping distributors offer a Warby Parker-like shopping experience to their customers. We do this through our platform that can offer customers 24/7 help whenever they need it using our AI chatbot, such as being able to suggest and link to product categories or SKUs based on their needs.
Of course, we’re just getting started, and are always looking to connect with other innovators in the distributor space (e.g., automation technology or configurator technologies to help build the exact product based on specs or even augmented reality) - leave us a comment or shoot me a note at kevin@cohesiveapp.com. Look forward to connecting!