ELKO Group on market challenges and how it's standing out from the crowd

European distributor chats to CRN about its M&A strategy and expectations for H2

ELKO Group is homing its focus on the consumer electronics market as macroeconomic conditions continue to pinch.

The Latvian-based distributor operates across 13 countries in Europe and Central Asia.

It posted revenues of €231.3m in the first quarter of 2024.

Speaking with CRN, chief commercial officer Martins Ozolins (pictured) opened up about the challenging IT market and how that is affecting the business.

He admits ELKO's challenges aren't unique as the rest of the EMEA distribution landscape has been battling a tough market.

"On the other hand, that comes in the face of high comparables," he says. "The Covid-19 pandemic was a lucrative time for the industry with the move to hybrid working.

"Now, if you compare the numbers, we are not doing so well. But, then again, if you look at earlier years, there's been steady progress."

Ozolins adds that in the face of a sluggish market, discipline has emerged as one of the group's core priorities.

"As the market is not booming, the key for us is to maintain discipline.

"When the market is growing it's easier to make purchasing decisions.

"Since the market is not growing right now we have to maintain discipline through the organisation of how we make decisions."

Market drivers

Ozolins believes distributors are eagerly awaiting the next big thing to push the market forward. But this market driver is yet to bear fruit.

"There are two things I think will give the market a boost, the device refresh cycle and AI.

"But that's still more on a sort of a narrative level. Analysts are pushing their forecasts forward all the time. Last year, they said maybe by the end of the year, things will get better. By the year end, they said maybe in the second quarter. The first quarter still was very silent, and we're still looking for things to change."

A focus on consumer electronics has helped ELKO stay competitive and differentiate, according to the CCO.

"What sets us a little bit apart from this crowd is that we have chosen as our strategy in the last three to five years to move more to the consumer electronics side of things.

"The big guys are moving into the cloud, or the services. We've been, for a number of reasons, lagging behind a bit on that, but we've chosen our path to go forward with the consumer electronics, and that's been a lucrative business for us."

He explains the historical reasoning behind ELKO's consumer focus.

"Since we had reasons not to go to the cloud and the services market, this is the best way to continue serving the channel that we have," he explains.

"In every geography where we are present, we have top accounts who are serving the retail market.

"The way we looked at it was, what are those guys bringing to the market outside of primary IT product? We saw we can bring every next thing which has some electronic or IT intelligence."

Opportunity for revenue growth

The next opportunity for growth, Ozolins says, is M&A.

"For us as a company it's an M&A game.

"Historically we've grown through acquiring smaller players in the region."

In 2018, ELKO acquired Russian distributor Absolut Trading Company. The following year it bought WESTech, a distributor of IT products in Slovakia. And in 2020, beefed up its presence in Romania by adding IT Smart Distribution to its string of M&A deals.

"We don't have the capacity or capital like ALSO Group to acquire companies all the time. But we always have a number of opportunities open.

"At the moment, it's less about our existing markets. We are looking more at markets that are close to our existing geographies.

"The questions we're asking ourselves right now are, what kind of acquisitions can we make? Are the right players in that market?

"We feel now the tide is turning a little and company expectations are becoming more realistic.

"So there will be some deals concluded either this year or next year to grow."

H2 expectations

Giving his prediction for the outcome of the second half of the year, Ozolins is hopeful for an improvement in the market.

"It should be much better than it is. That's the hope.

"Being in the consumer business we don't have long visibility. But we hope, since the first quarter was silent, but by the end of Q1 and going into the second quarter, the activity in the market started to wake up.

"We're seeing resellers activating, we see retail activating a little bit more, making bigger orders and becoming also a little bit bolder."