Amazon.com's Steve Frazier offers a glimpse into this online powerhouse.
The e-tailer's vision, says Frazier, is to provide Earth's biggest selection in any market, a place where the customer can find anything they want online.
The $9 billion company that started out as a purveyor of books now boasts the auto parts market as one of a score of digital storefronts within its giant online footprint, backed by almost 8 million sq. feet of internal U.S. warehouse distribution space.
And Amazon's auto parts store, along with its dozens of other product categories, represents a paradigm shift in aftermarket retailing, where sellers large and small engage in a free flow of commerce; prices can be adjusted immediately; and parts can be shipped directly from Amazon, drop-shipped from a traditional distributor or manufacturer, or sold from a third-party online retailer through Amazon's "marketplace" — all these choices converging to paint a picture of capitalism at its best.
With a number of major retail partners and resellers who are able to sell their wares, where the traditional distributor fits into this equation may not be so easy to determine.
Frazier, who spoke with Aftermarket Business after his eForum presentation, says it would be difficult to hazard a guess as to where this business model leaves traditional aftermarket distribution.
"I think it's an opportunity for people who want to get with the program and see the potential out there to try to find a way to do more business," he says. "I don't think Amazon had to come along or e-commerce had to come along to create the need for everyone in any market, much less this one, to get more efficient."Though the company built much of its reputation by selling books, Amazon now sells everything from apparel, appliances and electronics to jewelry, housewares and even groceries. The e-tailer also does business in seven countries.
Frazier believes that most categories will see 10 percent to 15 percent of business being conducted over the Internet.
Following the trail led by its other segments, Amazon's auto store is truly interactive, as customers can post "before" and "after" photos of their vehicles, as well as short movies depicting parts and accessories being installed, offering a true "how-to" format for enthusiasts.
The auto parts store also includes one of the oldest interactive features for Amazon, the customer review section, which publishes the good with the bad. No matter how scathing, unfavorable reviews remain alongside the more effusive critiques.
"We suffer along with our vendors," says Frazier. "But it is something that builds trust with the customers."
Making a direct connection with its brick-and-mortar partners, a sister company called A9 provides maps and images of physical storefronts, with the capability to scroll right or left as if you were walking down the street.
It's by no means a new idea to sell auto parts online, but what's unique about Amazon is the fact that it has taken the business model from its existing segments into the auto parts marketplace, and the model appears to be highly effective.
A 'standard' approach to e-tailing
The application and catalog data for Amazon's auto parts store is compliant with industry standards — like Product Information Exchange Standards (PIES) and AAIA Catalog Enhanced Standards (ACES) — and Amazon's automotive content is powered by Activant's catalog.
Addressing the aftermarket's prominent data challenges, Frazier said during his presentation, "Some of the biggest challenges of this industry are some of the things I like about it."
When asked about the view of the aftermarket as trailing behind other industries in terms of technology and data standards, Frazier defends the current state of affairs.
"The fact that this conference exists pays tribute to the fact that people are sitting around talking and thinking about this stuff," he says, adding in many other industries the product selections are so random that if you decide to build an online store in their likeness, you have to build it item by item.
As far as whether the aftermarket is laggard when compared to other segments, "I'm not sure they're behind," Frazier adds. "Every industry thinks they're behind, but almost every industry does some things really, really well and they struggle with other stuff."
As an example, Frazier recollects his time in the apparel business working for a major shoe chain. The company had 5,000 stores wired with an advanced homegrown supply chain system, but the company's president was nonetheless distraught.
"I remember the president of the company used to say, 'Our systems are terrible. We can't tell you immediately in one store what's in stock across town without the manager making a phone call. If you go into an O'Reilly's and you can't find what you want, that guy can immediately look up what's in every other O'Reilly's.'"
Essentially, he says, each market segment evolves through necessity.
"I think it's easy to beat yourself up on how bad you are," believes Frazier. "In my observation, most companies have built up what they need to build up to do the business they were doing."
Who's behind the curtain?
To make the segment successful, Amazon relies on a team equal parts automotive specialists, Amazon specialists and generalists who are looking to "get their feet wet" in a particular category.
The core automotive team, comprising personnel like product managers, thinks of the store itself as a product, says Frazier. Additionally, there are people on the automotive team who manage the relationships with third-party sellers, as well as those who manage the website day-to-day. A team of buyers and inventory personnel negotiates relationships with vendors and controls product pricing, he adds. This is what he would consider a category team.
A group of technology-minded people works on the features unique to the automotive category, like the elaborate parts-lookup system.
"Everything else we need we sort of grab from the rest of Amazon," he says, referring to the customer service functions, as well as those who manage customer reviews and content publishing: roles that mirror other Amazon stores.
"There's a vast technology organization at Amazon, and they're thinking about things like how the checkout process works, how we manage customer reviews, how we publish content to the site and how we send orders to the distribution centers," continues Frazier. "Ninety-nine percent of that the category team doesn't really have to think about because our needs are the same as the other customer needs."
Frazier, who would not divulge specific profit numbers for the automotive category, admits that Amazon made its mark as one of the most famous money-losing companies. "We were quite famous as the company early in our history that lost a lot of money (but) we've actually been profitable since 2002," he adds.
Amazon reports first quarter 2006 free cash flow numbers had a 20-percent increase compared to the same period last year.
Who are the key customers?
Obviously Amazon.com does not displace the traditional jobber, as technicians do not have the leeway to wait three to five days for a part to be delivered to a service bay.
But Amazon does have a target audience and is fulfilling a need. And for now, the target audience appears to be those who are perhaps planning a weekend automotive project, or customers looking to buy accessory items that are non-critical to a vehicle's operation.
"We don't spend as much time asking our customers who they are as we do watching what they do," says Frazier.
The e-tailer doesn't collect specific data as to whether customers are DIYers or in the DIFM realm; however, Frazier speculates that the majority of the site's buyers are do-it-yourselfers.
Conversely, "We do see orders come through that seem obvious to us as pro, just because of the quantity they're buying."
He sees the tide eventually shifting to more DIFM-related ordering. "We sell some reasonably serious (items), and as our parts lookup gets better and our selection gets better and our data gets better, we've got a chance to earn a fair share of that business."
When considering pricing, Amazon looks at a number of factors, but mainly it looks at competition.
"We try very hard to be competitive with what folks are doing out there, so we go out and look pretty regularly where prices are in the market, and we do our level best to be competitive with people that we consider to be relevant competitors," says Frazier.
One of Amazon's strong points, and something that distinguishes the company from the traditional aftermarket, is its ability to change prices almost in real time.
Though Amazon has built a reputation on selling hard-to-find items and emphasizing its sales of large numbers of slower moving items, the top sellers in the automotive parts store are pretty close to everyone else's, says Frazier. Truck accessories and car interior accessories are hot items at the moment, he adds.
"To some degree, in most of our businesses, our top sellers are never really that surprising, because, on the one hand, they look like everybody else's top sellers," he admits. "On the other extreme, we'll always sell a little more than average than the typical person does of the hard-to-find and unusual stuff."
Fluids and chemicals, as well as hazardous materials, can sometimes be difficult to ship, Frazier says.
And for those ultra-low-priced items like 29-cent washers, it can also be difficult to attain successful sales, unless these items are bundled or put into a larger assortment.
"In any business, there's stuff that just doesn't work out economically to do e-commerce," confesses Frazier.
Looking for a partnership
Unlike the traditional reseller-customer relationship, Amazon's business model relies on constantly finding new sellers to move product through its website.
A number of larger name retailers are already selling through its channels.
"We go out and pretty actively talk to people in the industry who've got an e-commerce site and present the proposition to them and tell them why we think it would be a good idea for them to sell on Amazon," says Frazier, who adds the site is an especially valuable proposition for those who have already made the e-commerce investment.
"You've got a number of ways to get incremental volume online," he adds. "We think for somebody who does it, the facts demonstrate it's a good business proposition, they've just got to commit themselves to a bit of technical work to integrate, and they've got to stay after the customer experience to make sure they're filling orders and getting good customer feedback."
As far as getting the product information in line with current data standards, it takes work from both the seller and from Amazon, he says.
There are a number of different ways to get product data to Amazon, whether it's through Activant's applications or having Amazon's team enter the data accordingly.
"We're literally almost on a monthly basis opening up different ways for that to happen," says Frazier.
