Distributors face up to internet challenge

Distribution Strong growth rates fail to overcome hurdles.

European distributors face a shake-out as they struggle to cope with the internet and increased direct sales, despite growth rates three times those of the IT industry.

According to figures from research company IDC, 80 per cent of western European distributors expect their turnover to grow by 20 per cent or more this year, making this channel the fastest growing indirect sales method.

Half the distributors questioned believe they will see their turnover increase by between 20 and 29 per cent, while 17 per cent predict growth of 30 to 39 per cent. This will not necessarily bring similar leaps in profits, and IDC believes downward pressure on margins is unlikely to ease during the decade.

Brian Pearce, senior consultant at IDC's distribution channels research arm, said distributors must boost profits by expanding their range of services.

Top of the three main challenges identified by the distributors was learning to compete against the direct sales model. Although the success of Dell and Gateway 2000 was forcing PC makers to reassess their route to market, this does not always work against distributors.

As vendors seek to be more competitively priced, some are delegating final assembly, configuration and testing to distributors. This creates opportunities, but only for the big players, accelerating the trend for mergers.

More specialised distributors are seeking to gain market share through adding value. Distributors see this as a second challenge and realise the need to invest in skills to support more technical products.

The third challenge was to integrate the internet and electronic commerce into business processes, requiring investment and different working practices.