business news in context, analysis with attitude

The Wall Street Journal this morning has a piece about how "is quietly setting up shop inside the warehouses of a number of important suppliers as it works to open up the next big frontier for Internet sales: everyday products like toilet paper, diapers and shampoo."

An example: In Pennsylvania, Procter & Gamble has a warehouse that has within it an Amazon facility, and "each day, P&G loads products onto pallets and passes them over to Amazon inside a small, fenced-off area. Amazon employees then package, label and ship the items directly to the people who ordered them ... The under-the-tent arrangement is one Amazon's competitors don't currently enjoy, and it offers a rare glimpse at how the company is trying to stay ahead of rivals including discount chains, club stores and grocers."

The story goes on: "The economics of the arrangement benefit both sides. For Amazon, co-location reduces the cost of storing bulky items like diapers and toilet paper and frees up space for the Web retailer to stock higher-margin goods in its own distribution centers. The location in northeastern Pennsylvania is 5 miles from one of P&G's largest plants, which makes diapers, paper towels and toilet paper, and within a day's drive of major cities in the U.S. Northeast and Canada. The warehouse also stocks other P&G products from pet food to razors to shampoo.

"P&G, meanwhile, saves on the transportation costs that it would have incurred trucking products to Amazon's regional distribution centers. Plus, it gets Amazon's help in boosting online sales, a priority for many in the industry."

Amazon is reported to be in talks with a number of companies to create similar arrangements, including Seventh Generation, Kimberly Clark and Georgia Pacific.

The Journal notes that Amazon's competitors are not happy with what some of them perceive as being preferential treatment for one of their more formidable competitors, though it also reports that "Yannis Skoufalos, P&G's global product supply officer, said the company values its relationships with all its customers and works closely with many retailers to help reduce costs in their supply chains and meet their unique needs."
KC's View:
This speaks to the unique advantages that online retailers can exploit, but it also suggests that more traditional retailers need to do to compete. It seems to me that many retailers - not all - ought to be looking at the list of products that Amazon for which Amazon is creating "under the tent" arrangements, and asking themselves what dramatic changes they ought to be making in these categories.

Because the status quo won't cut it.