A $6600 storage array probably isn’t the kind of thing you’d expect to buy from Amazon or eBay. Yet such devices are easy to find on both sites: in just five minutes of searching, CRN had no trouble finding Lenovo’s ThinkSystem DS2200 on both sites.
And that’s odd because the DS2200 is a serious piece of kit. Lenovo says it’s designed for small databases in remote offices of a large enterprise, making it just the sort of product for which a reseller needs all the backing and assistance that a distributor can offer.
It’s not hard to find more of the same online. Amazon and eBay also offer plenty of new networking kit, servers, storage and other products from top brands like HP, Dell, Cisco and others. Over on Gumtree, finding a brand new business-class laptop from a top vendor doesn’t require more than a few quick clicks.
According to UK-based channel supply chain research organisation Context, resellers are increasingly turning to such sites as the source for the products they sell to end-customers, rather than sourcing from distributors.
The firm’s 2018 ChannelWatch Report, compiled from interviews with over 7000 resellers across Europe, Australia and New Zealand, found that 30 percent of resellers polled said they now buy up to ten percent of their stock from e-tailers. Some resellers buy even more – the report found that 16 per cent buy between 10 and 20 percent of their products from e-tailers while 14 percent do between 20 and 30 percent of their buying from online giants like Amazon.
Resellers have turned to e-tailers for two reasons, said Context’s managing director Adam Simon.
“Availability is number one,” he said, because it can sometimes be easier to source a product from an e-tailer than it is from a distributor. The other is price.
Which is where things get weird, because Simon said distributor’s conscious choices can lead to cheap, plentiful product being available online.
“There are deals done at end of month and quarter and there is some use of e-tailers to ensure distributors meet their quotas,” Simon said. Such deals see distributors may some product to e-tailers to get it off their books.
Vendors may do the same, said Jordan De Leon, a senior analyst with Canalys.
“Vendors do sell business-to-business at the end of a quarter,” De Leon said. “All vendors want to clear inventory at end of quarter.”
Customers like e-tailers who can take significant volumes of stock are therefore attractive targets for end-of-sales period product dumps.
When such dumps happen, resellers who want product therefore cannot find it from their distributors but can find it online. The result is resellers buying from retailers.
Because product dumps generally involve decent volumes, e-tailers get good deals and can end up undercutting prices distributors offer to partners. With margins on many products are far from fat, resellers are happy to procure from a source that gives them
a chance to make a few more dollars.
Push-pull
While sending products to e-tailers is sometimes convenient, De Leon and Simon both said that it’s also hurting distributors.
“There is a new form of competition,” Context’s Simon said, and distributors are losing some deals. “I think that they are never happy to lose business,” he said, “but I think there is an inevitability of some commodification.”
But because it is a source of competition that distributors know cannot be ignored - the likes of Amazon have enormous reach and world-class logistics capabilities – disties know they must react before retail becomes more attractive.
So disties are fighting back by improving the purchasing experience easier for resellers and making it plain that they offer value a retailer cannot match.
“They’re realising they cannot have a draconian ordering system that is painful for resellers,” said Canalys’ DeLeon, and refreshing their infrastructure accordingly to improve the buying experience.
“What resellers are telling us is that what Amazon cannot provide to end customers is service,” he added.
Tech Data general manager Australia and New Zealand Wendy O’Keefe agrees.
“Big online retailers can cater to resellers who are after products that existing distributors do not offer, but if the partner is after a complex solution, especially in the data centre space, that’s when they need the support of a distributor,” she said.
O’Keeffe also thinks that distributors’ systems are more sophisticated than those of their retail rivals.
“Typically these big online retailers aren’t able to provide the end-to-end services a distributor can, like CTO orders, enablement and certifications, marketing support and financial services for example,” she said.
Context’s Simon is confident distributors’ efforts to demonstrate value are working and that the distribution value proposition remains strong: his firm’s survey found that distribution revenues continue to grow even as e-tailers continue to rise.
But he also suggested Australian distributors need to stay sharp. Context’s data shows that Australian resellers are less likely to shop from retailers than their European colleagues. Simon asked CRN why that might be the case and we explained the relative immaturity of e-commerce in Australia compared to Europe.
As the e-tail scene matures down under, Simon suggested disties may need to start to work harder to fend off their new online frenemies.
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