Amazon’s next frontier to conquer? Auto parts

Josh Kosman and James Covert

New York Post

22nd January 2017

Amazon boss Jeff Bezos, whose online behemoth is likely to become the country’s No. 1 apparel retailer this year, is setting his sights on what could be his next sector to dominate: the $50 billion auto parts business. In recent months, Amazon has struck contracts with the largest parts makers in the country — including Robert Bosch, Dorman Products and Cardone Industries, sources told The Post.

And that could be bad news for the nation’s retailers — O’Reilly Auto Parts, Advance Auto Parts, AutoZone and Genuine Parts, insiders said. The chains have prospered over the last several years as their profit margins have swelled — thanks in no small way to the iron grip they exercise on suppliers. To further grease the wheels, it’s possible that Amazon may even snatch up some of the regional parts distributors, says Steve Handschuh, chief executive of the Motor & Equipment Manufacturers Association.

Amazon, which rang up revenue of $128 billion in the 12 months ended Sept. 30, could see its auto parts business expand more than 50 percent this year, to $5 billion, according to one Wall Street analyst’s recent, confidential prediction circulated among clients. “I wouldn’t be surprised if [Bezos] were making some of these calls himself,” a top exec at one major auto parts supplier told The Post, noting that senior Amazon execs have led efforts in recent months.

While some Wall Street observers are skeptical that Amazon will succeed with auto parts as it has with books, electronics and toys, others aren’t taking Bezos’ moves lightly. Lately, Amazon has widened its selection of parts — and is already selling them for less than its rivals. For example, a 34 Series RedTop Optima Battery was recently being offered at $166 on Amazon, versus $216 at AutoZone.

In a September report, investment bank Jefferies said Amazon is offering delivery for auto parts in 40 major US cities — at prices that average 23 percent less than those of O’Reilly, Advance and AutoZone. Amazon’s ability to break that hold on distribution is made a bit easier because the chains shoot themselves in the foot. There is a widening rift between manufacturers and retailers, according to industry execs, due to an aggressive pursuit of mostly parts.

That fattens the retailers’ bottom lines, but at the expense of the auto parts makers. When the retailers chased the private labels, manufacturers’ loyalty disappeared in the mirror, said one executive at an auto parts maker. Plus, Amazon, in some cases, has been paying manufacturers as much as 30 percent more for the same parts.

Dorman was the first major parts maker to cut a deal with Amazon, sources said. Most of the others, with the exception of Standard Motor Products, have followed. “It’s the classic tipping point,” the auto parts executive said.

“The majority of us now are selling directly to Amazon. ” Amazon officials didn’t respond to requests for comment..

 

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