Redefining The Supply Channel

Digital sales are paying off for some distributors.

More and more distributors are investing in their e-commerce sites. Some have built websites separate from their company sites in order to reflect a broader perspective, especially if that company website indicates a geographic location in its name, i.e., “midwest sales supply” or “southern california goods.” Others sell directly from their company’s home page. Still others set up shop on the biggest marketplace of all, Amazon.com, once bookseller, now purveyor of goods and services of all kinds. In the run-up to Christmas 2013, 426 items per second were purchased on Amazon.

Amazon.com is different from AmazonSupply.com, as explained on page 70. The difference is important. A distributor competes with AmazonSupply, which currently lists almost 2.5 million items for sale, including welding supplies and equipment. Whereas a distributor sets up a storefront on Amazon.com and can merrily make sales across North America, with no marketing budget, to millions of potential customers.

While an e-commerce site is just another medium for making sales, it is becoming a very important one, as younger buyers enter the C-Suite, buyers who grew up comfortable with all things online.

Merging New Technology with Old-Fashioned Principles
Airweld (Farmingdale, NY) began selling products online through eBay, but when listing fees increased and sales decreased as buyers migrated to the Amazon marketplace and its brand image as more than a bookseller, it was time for an aggressive change in focus. In 2009, Airweld opened a storefront on Amazon but it took two years before noticeable sales took place. In 2013, sales doubled over the previous year and bypassed the first half of 2014. Currently, between five and ten percent of Airweld’s total sales take place online, with an average of 200 orders each week. John McNulty, Airweld’s manager of web sales, happily indicates that there are 80 to 100 orders waiting when he arrives to work every Monday morning, and that number is growing.

Getting a product listed on Amazon can take two paths. If it’s already posted by other sellers, all McNulty has to do is add the price and specifics about Airweld, because there is already an approved description and image of the product. If it’s a new item for Amazon, the seller must input the details: UPC number, part number and price. There are some already-listed products Airweld will not sell, because Amazon’s price is so low that the effort has no return. Eric Terwilliger, vice president, acknowledges that Amazon’s buying power is huge. “They are that big that they can just sit down with a manufacturer and say ‘This is what we want.’ And they usually get what they want.” Airweld sells a few plasma machines each week, but most of the sales are small-ticket items, i.e., gloves, hats, beanies, safety glasses. Shipping is built into the price. “Most everything sold on the internet is low profit,” says Eric Terwilliger, vice president, “but when you start putting in volume, that profit becomes significant.” Pricing aside, a benefit to selling on Amazon is the fact that there are no advertising or marketing costs. McNulty recalls the pay-per-click days. “We paid a lot of money for people to look at our site and not buy anything.” With 30 million people going to Amazon.com, Amazon is doing all the work. To optimize search rankings, Airweld sets up the search words and closely follows the results and search engine rankings on Google Analytics.

Selling on Amazon comes with one very nice benefit: Online buyers do not get terms. They pay Amazon at point of sale with a credit card, and Amazon pays the seller when the product is shipped. Airweld Vice President Tom Biedermann says, “If there is a dispute, it’s between the customer and Amazon. There are no charge backs and no issues with credit card fraud, something we occasionally experience in our stores.” Of course, for all this good will, Amazon receives a portion of the sale, plus a monthly fee for the listing.

To be successful at the Amazon game, a distributor must know what they are getting into. Terwilliger explains, “You can never say, ‘Oh, I’ll ship it out tomorrow.’ The order must be processed very quickly and sent out with a tracking number for the customer.” Negative feedback from a customer will hurt a company’s rating, which will hurt sales. Airweld has always had high customer ratings, except for one negative review in the past year. The postal service lost an item in delivery. While this had nothing to do with Airweld, it is the spot where old-fashioned customer service shines. The customer was contacted, the issue was addressed, and the product was replaced. Result: One happy customer who spread the word…to tens of thousands of online shoppers.

Website Name Removes Geographic Location, Reflects Broad Industry
“Amazon is a ruthless organization,” says Dale Wilton, whose company, Central Welding Supply (North Lakewood, WA), had an Amazon storefront for a period of time. “It’s the greatest online marketplace on the planet, and they’re a powerful, effective and efficient marketer and distributor.” But Wilton became dissatisfied with the amount of money Amazon took from every sale and now puts primary focus on his company’s online site for direct sales. An early proponent of the digital marketplace, Wilton secured the URL www.welders-direct early in the game, in 1999. A few years later, he acquired the name minus the hyphen.

Today, four CWS employees handle internet sales, including two salespeople who deal with orders, order processing and customer service on the phone. A warehouse worker does the outbound shipment. The company’s web developer updates products to keep the site fresh and does search engine optimization. The optimization goes a long way in securing an A rating and bringing potential customers to the site through online searches. Says Wilton, “I think one of the reasons why online sales are a thriving part of our business is that we have the knowledge in-house and are not paying third-party contractors.”

The website does $2M in sales per year, which represents less than three percent of total company sales. Wilton points out that if all the company’s sales were segmented, there would be 30 other areas that represent three percent and may be identified as “not a big deal.” “Added together, every three percent of business is a big deal.”

The Best Defense Is a Good Offense
Indiana Oxygen Company (Indianapolis, IN) began selling on the internet in 2000. Today, online sales represent 20-22 percent of total revenue and take place on the company’s online sales site, www.weldingsuppliesfromioc.com, as well as eBay. Products are shipped to 50 U.S. states and a dozen countries. Sometimes a local customer prints off an advertised special on the website and brings it to the store demanding that price. “If they want it at that price,” says Wally Brant, president, “they have to order it through the internet. And then they get a box delivered to the bottom of the driveway. We’re very much disciplined on that, because we value the training and overhead expenses of the brick and mortar store.” For online sales, free shipping is offered on orders over $50, which is built into the price.

Brant describes the internet division as very aggressive and always thinking about ways to capture sales. They optimize the site for search engines and monitor customer reviews, as negative reviews will impact ratings, which will impact sales.

Some manufacturers have restricted products that can be sold by a distributor online, and if violated, there are consequences, like losing eligibility for discount pricing. Brant believes this is tilting the playing field to compensate for those companies that have not invested the vast amount of time and expense needed to build an internet sales program. “We value our relationships with our vendors, and we don’t want to be a renegade. At the same time, we can’t put our head in the sand and pretend online sales are going to bypass our industry. The internet is just a different medium of sales. That’s all.”

It wasn’t always this clear for Brant. A member of several distributor councils, when the conversation turned a few years ago to “this new way of selling,” he could always be counted on to be the dissenting voice. But now he says, “It’s simple when you stop to think about it. I will never be able to compete with experience and service if a customer can get the same or lower price buying on the internet.” In fact, he points out that some of his own stores are competing with IOC’s internet sales, and he explains to store sales staff, “‘If you’re providing the service or the convenience of purchasing product and getting it immediately, and the internet offer drives that customer into your store, you shouldn’t be mad at me. Once he’s in your store, it’s up to you to complete the sale.’ And quite frankly, it wouldn’t bother me if you sent me a commission, a finder’s fee.’ Of course, you can imagine what happens when I say that!”

Online Pioneer Exploits the Big Site Weaknesses
J.W. Goodliffe & Son (Linden, NJ) has been involved in online retail since the mid-1990s, ever since President Bob Goodliffe heard a manufacturer say, “Within a few years, there will be a distributor across the country selling a welding machine in your backyard. You better be ready for it.” After dabbling with a few affiliate sites, the company launched Cyberweld.com in 2000 with 50 SKUs. Today Cyberweld has close to 2,000 items on its website, and online sales now account for 85 percent of the company’s overall business. To match the ongoing interest of many consumers to purchase supplies online, J.W. Goodliffe & Son now does business as “Cyberweld.”

Despite having his own website, Goodliffe maintains that every online retailer needs to have an Amazon strategy. Cyberweld used to have an Amazon storefront, but it was shut down after dissatisfaction with Amazon’s fees. Instead of a storefront, Goodliffe uses pay-per-click advertising to push people from the Amazon website to the Cyberweld website. Cyberweld’s ad is typically placed at the bottom of a product page on Amazon. According to Goodliffe, less than 15 percent of all internet users ever go to the bottom of the page, but adds that from a sheer volume point of view, 15 percent of Amazon’s volume is a huge number and represents many potential new customers.

Amazon, while being a good source for new business, is also a competitor and a threat. “As regular welding retailers, we know about loss leaders. We understand that we may not make money on the sale of a robot, for example, but we will make it up on the sale of consumable items and accessories over the life of the robot. It’s the same online.” Amazon is a direct seller of many major welding equipment brands and offers some products at below standard distributor cost. “But Amazon does a poor job selling many of the accessories and consumables for a given product.” The lack of expertise in welding replacement parts and consumables is what Goodliffe calls Amazon’s weak spot. “All monolithic organizations have weaknesses that can be found. Amazon does have weaknesses that can be exploited.”

Cyberweld ships product sold on its website to all 50 states, as well as internationally, from two locations: its brick and mortar warehouse in Linden, New Jersey, and a second warehouse in Mesa, Arizona, that fulfills internet orders only.

READ MORE ONLINE:
Read how Cyberweld was created in the Member Profile that was published in the Summer Issue 2013 of Welding & Gases Today.

Gases and Welding Distributors Association