All change in distribution

It would be very easy to say, following the events of the past few days and weeks, that distribution, as we know it, is dead.

But that's been true for months - years even. It was always going to happen, the crunch was always coming.

Profit warnings, resignations and job cuts at the once almighty Ideal Hardware, profit warnings at Datrontech and Northamber, and more job losses at Ingram Micro. More trouble at Illion and changes at Computer 2000, although the latter does seem to be keeping its head well above water.

Ian French, incoming managing director at Ideal, has been very candid about the situation - the old models are redundant. We need to change, and change right now. Distributors need to be either very large and extremely efficient logistics operations or real specialists that focus on a particular technology, vendor or market space.

RBR is a great example. It sells Cisco and nothing else, and is growing very quickly indeed. Equinox is another example - it's not as focused as RBR, but it only carries a few higher-end networking vendors.

Skills are key here - you need to have something the dealer doesn't - but getting those skills means putting in time, effort and money. So your margins, products or services have to be really good.

At the other end of the scale, you need massive volumes at the very low margins available to support a really good logistics back end. Costs must be under total control - if they're not, and if your wafer-thin margins collapse, you're struggling. Try to do both and you could end up in a lot of trouble - vulnerable to margin fallout in the volume game, while not having enough money to plough into the high-level services that will generate really good margins in specialist areas.

This is what has happened, to some extent, to all the companies issuing profit warnings. Add to this the increasing use of the internet for ordering and a simultaneous drop in growth rates and fall in prices, and it's little wonder that some people are in trouble. Distributors must decide whether they are volume players that add value through logistics, or high-value adders in a particular area of the market.

The broadliners are the ones that, ultimately, have the best chance of handling the volume business because they have the scale. Tech Data/C2000 is a massive force now. Ingram should not be written off in spite of its present troubles, but it does need to get its act together fast. Nor should CHS Electronics be dismissed as a rival. It too has had problems but on a pan-European and global scale, it still has potential.

Does any of this really matter to resellers? Well, it might mean fall-off in terms of service delivery for a while and the concern must be that it will be the smaller guys that suffer. There will always be someone willing to sell products, but what value will they add? Resellers need two things - the logistical and skills backup. Distributors have to provide one or the other, or they're not going to survive.

Simon Meredith is a freelance IT journalist.