Trade-only distributors are bracing themselves for further losses, as the trend toward being continually hampered by excess stock takes its toll.
According to a Dun & Bradstreet survey, the net profit for distributors averaged 0.6 per cent in 1994 and had fallen further to a net loss of 3.9 per cent by 1996.
The plummeting figures were blamed on currency changes, falling margins and a switching market direction. According to Brian Burke, computer market intelligence centre manager at Dun & Bradstreet, trade-only distributors can no longer rely on buying and shifting because of decreasing margins on product.
He said: 'With competition on margins, the strong pound and delayed payments, these distributors are moving into niche areas.' Average profit margin fell from two per cent in 1994 to 1.5 per cent in 1996.
The findings were based on a survey of 320 firms. Stock turnover has decreased across the board, seeing a drop from an average annual rate of 14.6 in 1994 to 12.3 in 1996. Burke said this may suggest either too much stock going into the channel - possibly forced by vendors - or that higher end, difficult to shift products are increasing.
He said: 'The whole market is shifting. Sales are increasing, but product is not being rotated as quickly as in 1994.' He added that over the past couple of years, distributors have been getting into the idea of services becoming value-added distributors.
Burke said distributors are often caught in the middle, having to pay vendors, but suffering from slower reseller payments. Although pressure being exerted on dealers to pay on time seems to be increasingly successful, organisations which used to pay the fastest are now taking longer. This category rose from 38.9 days in 1994 to 44.4 in 1996.
The figures suggest the sector is getting more intense, described by Burke as 'a pressure cooker, where something soon is going to blow'. Burke said fresh money may be deterred from entering the channel as return on capital is down in all categories. He said: 'The figures prove what people have been saying for the past few years.'
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