E-commerce trends: why German wholesalers are the next victim of e-commerce
B2B E-commerce in Germany keeps growing – good or bad news?
The Business-to-Business wholesale trade in Germany and the world has changed considerably over the last years and has proven to be exceptionally flexible. It is under a growing threat, nevertheless.
Several trends underpin its transformation. New forms of industrial distribution are emerging, and big manufacturers offering e-commerce are choking the middle-guy. Wholesalers are creating tangible value for their customers while providing new services, not only logistic ones.
Complex multichannel sales, e-commerce platforms, the dangerous advent of Amazon business, and savvy customers deciding based on price only, are making a digital transformation imperative for German B2B distributors.
What is the future of sales in industrial distribution? Where should companies invest their limited resources? How can you secure your past success in a dynamic and uncertain future?
Let’s discuss these trends and their implications.
Wholesale: from goods distributor to distribution service provider
Never mind that the distribution of industrial products in Germany is still booming, its future looks gloom. There are several worrying trends we need to consider.
First, industrial wholesale is taking a new form. Distributors and wholesalers are becoming more service providers offering added value to their customers than just pure logistic companies.
Second, buyers, competitors, and in some cases, distributors, are forcing industrial manufacturers to open their e-commerce offering. Therefore, B2B buyers can choose where to source their products: either from a distributor or from their manufacturers.
Removing several layers of warehouses and distribution centres tends to favour the buyer, erode prices, and choke the guy in the middle.
With revenues up by 4,4 %, the return on sales got still significantly weathered, in the first quarter of 2020, compared with the quarter before.
Example of Trends in B2B Industrial Distribution
Trends are hard to spot. It is naturally, hard to see the wood for the trees. When you are a company in industrial wholesales, you can probably only speak for yourself. Associations can talk for some of its members. They have their particular interests nevertheless and are not always objective.
Yet trends are still there.
For example, in Bavaria, German engine of electronic distribution, less than 40 % of companies in industrial wholesales had return on sales higher than 6,1 %, according to the Association of the electrical wholesale in Germany, VEG. Besides, most of them mentioned the intensification of competition as their main challenge for the future (147 of 231 participants). Recruitment and retention of skilled workers, employee qualifications and changes in the business model, were named as the second, third and fourth most pressing challenges, respectively.
And finally, the future of wholesale distribution does not distinguish by company size. There is no demonstrable link between the company’s success (measured by return on sales and return on capital employed) and its size.
B2B Marketplaces are a blessing and a curse for wholesalers
Amazon Business offers a new sales channel to B2B industrial distributors, fully digital. It also intensifies competitive pressure, including against Amazon itself.
“Vendors who decide to sell through Amazon Marketplace quickly enter a fateful relationship of dependence in which Amazon will emerge as the winner in the long term.”
This warning came from Dominik Dommick, once PayPal CEO for the German-Speaking Markets, now Managing Director at Payback (leading multi-loyalty program and multichannel marketing platform, part of American Express).
Amazon is, at the time of writing, under investigation by the EU competitive commissions for using data gathered from sellers on its marketplace to compete against them. Not an excellent start for any partnership.
Moreover, even if you do not see a B2B Marketplace as a severe competition, consider the pressure coming from your vendors. Every major manufacturer is nowadays pursuing a B2B e-commerce strategy.
The digitalization of their sales activities impacts both their distribution network as well as their direct and classic sales team.
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B2B Marketplaces in Europe & USA
Regardless of Amazon anticompetitive behaviour, a big chunk of the future of B2B sales will depend on online platforms; it is a fact. This move to online trade, including via platforms, is in turn due to several factors, such as changes in B2B buying behaviour, competitive pressure, and cost reductions.
None can stop it.
If you need a must-have trend for wholesalers, look no further than E-commerce and multichannel sales. The research company Forrester states that e-commerce amounts for a 12% of total B2B sales in the US (2020), with an aggregated value of $1.1 trillion.
B2B companies without an online sales channel are missing out on a vast sales channel, getting only larger. Industrial distributors and wholesales profiting from this stellar rise in trade volume will nevertheless suffer from pricing erosion and increasing competition.
Experts at Frost & Sullivan, the market research company, blame the rise of e-commerce and B2B Marketplaces for the increasing competition among manufacturers. And if you are feeling the pain, wait for Amazon to increase your competitive pressure.
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B2B Sales Distribution is dramatically changing – what can you do about it?
B2B Sales Distribution is changing.
If you do not want to lose your market share and the capital you built with your customer relationships, there are three things you need to do.
First, get online.
Second, create value with e-commerce.
And third, use your data to increase sales.
You cannot bring your wholesaling or industrial distribution operations online overnight. Getting online means enabling e-commerce, together with a digital sales strategy. Bring your activities online to make them more successful and to reduce costs.
Successful wholesalers employ the experience of their sales associates to create value for their customers. Creating value means helping your customers to become more efficient, save money and time. It also means offering differentiated technical support.
Finally, industrial distributors are only able to compete if they use their data to look into the future, a.k.a. Predictive Analytics. Use your internal sales data to implement dynamic pricing, predict customer churn and increase cross-selling across your channels.
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Further Read:
Statistisches Bundesamt: Wholesale und retail trade economics.
Dobush, G. (2018): How Amazon is steamrolling Germany’s retail market. Ed.: Handelsblatt.
Brousseau, E.: Retail and Wholesale Trade E-Commerce: What the Numbers Really Mean.