For many of the medium-sized dealers, it's becoming a case of get value or get squashed.
For the reseller channel, summer is a time to relax. Go on holiday.
Watch some sport on the television. IT managers are on holiday too and no one has a budget to spend in August. Resellers can let the business take care of itself while there is a slowdown in the trade.
But this summer not all resellers can hit the beach. In the past two months, the financial problems at Castle Business Systems, Holdene Group and Network SI show that the medium-sized reseller cannot afford to coast through the summer. A flurry of problems for medium-sized dealers has led to streamlining, restructuring or consolidation. For many of these, summer has become the season of receivership or acquisition.
In June and July there have been a multitude of changes at dealers with a turnover of between u2 million and u15 million. Network SI has had management changes and has been forced to restructure its business. Holdene looked for investment, went into receivership and was acquired by Servo Computer Services. Data Supplies Group has been courted by potential buyers, Apple Centre Swanfast is examining its options amid rumours of financial strife and Rothwell Group - another dealer that has shrunk in recent years - took over Almo, another Apple Centre.
All these moves and shakes are the result of a squeeze on medium-sized resellers. The activities of three groups within the channel have forced them down these routes.
First, vendors have to take some of the blame. They have forced down the Ts&Cs of the average dealer and often push them to buy from distributors, while corporate dealers and Vars get better discounts and have closer relations with the manufacturers.
Retailers have also caused many dealers to suffer. Multitudes of resellers jumped for joy when Escom went into receivership, but logic suggests this firm's disappearance will make little difference to a reseller that adds any value. Only users unsure of their requirements and looking for a bargain were likely to buy from Escom. PC World and Byte are attracting a much more sophisticated range of buyers.
The other firm hated by most dealers is the most successful dealer of all in terms of turnover - Computacenter. Along with other corporate resellers, Computacenter is blamed for monopolising sales into large companies to the exclusion of all other dealerships. The UK's biggest dealers get better volume margins, higher economies of scale and they are universally loved by vendors.
Dealers complain that their Ts&Cs are not good enough, that large, corporate Vars are taking all the high-end business and that retailers are sewing up the low-end sales. But why should that leave some middle-ranking resellers stuck in the middle? Most medium-sized resellers say they add value, but the fact that so many of them are struggling shows they are not adding enough.
Not enough value means not enough margin, which means their business models are not viable. A true Var will not suffer from competition from Escom or from corporate fulfilment houses. A true Var will not base a large proportion of its profit from any deal on the hardware components.
Even resellers that appear to be doing well are feeling the pinch. Basilica Computing is one recent success story in the middle-ranking dealer bracket.
It bases most of its sales on Hewlett Packard hardware, but has grown from u40,000 in 1991 to u18 million in 1995, and it expects to boast a turnover of u30 million in 1996. The company's growth has driven its success but its profit of u1.1 million in 1995 reflects the pressure on margins.
This shows that, even though a medium-sized dealer can be successful and grow quickly, it is not easy to escape being sandwiched between the corporate dealers and retail. Increasing your volume sales is not enough.
There has to be a way of adding higher value. The trouble is, most dealers get caught up in their growth and in the logistical difficulties of supplying more and more kit.
In the end, not enough firms in this sphere have made the transition from dealer to Var. They may say they add value in many ways, but their service is not sufficiently different from any other reseller's to support the long-term growth plan. Selling more stock means holding more stock and handling more cash. And if it stops flowing for any reason, dealers soon run into trouble.
The big fish realise many of the smaller fry are getting weaker, and they are waiting to attack.
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