Many different types of organisation are called 'distributor' but as few as 150 can probably be regarded as strictly trade-only companies.
But if you incorporate volume PC dealers that use their buying power to perform a distribution function as well; resellers who have stumbled into distribution and opportunist business people looking to make a fast buck; and the 'broker' firms springing up to exploit the tremendous growth in memory, storage and components; the number is over 500.
This rapid growth, and the rise of firms such as Datrontech, CHS, Osmosis, Hardware 2000 and Enta Technologies over the past five years, is one of the reasons many more companies are entering the fray. But many of the new entrants are not behaving responsibly, according to Jon Atherton, sales and marketing manager at Enta. 'There is too much product out there and people are getting involved in areas they don't specialise in. They are kicking out cheap goods that are 10 per cent to 15 per cent lower than the previously lowest prices.'
Mark Leathem, sales and marketing manager for memory producer Kingston UK, says there are at least 50 broker-type firms operating in the memory market, buying in volume and selling products on at the lowest price possible.
This may be positive for dealers in the short term, but could cause problems later on. 'Dealers have got to watch who they buy from. What happens about returns, with service and support, all the things that define a distributor?' says Atherton.
With a glut of low-priced products arriving on the market, and an apparent surfeit of vendors willing to take on new partners, there is no sign that the move into distribution is going to slow down. In the long run, there may be some fall-out, but it could be the bigger companies that suffer first.
Getting started in distribution is not a problem. Leathem says it is easy to pick up UK distribution deals because most vendors don't actively seek European representation. 'Most of them are only interested in their US sales, particularly in the first two or three years, and if a bit of incremental business comes along, they don't really care where it comes from.'
He says a lot of companies blunder into becoming a distributor as they seek new opportunities. 'The classic is the company that goes to Comdex and picks up a deal. Everybody has seen what can happen if you can get a good exclusive - look what has happened with Dat-rontech.' There is also a large number of vendors that are looking to increase their sales to the UK and European markets, and consequently tend to expand their distribution channels as quickly as possible.
Alastair Laidlaw, marketing manager at Ideal Hardware, thinks that most vendors take far too little care over their appointments. 'There are too many distributors, but only if you are looking at it as a fulfilment exercise.
If you are doing nothing else you don't need five or six distributors.
There are too many distributors selling the same products.'
Leathem also believes many vendors are still over-distributed. 'They are driven by market share; appointing more distributors is perceived as being one of the best ways of getting more market share. It gees up the other distributors and adds more credit lines,' he says.
Manufacturers reject the charge that their policies cause problems but admit that it is not easy to get it right. 'It's a balancing act and there is no text-book way of doing it,' says Clive Hudson, UK MD of US Robotics.
'You've got to bear in mind that our sector of the market is growing so quickly that you don't really know how many distributors you'll need to serve that market. You don't know if you are overdoing it until the market develops, all you can do is work with the distributors to try and work out what you're going to achieve over the next 12 months and do your best to achieve it.'
Ian Smith, director and general manager of Star Micronics UK, says that rather than giving distributors an incentive to do better, expansion of the channel will demotivate them, unless there is a very specific reason for it. 'You must be very selective about appointing additional distributors these days, even if one has dropped out of your channel.'
The days of over-distribution are gone, he says, even for volume products. Too many distributors is bad news. You get into stupid price arguments because people try to take business away from each other. If you have a smaller group working together over a number of years, they realise that they need to work together to try to find new business.'
Loay Lawrence, marketing director at Northamber, says relationships have matured over the past decade. 'The chopping and changing of the 1980s has gone. You need commitment from both sides now.' Commitment is what many vendors feel they won't get from the big distributors. They prefer to work with more focused players at first. Competition between the focused distributors and the broadliners is inevitable and this tends to make the channel for high-value products that are rising in volume look crowded.
'We all want to grow our business, but then you've got the bigger guys who want to make the margin and specialise, so everyone's moving in the same direction,' says Jamie Pearce, director of product marketing at networking products distributor GBC Technologies. 'Smaller firms are trying to get bigger and bigger firms are trying to get more focused.'
For the focused distributor, the expansion of the distribution channel is a fact of life. But it is not always a very pleasant pill to swallow, says Mike Capstick, marketing manager of specialist storage distributor CMS. 'We establish the market and over time they tend to move the product over to the broadliners and we lose market share. It doesn't decrease volumes but it lowers the margins.' He cites Colorado Memory Systems as an example. CMS Peripherals claims to be largely responsible for establishing the Colorado range in the UK but the vendor has now signed up Merisel, Frontline, Ingram, CHS and Ideal as well.
Competition for high-value franchises is increasing. Broad-liners want more of the action and most have specialist divisions focusing on growth areas such as networking or communications - Northamber's computer telephony integration group and Merisel's advanced products group, for example.
Venetia Edney-Ball, director of marketing and products at Merisel UK, claims the broadline model is better for high-value products because it can offer a better one-stop service for resellers and greater financial support. 'The proposition for the customer is that you have all the advantages of a broad-based distributor but there are all of these high-end products as well, plus we have the ability to offer them the financial facilities that will help them find moves into higher value areas.'
It is important from the vendor's standpoint as well, she says. 'Manufacturers have to bear in mind that there's only a certain amount of credit available in the market and a smaller, hybrid distributor is not going to meet their needs with the higher-value products.'
Manufacturers don't necessarly see it this way, though. Hudson says that availability of credit, while a consideration, is not an argument in itself for appointing large companies in preference to the smaller, focused distributors. 'It is more down to the sales and marketing and the support of the product. Credit is tight anyway.'
And the broadliners can't take on everyone. Frontline's recent announcement that it is culling 250 lines back to 100 has demonstrated a need for consolidation and refocusing at some point, says Brian Burke, head of the computer sector group at specialist credit checking company and IT industry watcher Graydon UK.
'If you go back two or three years, they were looking to pick up everything, but after a period of sustained growth they need to consolidate. At some point you've got to look at how effective your organisation is; if you are a jack of all trades and master of none there will always be slippage.
If you take the top 10 distributors there will always be perhaps three products that you will always associate with those companies.'
Consolidations like the one at Frontline could even spark more growth in distribution as the 150 vendors look to replace the additional credit capacity and reach they will lose as a result of the cull.
There is also a steady stream of new vendors seeking UK representation.
Experienced vendors may only appoint established firms, but new vendors are often willing to give almost any company a try. Pearce says he is often approached by vendors which clearly know nothing about GBC. 'They ring up and ask you about your business and at that point you realise it's not going to go very far,' he says. 'They will have assigned a person in the UK who allegedly knows the channel and they will get people over to the UK for a day and try to see everyone.'
Edney-Ball says US vendors don't understand the differences in the needs of each part of Europe and don't even have a clear perception of the language barrier.
European firms can be naive as well. Pearce says GBC was approached some time ago by a UK firm that wanted to talk about a franchise but was not willing to share market information, pricing, or targets with the distributor before a deal was signed. Such information is essential to a distributor trying to establish if the deal can work. Without it, the vendor is likely to find only the try-anything-once opportunist type of firm willing to talk about taking stocks. This results in firms that are not focused on distribution starting up a new business.
Going to the reseller direct is no guarantee that a tidy distribution channel will develop either, especially if the vendor is not clear about its channel policies. 'If the manufacturer is nervous it may keep 20 or 25 Vars, which is crazy. When it's like that we won't get involved because we know it just doesn't work,' says Pearce. In the absence of a willing established distributor, the reseller doing the most volume tends to takes on the responsibility for moving stock to the rest.
Capstick thinks there will be some kind of showdown between smaller brokerage firms and established distributors in the memory, disk drive and components sectors, but says firms that are now as big as CMS - its sales are approaching u30 million - will be immune.
Atherton does not see a shake-out being inevitable in the future, but he believes distributors must act to prevent further erosion of prices.
'I don't think there are too many distributors, but there are a lot of opportunists and there's a shortage of good honest competition,' he says.
Distributors have to take responsibility for protecting margins if they are to prevent these firms eroding profits, he adds. 'Some of the distributors have only got themselves to blame because they don't inform the manufacturers of the price competition.'
Laidlaw says that vendors must also act responsibly. 'Too few distributors do anything for the manufacturer. If you have a hundred out there doing nothing you won't achieve as much as 10 who are adding some value.
It takes fewer resources to do that as well.'
Resources and costs are at the heart of the matter in the broadline volume product sector. But the pressure here is on the functional value of distribution.
Burke comments: 'The interesting thing is that so many companies are moving forward and yet the market progression doesn't seem to be that big.' In the UK there are now at least five distributors achieving turn-over of u100 million or more and several more approaching that figure.
Burke says that the 'hybrid' companies - Computacenter, Technology, SCH and Lantec in particular - are all strengthening their distribution business to make the most of their volume logistical operations. They are also big enough to handle credit facilities.
If product lines expand, broadline distributors may become concerned.
At the same time, major volume, functional-margin deals that are channelled through corporate dealerships are creating tension between broadline distributors and the hybrids. One observer thinks this could lead to a major confrontation in the future. 'I have a sneaking feeling that over the next couple of years you may see some distributors move into the corporate end-user business,' he says.
Hudson believes the broadline distributors and focused players all have a good future. 'I think the distributor's role in the future is as the most effective holder and mover of product. I don't see the bigger dealers wanting to hold large quantities of stock. The bigger a product gets, the less likely a vendor is to break out of the distribution channel.'
This is key, says Burke. He thinks vendors may be more tempted to take volume business direct than distributors in the future and that they, rather than the dealers, hold more sway on the long-term future of a highly populated distribution channel. 'If the vendors continue to support their operation it won't happen, but then business is business.'
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