Ingram Micro to Boost Deliveries for Web Retailers
Ingram Micro Inc., the world’s largest distributor of computer products, will announce today that it is shifting half its 8,000 U.S. work force into a new division that will act as a colossal delivery service for online retailers.
The move by the Santa Ana company is aimed at creating a new source of revenue by using its network of warehouses and miles of conveyor belts to handle everything from books and compact discs to health and beauty products.
Ingram’s new division, IM-Logistics, is starting with distribution of televisions, videocassette recorders and other consumer electronics sold by Internet retailer Buy.com Inc. The unit’s strategy is to enlist more Web merchants by marketing Ingram’s size and long record for distributing computers.
Ingram already distributes computer products for e-tailers such as Buy.com and Internet superstore Value America Inc.
“We are creating a brand,” said Kevin Murai, the company’s executive vice president for U.S. operations.
Ingram will be facing more competition as it expands. Well-publicized delivery disasters by top Web merchants such as Toysrus.com have lured both established distributors like Logistix and newcomers like Submitorder.com into the market.
But Ingram’s experience may give it an edge, analysts said.
“They’re the 800-pound gorilla,” said Geri Spieler, an analyst for the Gartner Group, a technology consulting firm. “They’re going into a hot niche market, but they’re larger and no one has more distribution centers. Ingram is way ahead of the game.”
IM-Logistics represents a big leap in the company’s strategy for transforming itself from old-fashioned pipeline to new-style e-commerce engine, where it aims to be the dominant player in the so-called Internet fulfillment business.
Ingram needs to leverage its distribution expertise--and its excess capacity--for all it’s worth.
The company suffered through dismal times last year as a vicious price-cutting war among distributors shaved 25% off its annual profit. Investors abandoned Ingram, sending its shares reeling from a high of more than $52 in September 1998 to as low as $10 just over a year later. The stock closed at $17.31 Friday, up 56 cents a share.
Doubters wondered whether old-line distributors would have any place in online selling. The Internet, after all, is supposed to make it easier for retailers and manufacturers to reach consumers directly, with no need for middlemen or fulfillment experts. Amazon.com, for example, spent millions of dollars to build its own warehouses and distribution system.
But a growing collection of e-tailers have learned that fulfillment is harder than it looks, analysts said.
Toysrus.com had to fork over millions of dollars in gift certificates to placate irate consumers after failing to deliver Christmas gifts on time last December. Online grocer Peapod Inc. and English apparel retailer Boo.com Group Ltd. farmed out fulfillment to third-party specialists but encountered delays and mistakes, compounded at times by an inability to process returns.
Boo.com went broke. Peapod survived--barely.
“They were dealing with distributors not set up to deal with the consumer living in the suburbs who orders one pair of shoes, rather than the retailer ordering six dozen pairs to one location,” Spieler said.
Ingram, by contrast, now delivers almost three-quarters of its orders straight to consumers, Murai said.
Battle-hardened by the computer-product sector’s breakneck pace and highly technical demands, the company said it makes mistakes less than twice in every 1,000 tries. Orders move from submittal to warehouse to the truck in an average of about 4 1/2 hours, Murai said.
Buy.com Chief Executive Greg Hawkins said he switched his company’s consumer electronics fulfillment to Ingram because he was convinced the distributor could transfer its performance into new areas.
“They have executed at a very high level for us,” said Hawkins, himself a former Ingram executive.
He said he doesn’t plan to end ties with his company’s current distributors of books, CDs and other nonelectronic products. But Buy.com probably will work with Ingram as it offers new products online in the future, he said.
IM-Logistics will work only with e-tailers that ship at least 50,000 units a year, Murai said. They will pay Ingram on a fee-for-service basis, rather than under a traditional markup system.
In creating the new division, Ingram is largely rearranging, rather expanding, its work force, Murai said. Only a few dozen new staff members will be added for sales and marketing, project management and logistics consulting.
Michael Terrell, general manager of the company’s global partner services department, will oversee IM-Logistics.
