Resellers worried by pricing as channel consolidation quickens

Survey of 7,500 resellers unveils shifting dynamics of channel

Channel consolidation has stepped up over the past 18 months, forcing distributors to focus on optimisation and leading resellers to worry about pricing and procurement costs, according to the latest CONTEXT ChannelWatch Survey.

The study, which profiles the views, activities and intentions of 7,500 global resellers, revealed that over 30 major distributor M&A deals have taken place in Western Europe in the past 18 months.

This was put down to channel players increasingly seeking the sustainability, scale and margin improvement offered by IoT, refurbishment, attractive services margins and cloud adoption.

Across 20 EMEA countries there was a three per cent year-on-year reduction of active resellers in the 90-day period in March to May 2017, according to CONTEXT's Reseller Count Metrics tracking. If this trend continues, the reseller landscape could alter significantly in the next few years, the report warns.

The average number of distributors which resellers are buying from has also dropped from the five to 10 range in the last report period to just two to three this year, partly driven by the rise in purchases from retailers, according to CONTEXT.

Many more distributors have ceased trading altogether across the globe, while those that survive are being forced to move away from box-shifting towards holistic strategies focused on services and solutions.

Where margins used to reach double figures, half a percentage point now matters and this increases the importance of controlling costs, having well-oiled logistics, and looking for new, higher-margin opportunities, the report claims.

"Although most consolidation has occurred in the long tail of smaller players and those in consumer channels, larger resellers and retailers are merging too," said Adam Simon, global managing director at CONTEXT.

"This activity can also be viewed in the context of increasing reseller churn, especially associated with transitioning business models linked to cloud adoption.

"The main concerns of resellers are focused around rising pricing and procurement costs, which many believe will be the natural outcome of a consolidating market," Simon added.