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Amazon Launches ‘Amazon Business’ in Canada and Competitors Should be Concerned[Analysis]

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Seattle-based online behemoth Amazon has announced the launch of ‘Amazon Business’ in Canada, which is part of an effort by Amazon to gain market share from competitors also targeting business clients. As a result, Amazon could steal market share from retailers such as Staples, Best Buy, Walmart, and (online retailer) Grand & Toy, all of which have made substantial investments to maintain business customers. Some delivery companies could also take a hit as Amazon grows its own logistics network.

Amazon’s Business is described as a membership program designed for Amazon Business customers “who want fast, free delivery” for business account users, in addition to providing “convenience, value, analytics and control in the procurement experience”.

Prices for Amazon Business vary depending on the number of users of the business account. The ‘Essentials’ level costs (Canadian Dollars) $109 annually, the ‘Small’ level costs $499 per year for up to 10 users, ‘Medium’ costs $1,299 for up to 100 users, and ‘Enterprise’ is priced at $10,099 annually for more than 100 users. Amazon is offering a free 30-day trial as part of the Business Prime launch in Canada.

Businesses falling under the ‘Small/Medium/Large’ classifications get access to “enhanced purchasing policy controls” as well as analytics dashboards. That includes ’Guided Buying’, which allows account administrators the ability to identify certain suppliers and preferred products, as well as restrict certain product categories in order to reduce ‘rogue spend’ while improving compliance with internal policies while consolidating suppliers. ‘Spend Visibility’ is made possible through AWS QuickSight, providing company spending visualizations in the form of ready-to-present graphics. Amazon says that this reduces the time needed to download and analyze data in order to determine spending trends.

The pricing differential between the ‘Medium’ and ‘Enterprise’ level is tenfold, and it remains to be seen if some of the steep pricing will catch on with businesses in Canada of various sizes. Regardless, many businesses will no doubt consider switching to Amazon following its Business announcement. Amazon Business also launched in the United States with similar pricing to that of Canada, though its lowest tier is considerably higher than that of Business Prime Canada. In the United States, the ‘Essentials’ tier is priced at $179 annually while ‘Small’ is $499, ‘Medium’ is $1,299 and ‘Enterprise’ is $10,099 annually. Those prices are all in US Dollars.

Amazon has seen considerable success with its Amazon Prime offerings in Canada, with millions of households having signed up over the past few years. Canadians are getting a bargain in terms of Amazon Prime membership pricing when compared to the US. Amazon Prime in Canada currently costs $79 annually, which is remarkably lower than the US $119 charged by Amazon for US households.

Amazon doesn’t provide information on the number of Amazon Prime members in Canada. In the United States, it is estimated by Statista that more than 105-million households are Amazon Prime members, which makes up a substantial portion of the population. As a result, Amazon earns billions of dollars annually on its Prime memberships alone, not to mention revenue from sales made to loyal customers. At the same time, Amazon incurs the cost of shipping which eat into profits. Amazon’s revenue was said to be nearly US $70-billon last quarter, though its profits are shown to be about 3% of that, if not lower. Amazon is playing a ‘long game’ according to analysts as Amazon looks to gain market dominance which will ultimately lead to profitability as competitors begin to falter.

Amazon’s Business memberships in Canada could result in significant revenue gains for Amazon in Canada. Membership programs create loyalty and as a result, Amazon could take a chunk of sales from competitors that are also targeting business customers.

In Canada, several retail chains cater to business customers. Staples Canada recently launched an initiative that includes newly designed stores with co-working spaces, as well as quick delivery that is free over a certain amount. Staples is investing millions of dollars to be the dominant office supply retailer in Canada, and the investment is a risky one. Renovating its stores costs a fortune, and other product and e-commerce innovations as well as shipping are eating into its bottom line. Staples offers tech services, printing and marketing services, education, and even incorporation services, which in theory could give it a competitive edge. Large businesses such as Telus currently utilize Staples as a service provider and may look to switch to Amazon Business Prime if cost savings can be found.

One source at Telus explained how Amazon could have an advantage over Staples, given Amazon’s ease of use in terms of web interface and checkout process. The Staples business website requires a password to log-in that some employees may have difficulty locating, according to the source, sometimes requiring a password reset. After perusing a catalogue, one has to determine if shipping will be made available to a particular location, creating friction points to the purchase process. At the same time, the source noted that given Staples ships for free over a certain amount, Amazon’s Business Prime fees could be seen as an impediment for some business.

Best Buy Canada also targets businesses with its ‘Best Buy for Business’, which offers a personal account manager as well as Geek Squad business solutions, volume purchasing options and an online business hub that offers special pricing, tracking services and convenience in use and payments. Appliances, audio-related products, computers, cell phones, office furniture, smart devices and other items are available on its website. Best Buy’s customer-centric approach, at the same time, could see it retain many existing business customers that are already loyal to the retailer. However Amazon Business, which will no doubt seek to innovate where it can, may launch similar services.

Walmart Canada offers business services and products ranging from large furniture items to smaller items such as writing instruments and printers. As with competitors, Walmart offers access to invoices and order history as well as various payment options. Walmart is also being aggressive by offering fast shipping while incurring costs that also eats into potential profit margins and may launch new initiatives in order to go head-to-head with Amazon. Following Amazon’s announcement, Walmart may also expand its services in order to maintain its own market share.

The office supply market has seen the closure of many smaller providers over the years, as larger retailers such as Staples have dominated the market. Staples is a diverse retail operation selling various product categories being known as the biggest seller office laser copiers Canada. Grand & Toy, which once operated a network of stores across Canada, shut its remaining brick-and-mortar storefronts in the spring of 2014 after financial difficulty. The company continues to operate online, and Amazon’s Business Prime could gain enough market share that could put retailers such as Grand & Toy out of business altogether.

For business owners, Amazon Business Prime could be good news. Amazon says that Amazon Business serves millions of business customers as well as hundreds of thousands of business selling partners worldwide, which has resulted in more than $10 billion in annual sales globally. About half of that comes from Amazon’s selling partners who stand to benefit from increased business. In total, hundreds of millions of products have been made available on Amazon’s platform, which includes a range of private-label Amazon products as well as from other brands. Amazon Business operates in nine countries including Canada, the US, Germany, UK, France, Italy, Spain, Japan and India.

Amazon selling partners have the opportunity to grow sales by reaching millions of business customers worldwide — in effect, Amazon opens the market far beyond Canada’s borders. Other benefits to Business Prime include special bulk pricing where selling partners can offer quantity discounts, including tiered discount levels depending on purchase amounts. Tax calculation and tax invoicing is also provided, while business reports aim to offer sellers the ability to understand and manage business activities via ‘sales snapshots’. Organizations eligible for tax-exempt purchasing can make such purchases automatically from participating sellers.

Large Amazon selling partners such as 3M expect to see a boost in business.  Lisa Citton-Battel, Director of Consumer Business Group at 3M Canada, explained how the company will be able to enhance its existing distribution model to reach a broader range of business customers. “For our own procurement, we look forward to a more streamlined approach to identifying, approving and tracking delivery of the products our teams need both in the office and in our manufacturing plants,” she said.

Restaurant chain Earls sees benefits to Amazon Business Prime as well. “Earls started off seeing Amazon as a supplier of low volume specialty items in the United States that we could not easily access through our supply network, and as we worked through this process, we explored new ways to work with Amazon,” said Claudia Vorlaufer, Vice President of Procurement and Logistics at Earls. “With the simplicity of placing and receiving orders, and the vast selection of products, Amazon Business will create solutions to help Earls receive larger and consolidated shipments, making Amazon a choice for us to discover new procurement opportunities in the future.”

Amazon uses a variety of distribution partners to ship products under its Prime model, and Amazon itself has been expanding its own distribution capabilities. As Amazon continues to gain market share in Canada while it grows its own distribution network, other transportation suppliers could take a hit unless they partner with Amazon.

Some have expressed concern that Amazon is running some retailers out of business. Already, about a quarter of all fashion purchases in Canada are made online, and the online channel is growing faster than brick-and-mortar retail. Amazon continues to launch new product categories and services, which includes streaming music and video, which further makes Amazon an integral part of people’s lives.

Lately, Amazon has also been accused of not being able to control products from third party sellers. Amazon, which began as an e-commerce book seller, continues to do robust business in the category, which includes textbooks. Some authors have noted that unscrupulous third-party sellers have reproduced pricey textbooks to sell at a fraction of the price on Amazon, which in turn has caused a financial hit to the authors and publishers. Amazon has said that it is monitoring its third-party sellers, though problems remain. Counterfeit designer goods continue to be available on Amazon as well – type “Louis Vuitton” or “Fendi” in the search bar at Amazon.ca to see for yourself. 

Amazon Business Prime will be good news for businesses seeking value-priced product that is delivered quickly, and third-party sellers will also see a boost as a global market becomes a reality. Competing retailers such as Staples could take a hit, however, and the future of some struggling retailers could be threatened as Amazon continues to make inroads and gain market share.

Article Author

Craig Patterson
Craig Patterson
Located in Toronto, Craig is the Publisher & CEO of Retail Insider Media Ltd. He is also a retail analyst and consultant, Advisor at the University of Alberta School Centre for Cities and Communities in Edmonton, and a public speaker. He has studied the Canadian retail landscape for over 25 years and he holds Bachelor of Commerce and Bachelor of Laws Degrees.

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