I spent a year developing a website for an industrial supply company. (in it's many iterations). You are right about the low margin and the fragmented market. It can be a tough sell to the mom and pop stores that are trying to compete with Grainger or Northern Tool in the same marketplace.

I think the biggest problem with Amazon is it's hands-off approach to selling products. The reason why there hasn't been any innovation in this sector is because of the interconnected relationships between managers of firms needing products and the salesmen that sell the product. More often than not, the firms have no idea what they actually need, and the sales people have the knowledge to deliver exactly the part they require.

I think that unless Amazon has a very large, and more importantly knowledgeable staff, what you will find here is a lost leader. The only thing that I see amazon bringing to the table is their warehousing.