Power continues to concentrate into the hands of fewer, mainly global distributors, but what is the knock-on impact for resellers?
This is the question that's being asked following the latest bout of consolidation in the market. The bankruptcy of Steljes and sale of Avnet, Hammer and Widget last year has been followed this year by the potential sale of Westcon and demise of Entatech.
According to our own estimates, nine of the top 20 UK distributors of 2010 have gone out of business or been subsumed through acquisition, or could be soon.
With one or two exceptions (Exclusive Networks, Beta), neither has a new wave of £100m-plus distributors popped up to replace those who have fallen or been bought.
Credit management consultant Eddie Pacey has analysed the marketshare and gross margins of the distributors who report UK numbers and told us the share of the top 10 rose from 73.5 per cent to 87.7 per cent between 2011 and 2016.
Proponents of the mega disties would argue that such market consolidation was badly needed. Scale offers genuine advantages, particularly to resellers operating across borders.
But onlookers I speak to also harbour concerns that the recent thinning of the skyline has left resellers with less opportunity to play distributors off against each other, and access to fewer lines of credit.
"For resellers, the fewer distributors there are, the less choice there is, and therefore the less flexibility in the pricing structure there'll be from those distributors," Pacey told me. "If a reseller has to buy from five distributors where they used to buy from 20, the likelihood of that reseller being able to get a better deal price-wise is narrowing."
Oligarchy means rule by the privileged few, and when it comes to distribution, we don't seem to be far off that point.
But are they so privileged? Well according to Pacey, the top ten players have seen average gross margins fall by 1.3 per percentage points during that time. One of the top five makes gross margins of under three per cent, he said, with the remainder making five to eight per cent.
"It's certainly not good for reseller to have fewer distributors to deal with, but more worrying for the distributors is that the more they swallow each other up, the less profit they also make, and that's quite a worrying trend," Pacey said.
Encouragingly, new distribution start-ups are still popping up all the time - look at security VADs Ignition, Ethos and 4SEC. Maybe one of these will one day end up being a £50m player?
Distributors have proved a remarkably resilient bunch, and new players will emerge, but if current trends persist there won't be more than a small handful of big ones left by 2020.
If you have any strong feelings on how this trend will impact your business, let us know.
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