Here’s Why P&G and Amazon Are Now Under the Same Roof
Amazon.com (NASDAQ:AMZN) has convinced many suppliers to let it set up shop within their very own warehouses, but for many companies, it’s a secret. That’s at least the case with Procter & Gamble (NYSE:PG), as the Wall Street Journal reports that the consumer goods manufacturer has agreed to be a part of Amazon’s new operation, but it wants to keep things under wraps. That’s why its warehouse in Tunkahannock, Pennsylvania hands its products over to Amazon every day within a small, fenced-off area, and there, the e-commerce giant packages, labels, and ships to the customers who ordered from it.
Amazon’s new experiment comes as it works to increase its presence in the consumer packaged goods market that sells everyday products like toilet paper, diapers, and shampoo. Americans currently only buy just 2 percent of those goods online, but that figure is growing, and if it increases to 25 percent a year to $32 billion by 2015 like analysts expect, Amazon wants to be in a good position to reap the benefits.
That’s why the e-commerce giant has launched a new program it calls Vendor Flex that allows Amazon to work within suppliers’ warehouses and distribution networks. The operation allows Amazon to access the goods directly, letting it to save on moving and storing costs, and it also benefits companies like Procter & Gamble by cutting their transportation expenditures.
The operation is not without its disadvantages, as the company must deal with Amazon’s encroachment on its territory. However, so far, the initiative has led to increased sales, so the intrusion is something that can be managed.
The problem, however, is that Amazon is trying to keep its new initiative private as it visits everyday goods suppliers like Seventh Generation Inc., Kimberly Clark Corp. (NYSE:KMB), and George Pacific Corp., and the retailer’s competitors don’t enjoy such covert arrangements.
Amazon especially competes with the likes of Wal-Mart Stores (NYSE:WMT) and Costco Wholesale Corp. (NASDAQ:COST), and as the retailers frequently piggyback on each other’s ideas, its possible they could work to mirror Amazon’s new arrangements as Anne Zybowski, vice president of retail insights at consulting firm Kantar Retail, explains, “Retailers don’t like things that benefit their competitor but not them.”
For now, however, Amazon will hope to keep its competitors at bay as it continues growing its portfolio of Vendor Flex clients and works to increase its revenue selling nonfood consumer goods. According to an analyst at RBC Capital Markets, “This is one of the biggest growth areas for Amazon,” and it looks like the Seattle-based retail giant is ready to take advantage of that reality at all costs.
According to the Journal, Amazon is now inside of at least seven Procter & Gamble distribution centers world-wide, and it is in talks with several other distributors to expand its program. Many consumer-products makers are now turning to Amazon to help them sell their products online, working to keep up with the changing world of online sales, but it is still unclear just how many will allow the e-commerce giant to set up shop within their very own grounds, and all Amazon can do for now is ask.