Analyzing Amazon's Disruption in the Aftermarket
June 19, 2018—As average vehicle age continues to increase, the automotive aftermarket continues to thrive, and has become one of the fastest-growing segments in online sales, forecasted to break $10 billion in 2018, according to a Hedges & Company forecast.
Amazon is well aware of this fact, and has been putting a lot of thought into vehicles these days, especially with its recent partnership with Sears. Recently, Sears added 71 auto centers to the list of stores that will offer installation and balancing for customers who purchase tires on Amazon.com.
Additionally, Amazon has signed partnerships with GM and Volvo to offer in-vehicle delivery of packages, and is developing Alexa-powered Echo speakers designed for cars. Over the past year, Amazon has expanded its same day delivery services, which allow both do-it-yourself customers and commercial customers to receive their parts immediately.
One Click Retail (OCR), a company focused on eCommerce data measurement, recently released a report taking a deep dive into Amazon’s disruption into the automotive market. According to your report, Amazon earned an estimated $1.8 billion in first party aftermarket, and is growing at a rate of 18 percent year-over-year.
Ratchet+Wrench spoke with Ojastro Todd, insights manager at OCR, to learn more about the study and how Amazon’s plans moving forward will affect shop owners.
Why is Amazon growing so quickly? What advantages do they have in the space over typical industry players?
In almost every industry, e-commerce is outgrowing brick-and-mortar. Amazon is outgrowing typical industry players because it is beating them at e-commerce. Typical industry players were all initially brick-and-mortar and as such have adapted slowly to the online economy.
While some of the competitors (like Walmart and Home Depot) have adapted quickly to e-commerce, the majority of these competitors fall into one of two categories: companies which underestimated e-commerce and were slow to invest online and are now playing a catch-up game (or possibly still haven’t started really investing online); and companies that tried to move into e-commerce without innovating and have fallen behind due to lack of adaptability (any company, retailer or manufacturer, that tries to run ecommerce the same way they run brick-and-mortar is doomed to fail).
In comparison, as one of the first online retailers, Amazon has been a leader in innovation from the start. This Sears partnership is just another example of how Amazon is constantly working on innovative approaches to retail.
Given the partnership with Sears, do you think it's possible for Amazon to partner with a major auto care chain?
Historically, Amazon has piloted new programs in smaller areas before expanding their services. For example, Prime Now and AmazonFresh were piloted under a limited scope before expanding across the country (and even now these services are only available in specific areas). Essentially, this Sears partnership is Amazon testing the waters for this service.
If things go well, we may see an expansion of similar services. This could potentially include partnership with a major auto care chain. However, if Amazon finds this partnership minimally profitable, it may allow this program to die out in favor of more profitable approaches.
Is Amazon trying to dominate the aftermarket from all facets?
In the long term, I would say it looks like Amazon wants to dominate every market everywhere. In more realistic terms, Amazon knows it can’t dominate everything all at once. Instead, Amazon is using testing and pilot programs to decide which section of the market is the best investment option. Once Amazon identifies where it will gain the most profit, it will double down on that area of the market. Once Amazon has dominated that section of the market it will move on to the next most profitable and so on.
It's early, but what kind of success has Amazon seen with these efforts?
Overall, tire sales on Amazon have not yet seen a significant impact from this deal. However, as you said, it’s still early.
I will say that OCR has limited visibility on this program. OCR estimates total product sales through Amazon.com, but does not have immediate visibility on geographical trends. It may be that tire sales have increased significantly in the geographies where this service is available, but that the increase in sales is not yet noticeable when viewing the data on a national scale. I’m sure that Amazon is looking at their own data in those specific geographies however, and those trends are what will determine Amazon’s next move.
Do independent shops need to be worried about Amazon's infiltration? Can they profit in any way from Amazon's increased presence?
Everyone should be worried about Amazon, or more generally everyone should be worried about e-commerce. Amazon’s success and continued efforts in the automotive aftermarket are a sign of the increased digitization of this market. Independent shops should be worried about how well they are adapting to digital trends, because if they don’t adapt, they will be left behind by those who do.
OCR’s main focus is on manufacturers, so I have very little experience in what approaches repair shops could use. I would suspect that Amazon’s increased presence in the automotive parts industry may be beneficial for repair shops that need to order very specific parts, as Amazon tends to make online shopping much easier, but I can’t say for certain.