Revenues dropping or flatlining at hefty distributor giants

Change will become more evident

This is an interesting article that should open debate in terms of precisely what impact changes have on the channel along with its future direction.

There will be those traditionalists firmly ensconced in the belief that nothing will change who will view this as nothing more than an unjustified attack on distribution and practiced models. There will also be those in broader general agreement who feel certain pressures and changing models need to be embraced, leading to new direction and paths quite dissimilar from any previously applied.

There is nothing essentially wrong in growing through acquisition and many major listed distributors and smaller privately owned ones have done precisely that with the process greatly accelerated at the top end. Acquisition within the Reseller space has also been evident. There is however everything wrong in realising this is the only way to grow and failing to integrate acquired businesses correctly. A failing in acquisition is the inability to recognize precisely where the ‘engine room’ of the acquired business is, how best to retain it and how to provide the fuel it requires. In any company structure, the engine room is made up of middle to senior managers and not the Board or Directors.

Too often, stripping out cost invariably means dissolution of the engine room and while this has short term advantages, medium to longer term the acquired business loses as much as 50% of its revenue and 75% of its contribution as part of an enlarged business. This often happens where acquisition is ‘revenue grab’ motivated with a hopeful immediate, (but not permanent) couple of basis point moves in gross margin. I have witnessed many acquired businesses over the years that have simply vanished in both name and contribution to the acquirer.

Margin squeeze in traditional volume distribution is unsustainable in many instances and where the majority of business is transacted with a lower number of clients, the pressure does become more acute.

It’s difficult or nigh impossible for listed players in any sector to suggest revenue will decline but margin and profit will rise as this will adversely affect share price and market value, leading to further pressure in funding and borrowing costs; ultimately, that painful threshold will have to be met and explained correctly to encourage support and moves into new areas and activity.

The direct or indirect model is shaped very much by the consumer and less so by the manufacturer and everyone over the years has managed to get along with their own slice of the cake; issue now is the ingredients of the cake are changing and its size is diminishing.

The Reseller community is leading the way but the channel more generally and vendors and distributors particularly, need to recognize, react and embrace change and not deny it, stymie it or place swollen fingers into dykes.

The sector is robust and resilient but not totally unyielding and now is the time for re-modelled participation.