Average profit margins among the UK's top 1,000 resellers have fallen to a wafer-thin one per cent, with 225 in danger of going under.
That is the stark conclusion of analyst Plimsoll, which warned that VARs are finding it tough to pass on rising costs to customers as too many of them chase after too little market.
Plimsoll said the market had fragmented into four distinct categories, with 225 so badly off that their only hope over the next 12 months is to survive or be rescued by takeover.
These firms have debts running at an average of 29 per cent of sales and average loss margins of one per cent and are often seeing sales fall.
Report author David Pattison said: "These companies need to downsize their operations, focus solely on the profitable parts of their business and work at making a profit, or the end is nigh.
"Some will attract buyers to rescue them but others will not be so lucky."
Plimsoll identified two further categories of resellers struggling for growth and profitability, respectively.
Some 100 resellers have healthy profit margins and little or no formal debt, but are finding growth hard to achieve. Pattison recommended this group should "wake up and sacrifice some of their profits on finding new growth as they are in danger of being left behind".
Meanwhile, 157 have the opposite conundrum, growing nicely but at the expense of profitability.
However, it was not all doom and gloom as nearly half of the resellers analysed were categorised as market leaders. Some 498 were found to be achieving above-average sales growth, average profit margins of two per cent and carrying little or no debt.
"Their challenge is to maintain this outstanding performance in such a difficult trading environment and avoid complacency," said Pattison. "They might even consider the acquisition of distressed competitors."
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