Automation, digitization, and more: 5 trends disrupting the wholesale industry

For decades, wholesale distributors have been the primary source of inventory to retailers. Over the past decade, however, technology, e-commerce, and shifting customer expectations have altered the wholesale landscape. Today’s distributors are evolving their business models—and fast.

In this article, we’re diving into five trends disrupting the wholesale industry, from navigating competition like e-commerce giants to embracing technological innovation.

With access to a massive catalog of products that they can ship quicker than most competitors, digital giants like Amazon and Alibaba have sent shockwaves through the traditional wholesale industry. This threat is particularly serious when it comes to commoditized products like printing supplies and paper. The problem? Businesses are looking for the fastest, easiest, and most affordable way to obtain these products—and traditional wholesalers often struggle to keep up with their digital competitors.  

In 2017, 92 percent of wholesale distributors cited Amazon as a competitor—and for good reason. According to a recent report from the National Association of Wholesaler-Distributors (NAW), Bank of America/Merrill Lynch estimates that Amazon Business, the tech giant’s wholesale branch, will reach $34 billion in gross merchandise sales by 2023, and $125 to $245 billion by 2029. And Amazon and Alibaba aren’t the only competitors in the digital space—new business models are constantly emerging, including eBay Business & Industrial, Digi-Key, and Zoro. With all these businesses competing for the same pool of customers, their profits will likely come at the expense of traditional distributors.

As digitization continues to connect more people and systems, it creates an opportunity for manufacturers and retailers to skip traditional wholesalers and work directly together, blurring the line between wholesale, retail, and manufacturing. As a result, disintermediation has become more common in the marketplace. The number of direct-to-consumer (D2C) brands is projected to grow by almost 20 percent in 2021, with many manufacturers leveraging e-commerce platforms to bypass wholesalers entirely. For example, Boeing invested heavily in business-to-business (B2B) e-commerce and acquired a leading aerospace parts distributor, helping increase its share of the replacement aerospace parts market by 7 percent. Many companies find that they can also improve shipping speeds and customer service by cutting out the middleman role that wholesalers traditionally play.

Amazon has disrupted the marketplace in multiple ways. As a result of this retail behemoth’s influence, businesses and consumers alike are experiencing something called the “Amazon Effect,” a psychological phenomenon that has shifted customer service expectations in virtually every industry. Customers today expect their wholesale distributors to be able to match Amazon’s speeds—even if that means shipping products in just a few hours. And businesses expect to have the same responsive customer-service experience from their distributors that they get from retail e-commerce. To keep up, today’s wholesalers are reconsidering old models that rely on regional representatives and storefronts and introducing a more versatile, tech-savvy buying experience.

E-commerce isn’t the only technological innovation transforming the wholesale space. Distributors are now using automation, Artificial Intelligence (AI), robotics, and drones to speed up their fulfillment processes, cut down on labor costs, and help reduce workplace injuries. According to Boston Consulting Group, wholesalers who automate their warehouses can cut costs by up to 55 percent. Automation is faster, too. JD logistics, the largest online and offline retailer in China, has a fully automated warehouse that can process more than 1.3 million orders a day and services 99 percent of China’s population and offers same- and next-day delivery. Some new technologies, such as augmented reality and exoskeletons, can enhance workforce productivity and help reduce injuries, potentially saving millions of dollars per year in workers compensation claims.

While the upfront cost of implementing these technologies can be high, the return on investment can also be significant.

Increasing disintermediation and stiff competition from digital giants have resulted in more mergers and acquisitions (M&A) activity over the last few years. While in the past M&A activity was primarily focused on growth opportunities, today’s wholesalers are merging to stay competitive and optimize their position in the market. Consolidating helps wholesalers improve customer experience, provide a broader array of products and services, and work more efficiently—all in response to the “Amazon Effect.”

Industry disruption is likely to continue for the foreseeable future, pushing wholesalers to adjust their business models and offer value-added services to stay relevant in an ever-shifting market. As distributors rework their business models to address these disruptions, their insurance coverage will need to adjust as well.

The automation of processes may result in a decreased need for workers compensation coverage and increased need for cyber and property coverages to address equipment breakdown and business interruption exposures. The introduction of new products and services may also result in the need for more specialized general liability and errors & omissions coverages. Insurance providers are critical partners during these business changes, helping wholesalers re-evaluate their risk exposures and adjust coverages to help ensure they’re properly protected.

The wholesale market is changing—but a knowledgeable insurance provider can support your business through this period of disruption. Learn more about how Liberty Mutual supports wholesale distributors. 

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