In the movie You’ve Got Mail, local bookstore owner played by Meg Ryan is put out of business in a matter of days by a bookstore chain owner played by Tom Hanks. While this is a heartwarming love story, a similar process is happening in the contract furniture industry, and it doesn’t end with a kiss.
Amazon has disrupted many industries. While ranked #2 on the Fortune 500 list of most admired companies, the name itself can send shivers down the backs of many business owners with brick and mortar operations. With a current retail market share of 41 percent and a projected market share of 50 percent by 2021, according to a recent study by Statista, Amazon is no small giant. It’s pull on the contract furniture industry started slowly but steadily is gaining momentum. With Amazon Business - marketed as “easy, stress-free purchasing for your business,” the company is active in its prowl to expand its offerings into business channels, including furniture.
One of the most recent examples of this new model can be seen through the preferred King County sellers Amazon Business Pilot program. George Pieper, co-owner of OutSmart Office Solutions, a non-aligned contract furniture dealer, recently participated in a forum to learn more about the pilot program and shared, “In my opinion, Amazon is trying to take the pilot to government agencies and companies rather than setting up their own procurement network. By partnering with local businesses, Amazon is creating its own solution for procurement using established businesses’ unique channels.”
How it Works
In the case of King County, which happens to be the county of Amazon’s headquarters office in Seattle, WA, the pilot program starts with certification. Company owners with no more than $1.4 mil of personal assets, (not including their home or stake in their business) that sell goods and services can certify their small business with King County via Small Contractor & Supplier (SCS) certification, which is like a gold star next to the company name, giving the business special considerations from King County purchasers.
According to the county website, King County purchases nearly $1 million from thousands of sellers through Amazon Business annually. The point of the program is to not only increase that $1 million, but also to channel more of those purchasing dollars toward small businesses. However, one wonders if they can get it for $5 cheaper, will the purchasers still choose to purchase from those smaller businesses over other retailers? Fair question.
Impact to the Industry
For the furniture industry, the impacts of this program affect several core principles of the furniture buying process for consumers - warranty and quality being among the largest impacted, not to mention customer service. Pieper shared a great example to demonstrate, “I have a long-standing relationship with a customer in the tech industry that is on a constant growth trajectory. Every few months, the customer will buy a few more sit stand desks, chairs, and file cabinets for their growing employee base. The other day, I sent the customer the standard quote I’ve been giving them for the same pieces they’ve ordered for years. They came back to me and said that they found a similar sit to stand desk for $200 less on Amazon. What they didn’t consider was quality and warranty. What happens when that chair they bought on Amazon breaks on day 31 – one day past the return policy? If purchased through my company, they can get several years of warranty. Plus, the product I ship is weight tested, made with quality materials – in essence it carries the professional-grade standards our industry is built upon. Amazon simply cannot offer that.”
As for the impact on dealers, Pieper shared, “I think this program will have a huge impact on small businesses because margins already are tight and they are going to get tighter in order for us to remain competitive. I think this will be a challenge for contract dealers and dealers who are selling more ancillary items to their customers.” Pieper elaborated with a real-world example: as a non-aligned dealer, Pieper’s company is beginning to see pricing impacts across the dealer board. Take this Setu Chair by Herman Miller, retail $655. Amazon currently is selling a Setu replica for $199.99 and offers free shipping.
“The chair being sold on Amazon above is a chair that OutSmart Office Solutions also sells as an Asian import from a West Coast distributor. The list price is $409, which is still a better price than the Herman Miller Setu Chair if, as a buyer, brand, quality, and warranty are not as important to you as price. Our wholesale cost for this chair is $139 if we pick it up "will call" at the distribution center south of Seattle. Shipping to the end user and Amazon's fees will add about $45 so our cost is $184, not including the cost to pick it up and package it for shipping. At a competing sale price of $199 our profit on the sale would be only $15. Today, when we sell this chair to regular customers at a 40% discount off of list ($245 + delivery and install), we can profit $106 on this chair, which helps us pay employees and cover the costs of doing business. A $15 profit simply will not us to handle that overhead.”
At the end of the day, the decision comes down to priorities. As a buyer, are you willing to sacrifice quality, industry-grade materials and testing, a long-term warranty, and the ability to test and feel the product before specifying, all to save money? As a dealer, are you looking to do business with the customer that wants to truly benefit from your wealth of industry knowledge and your dedication to quality and service, or is it more important to make up those dollars in volume?
Pieper sums up these decisions with this, “As a dealer, we’re now faced with the decision of how we build up our customer base. Do I want to do business with the customer that will be checking Amazon every time I send them a quote? Or do I want to work with customer that understands the value our industry provides, and values quality over saving a few bucks. It can be a painful decision, and unfortunately it’s just another pain point our industry must deal with.” As we look at the effect of online sales to the contract furniture industry, this is yet another indicator (among many) that big change isn’t just coming, it’s here.
This article was originally published in The Business of Furniture, a division of Bellow Press, on May 2, 2018. It is reprinted here with permission.
Amanda Schneider, LEED AP, MBA Founder & Consultant at Contract Consulting Group
About the author: Amanda Schneider, LEED AP is a researcher, blogger for the Huffington Post, and the founder of Contract Consulting Group www.contractconsultinggroup.com, a research led strategy firm serving the contract interiors market.