11 reasons e-commerce is coming for construction
By Luke PowersSeptember 21, 2021
The convenience, accessibility and transparency that the internet affords us in our everyday purchases has fundamentally changed our expectations in how we do business... even in construction.
The importance of e-commerce for all transactional businesses in life during and after Covid-19 is undeniable. To that end, digital transformations in the heavy equipment and parts industries have already begun and are expected to accelerate over the next five years; the pandemic has simply made the need to digitize impossible to ignore.
Despite this, there is still a belief that the construction equipment industry is immune to the shift toward e-commerce – people prefer to do business over the phone so how could e-commerce ever work within the construction industry?
Many customers do, in fact, prefer to do business over the phone and that will not change no matter how great a website is, nor will everyone change their ways overnight. We are just at the beginning of the e-commerce adoption curve in the construction equipment industry. However, the longer suppliers put off adopting e-commerce, the more they risk missing out on or losing the customers that are innovators.
The heavy equipment and parts industries are just beginning to ascend the adoption curve. Here are the signs:
1. Buyers adapt to innovation patterns
Heavy equipment rental seems to be following the same patterns as car rental, just 40 years behind.
The introduction of car rental came soon after the rapid adoption of the automobile. Hertz was founded in Chicago in 1918, originally as Rent-a-Car Inc., with a fleet of 12 Model T Fords. Following WWII, the rental car industry was flooded with rental companies. Several powerhouse rental companies emerged, making it tough on the thousands of independents to compete. Consolidation began as large rental companies and manufacturers started snatching up the independents.
Availability of cars had been addressed. Accessibility was next.
Expedia, one of the first online travel agencies, was founded in 1996. By 2003, 21% of car rental bookings came from online travel agencies and 15% direct from the companies’ websites.
From manufacturing, to rapid rental business creation, to consolidation, to platforms, heavy equipment rental seems to be a period behind.
However, there is one key distinction that will keep equipment rental from being “platformized” like in car rental – more is at stake in a heavy equipment rental than a car rental.
The human element in the equipment rental transaction is absolutely vital and is something many tech companies overlook.
The customer service and category expertise that comes with independent rental will keep independent businesses thriving as long as rental companies make it a priority to provide the same digital experience that the largest players do. And, the temptation for customers to switch purely out of convenience will grow as the largest rental companies continue to invest in their e-commerce channels.
Now is the time to focus on mitigating that temptation.
2. Amazon Business is growing – fast
You know that consumers in your industry are shifting toward e-commerce when Amazon makes your customer its core focus.
According to a report by Applico, Amazon Business reported $10 billion in total sales in 2018, $6 billion of which came from maintenance, repair and operations (MRO) supply – their leading category. This amounts to 18 million of the 56 million products Amazon Business offers in the MRO category.
Not only that, Amazon Business is forecasting $75 billion gross merchandise value by 2023, growing at a 115% compound annual growth
rate from the $10 billion they reported in 2018. Compared to the 28% growth rate in Amazon Retail, this is massive and would make Amazon Business the number one industrial distributor in the U.S.
Suppliers in these categories need to act quickly in order to compete. Amazon is undoubtedly learning from every transaction as to what parts they should replicate and offer at a cheaper price like they have done in retail.
It will be impossible for any single supplier to compete with Amazon’s SKU selection. Suppliers need to band together and work with a marketplace platform that won’t get in between them and their customers.
3. The biggest suppliers are focused on e-commerce
E-commerce is already the preferred method for buying parts. Grainger expects 80% of their revenue will come from e-commerce by 2023. They continue to invest in their e-commerce channel while still providing in-person service.
Fastenal’s e-commerce revenue has grown 27% year-over-year and now makes up 35% of their total sales. Holden Lewis, CFO of Fastenal, said, “I see e-commerce being 60%, 70% and 80% of our business.”
Across 300 B2B distributor businesses, e-commerce sales have grown by 11% year-over-year, bringing the total north of $700 billion in revenue.
It’s clear that some of the biggest manufacturers and distributors are putting a focus on growing their e-commerce channel, especially in reaction to the global pandemic.
4. Contractors are changing their buying behavior
According to the American Rental Association’s 2019 consumer survey, 34% of contractors already expect their rental transactions to be done completely online. Catering to these customers is a focus for top rental companies.
In its 2019 annual report, United Rentals announced a 66% increase year-over-year in self-service e-commerce revenue from its UR One digital platform for rental equipment, tools and related information and services.
However, for some rental companies, an online transaction isn’t even possible.
The rental transaction is complex and very difficult to be done without human intervention. Most contractors already have relationships with a few rental businesses and tend to stay loyal to those businesses because of the familiarity the rental company has with the work their customers do.
As a result, a large percentage of revenue for these rental businesses is from repeat customers.
Therefore, e-commerce in rental should be implemented to retain and enhance existing customer relationships first and foremost, not just to bring in new business.
5. Buyers are getting younger
According to a Merit study, up to 73% of all B2B buyers are now millennials, and millennials are no longer teens. (The millennial generation is defined as people born from 1981 to 1995, meaning they are currently between the ages of 25 and 39.)
Why does this matter?
They prefer to research and buy what they need online. As of 2019, it was reported millennials do 60% of their shopping online. This is carrying over to business applications and will continue as more Baby Boomer business owners pass their operations on to the next generation.
6. Buyers research online first
A supplier’s “digital look” is now more important than how a store looks in person.
Everything from your website, to the reviews about your business, to your social media presence needs to be an accurate reflection of the business that you are proud of. According to Demand Gen’s B2B Buyer’s Survey, peer reviews are just as important as pricing (67% versus 75%) That’s huge.
It also makes sense, especially in heavy equipment and parts.
The cost of downed equipment is much higher than the price saved on lower quality equipment, low quality customer service or slow-to-ship parts.
Contractors need to be assured the part they are buying is a high-quality part from a reliable supplier. Peer reviews are massively important in building reputation and trust. According to a study by G2 Crowd, 92.4% of B2B buyers are more likely to purchase a product or service if they have read trusted reviews about it.
Positive reviews can increase conversion rates by 380% and spending by 31%. Adding to that, 85% of buyers trust reviews as much as personal recommendations.
Contractors rely on services and suppliers to keep their businesses moving, and trusting those suppliers and services is of utmost importance. Online reputation is a major factor in building and maintaining that trust.
7. Buyers use their phones to research and purchase
It’s not enough to have a great website; it must also be equally user-friendly on mobile devices.
According to a recent BCG study, up to 70% of B2B search queries are made via a mobile device.
B2B buyers use their phones to research. A poor mobile experience can be detrimental to your business.
As reported by BCG, more than 90% of surveyed users would buy again from a business with a superior mobile experience, whereas only 50% of users would buy again from a business with a poor mobile experience. This data comes from a typical B2B software buyer, so you may be thinking that it’s all well and good but it doesn’t apply to the heavy equipment and parts market.
Actually, it’s quite the opposite.
Think of your typical contractor. They are out on jobsites working during the day and are rarely behind a computer. They work hard to avoid downtime and the cost that comes with it, so they value accessibility, availability and convenience above all else.
If equipment goes down, they want the parts they need as soon as possible. If they are renting, they want to be sure they are working with a rental company that will reliably be there for them when they need them.
Offering a mobile experience that makes transactions faster than a phone call will keep contractors coming back.
8. Buyers prefer self-service
The next generation of customers don’t want to call a sales rep.
According to a McKinsey study, 85% of B2B buyers prefer using self-service tools for reordering over talking to a sales rep. I am not saying that technology is here to replace the sales rep like some reports are suggesting. Instead, think of it this way: e-commerce makes the sales rep more effective.
Sales reps should focus on converting new business instead of spending their time handling transactions that will happen anyway. Heavy equipment and parts suppliers need to focus on becoming e-commerce enabled.
E-commerce needs to be thought of as job enhancement, not replacement. Humans are an important part of the sales process.
According to the same McKinsey study, 76% of B2B buyers find it helpful to speak to someone when buying a completely new product or service.
This is even more true in the heavy equipment industry. Businesses will be able to drastically increase output per sales rep while simultaneously increasing customer retention and satisfaction once the concept of becoming ecommerce enabled is embraced.
9. Boom in construction technology
There is a giant bullseye in Silicon Valley on construction technology.
Manual tasks will be made easier with online tools as entrepreneurs continue to monitor construction as the next industry ripe for innovation. Many construction technology companies on the other end of the funding explosion are on the build side of construction. However, suppliers will need to keep up as contractors continue to digitize because behavior and expectations will continue to shift as digital adoption increases. Suppliers that do not adopt to this shift in behavior will risk getting left behind by those that do.
10. Distribution is evolving
In March, JLG announced the launch of Online Express, their direct-to-consumer e-commerce platform for parts and attachments. This might not seem like a breakthrough, but it is.
JLG, the largest access equipment manufacturer in the U.S., was one of the first to create a completely digital direct-to-consumer e-commerce channel where any customer can buy any part they need and ship it direct to their location.
The site also allows JLG to capture valuable information about their customers and their competitors’ customers such as the equipment they own, the type of work they do, etc.
The traditional OEM parts ordering process is done through dealers behind an account login. The gold standard has been CAT’s part ordering system. However, orders are still made through dealers.
Many OEMs are concerned with “competing against their dealers.” JLG has made a statement that they are focused on what is best for the end user. Approaches like this could have a ripple effect in the access equipment industry and beyond.
11. Now or never
The global crisis has pushed us further into a digital world, exposing businesses that are ill-equipped to serve their customers online. Many online retailers saw a 74% year-over-year increase in revenue comparing March 2020 to the same period last year.
The demand for a digital experience will outlast the pandemic. When everyone goes back to work and it’s time to build, consumer behavior and expectations will have changed.
Businesses that take action now will come out the other side of this pandemic more efficient and effective. Those that don’t risk getting left behind.
Luke Powers is co-founder of Gearflow.com, an online marketplace that connects equipment buyers and rental companies across the country where they can research, communicate and transact seamlessly on one platform.