As the channel becomes increasingly resigned to consolidation as par for the course, the predominantly sombre atmosphere in distributor land has a few bright spots -- namely optimistic, opportunistic niche players.
There is no doubt consolidation is happening -- from vendors right down the food chain to distributors, integrators and resellers.
“Things are tough out there,” says Andy Woo, principal analyst at Gartner Asia Pacific. “A lot of companies playing in the channel market are just not feasible. They’re not efficient enough and it’s just a progression in business that things will turn sour, the big ones will absorb the smaller ones and the weaker ones will disappear.”
As for the merger space, nothing gobsmacked the channel like the merger of the number one and two players Ingram Micro and Tech Pacific.
David Hein, marketing manager for Hitech Distribution, says that significant merger more than anything else in the recent past has put consolidation on people’s minds.
“It’s a subject that’s been a popular topic for a while but I don’t know whether industry-wide consolidation is necessarily a trend. The landscape is always changing: companies merge, players who’ve been around for a while disappear, new players come on board,” he says.
From Hein’s point of view it has not really been much of an issue for his company. “If anything, it’s probably helped us. We’ve had a number of customers who were a bit nervous about having all their eggs in the one basket.”
Specialist security distributor WhiteGold Solutions is optimistic about its prospects. The company’s managing director, Dominic Whitehand, says while a great deal of consolidation is taking place in the channel locally, emerging technologies are actually driving the growth of new niches -- and therefore the growth of new distributors to meet the resultant demand.
“In areas like security, managed services, storage, VoIP and converged networking, it appears that for some time to come there will always be a place for a number of smaller, niche players to remain competitive through value-added services and support,” he says.
For some, the dust has largely settled after the Ingram/Tech Pac merger, and the casualty list is not as long and bloody as first imagined.
Guy Freeland, local managing director of Ingram Micro, says at the time the acquisition was announced and during the course of the integration of the two companies, there was concern voiced by some parts of the industry that competition would be lessened.
“I personally didn’t agree that would be the case, and now that we’re out the other side, I don’t think it is the case. I think that competition looks just as healthy as it ever did, notwithstanding that theoretically there’s one less competitor.”
“When I look around at the various segments that we play in, I see more than sufficient healthy competition to make sure that resellers are still getting excellent value for the product they’re purchasing,” Freeland says.
In truth “the merge” as it’s sometimes referred to, has caused other distributors to smarten up their act and provide better service to resellers.
Freeland agrees: “As the number one and number two companies in Australian industry merged, the other disties in the industry reacted in anticipation of needing to be better at what they do. Competitors in the industry have decided to change strategy or work a little smarter and harder and most have managed to continue viability.”
“If Ingram/Tech Pac combination did lessen competition it was always going to be more in the volume space than in the value space,” he says.
Try telling that to some of the smaller guys who are hurting. Lan 1 has seen its margins eroded. Managing director Daniel Lee says even if some resellers return -- after being initially lured to Ingram’s’ low prices -- damage has already been done. “Even if they come back to us, there’s already been one or two quarters of lost sales, and that is one quarter or half of the whole year and it does really hurt your business.”
He says in 12 years in the business, he has never seen prices go back up once they’ve been forced down. And some resellers are holding their disties over a barrel quoting Ingram’s’ lower prices but still expecting the same level of service their distributor was providing before.
“We need that bit of extra margin to pay for the better level of service. If we don’t do it we’ve lost our differentiation,” Lee says.
Distributors are not the only ones feeling the pinch, with resellers experiencing pressure from other quarters as well.
Gartner’s Woo says there are significant challenges in the IT distribution market but some players are finding lifelines through mergers or in pursuing new verticals.
“[Take] the case of the merger or buyout of Ipex by Volante for example,” says Woo. “That will add value to their government business. Ipex has been very strong in the government space, which to a certain degree Volante might have seen in themselves with a bit of a weakness there.”
Woo says the resources vertical is an opportunity for growth. “Some of the smaller players are focusing on the resources sector. It’s a booming area. Not a lot of companies wanted to go out to the mines or the outback in the past, but verticals can be profitable if you focus the right people, the right resources, the right skill sources, and the right value proposition.”
Traditionally, the term “value-add” denoted support, service, help with technical questions, integration, installation and trouble shooting. But even that is not always enough.
Dovetail Distribution tries to take off some of the resellers’ sales and marketing load, says the company’s general manager Max Fredericks.
“We help people doing evaluations, pilots, help generate leads and keep our eye on the market looking for opportunities for them. This saves them spending time doing that sort of research themselves when their main business should be being out there delivering to their customers. We’re getting good feedback from them for doing that,” he says.
New Zealand memory specialist Duo International markets its brand direct to the corporate market but only sells via the reseller channel. “We take away a lot of the grunt work,” says Duo’s director Renee De Luca.
Duo, now setting up in Australia, has applied some unique promotions and team building in NZ with great success. “We try to do these things a little differently. In New Zealand we brought out the first Porsche promotion in 2003. That was really successful for us and we’ve seen others follow our lead since,” De Luca says.
In that promo, Duo bought a Porsche and for every unit of a specific product purchased, the reseller went in the draw to win the Porsche for a month.
Another memory specialist, Legend, finds its core differentiator in being a manufacturer for its own branded products.
“We manufacture memory modules and fl ash modules that we sell with complementary lines such as motherboards, CPUs and hard drives,” says Rob Kester, Legend’s sales director.
“Another thing our resellers say is our strong point is RMA (return materials authorisation). We’re under an average of four days from when we receive a product to when we turn it around. Compare our four-day turnaround to some of our competitors’, which are as late as 30 days and I’ve even heard horror stories of 60 days,” he says.
Hitech Distribution has a service division that provides a wholesale service for its resellers.
“For some of the resellers who are not sized-up enough to hire their own sets of technicians and qualified repairers, we contract out to them at wholesale rates. Also, our helpdesk offers phone answering services on behalf of the reseller’s customer,” says Hitech’s Hein.
Resellers continue to be price and time obsessed and the pulling power of economies of scale like Ingram has is hard to beat.
Gartner’s Woo says brand loyalty and partner loyalty will continue to dilute as pricing margin pressure continues to eat into a lot of businesses.
“The bottom line is, things are tough. There’s not a lot of loyalty out there to be honest,” he says. “There’s always new players coming into the market and the incumbents have to work very, very hard to maintain their position and loyalty.”
Woo says pricing will continue to be a critical component of the overall strategy, and distributors also have to work on other value-added components.
“You have to restructure your cost base to match competitors. Not only do you have to try to match prices, but then be able to show what you can go above and beyond matching that price.”
“It’s a very tall order, but disties can counter some of that by back-to-basics strategies such as guaranteeing inventories, guaranteeing the amount of margins and guaranteeing an efficient supply chain.”
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