A new subscription offering from Amazon could be a major threat to Lake Forest, Illinois-based industrial supplier W.W. Grainger.
Shares of GWW fell more than 3 percent to $202.05 Tuesday afternoon after Amazon Business announced an upgrade to their shipping services for business customers. The new Business Prime Shipping service offers free two-day shipping to multi-user business accounts in Germany and the United States, a feature Amazon says will simplify procurement.
Business Prime Shipping directly competes with at least two Grainger operations, including the Japanese e-commerce unit MonotaRO Co and the British distributor Cromwell. Taken together, the two companies account for 11 percent of Grainger's total sales, according to a research note from RBC Capital Markets.
"Given parent Amazon's deep pockets and apparent margin insensitivity, we continue to believe that Grainger will be drawn into further price competition, putting more pressure on its gross margin," the analysts wrote. "We reiterate our high-conviction Underperform rating on GWW shares."
Grainger shares have been struggling this year. The company is down more than 12 percent year to date, despite a boost earlier this month when the company reported better-than-expected third-quarter earnings.
Joseph Micucci, a representative for Grainger, issued the following statement to CNBC:
The majority of Grainger's U.S. customers do not pay freight, as freight costs are embedded in our contracts. Grainger also offers freight advantaged programs, such as Red Pass Plus, which include free freight with a flat annual fee for non-contract customers. Zoro customers do not pay freight on orders above $50. Grainger has a history of providing competitive freight options for next day service.
— With reporting by Morgan Brennan.