March 15, 2018
Amazon continues to wreak havoc on supply chains worldwide. A client that does not compete directly with Amazon forwarded an article on Costco’s new price pressures on suppliers in response to Amazon concerns. She said that these types of industry moves were creating disruption and price pressure in her industry, even though unrelated to consumer products. Thus, we better pay attention!
According to an analyst at Stifel Nicolaus, Costco’s remarks were the first time a retailer in their coverage has explicitly admitted exacting price concessions from suppliers. That is a BIG deal! Costco’s CFO has said the brands need to come down in price because they are losing market share. Between these savings from the brands and some Costco savings, consumers are seeing significant savings. Actually, this seems to be right on. I used to buy my Mom’s Starbucks coffee through Amazon until Costco started to carry it. They will put it on promotion once in a while at a great price vs. Amazon and other retailers. My Mom stocked up! Are you thinking about these impacts?
What Should We Consider and/or What Impacts Could Arise?
The article talks about impacts on consumer giants such as P&G and Nestle. Clearly, these suppliers will be looking for options to increase margin. They are likely to try to pass it on to their suppliers, ask for internal improvement ideas and the like. Are you in the consumer products supply chain? Are you thinking about innovations and improvements to propose?
However, even if in an unrelated industry (such as our client), you are likely to experience impacts. How will you respond to customer requests based on perceptions created by the Amazon Effect? Have you thought about how to suggest alternatives to reducing price? On the other hand, are you meeting with your suppliers to discuss win-win strategies to proactive address these industry trends?
No matter your industry, are you considering innovations, automation and technology to reduce costs to remain competitive? Why not be in front of this wave so that you can be the market leader in your niche instead of racing to catch up? It always puts you in a worse position!