Distributor Value Grows in the Toughest of Times

By Tim Curran, Chief Executive Officer
Global Technology Distribution Council

Dreary news dominates the headlines. No one knows if recessionary conditions have reached bottom – or when the economy may resurface. It’s even worse to think that the slowdown occurred when so many indicators were looking up for the entire IT industry.

There’s no denying how tough these times are – or may become – but distribution will be there, increasingly diversified and closely aligned with the world’s top vendors and emerging leaders. In fact, despite the economic headwinds of 2008, many vendors realized double-digit growth through distribution last year, as reflected in their U.S. sales reported in the NPD Distributor Track™.
(See related article: Silver Lining Stats.)

Regardless of the duration and depth of this recession, distribution will be among the strongest and most resilient segments of the industry. And not just because indirect has been proven as the most cost-effective means of reaching and serving SMB customers. The reasons extend beyond the years distributors have been serving solution providers, or how they’ve continuously led major supply-chain improvements and innovations.

There’s an “X factor” at work.

Distribution is a battle-tested industry. The business models are renowned for efficiency in solution delivery as well as much more than fulfillment on the front lines. Distributors are trusted advisors who understand the value of long-term partnerships and how to build them. You also cannot question the mettle of this industry or the channel as a whole. The collective experience, ingenuity and perseverance can withstand any economic decline.

This current chapter in our history will certainly leave its scars, but we can look up and ahead with confidence. True, as one article recently put it, the new “growth” may be flat or even moderately declining sales, at least in the short term. So, while expectations may need to be adjusted, the resolve of this industry and the technological innovation supporting it have never been stronger.”

We should also keep another important reality in perspective: IT enables better business. In good times and bad. As the hub for comprehensive solutions and channel services, distributors are in prime position to keep the wheels turning and fueling economic activity going forward. Multiply that by the “X factor” and you have the perfect formula for success.

Study Shows Distributors Maximize
Vendor ROI in Delivering B2B Solutions

The Costs of IT Distribution study that the GTDC recently commissioned analyzes all the relevant elements of a manufacturer’s selling, general and administrative (SG&A) expenses as a percentage of sales. Now you can see how these costs compare by sales channel:

• Two-Tier Distribution
• One-Tier VAR Direct
• Manufacturer Direct
• Mail Order / Retail Direct
• Web

Many different factors and functions define today’s multifaceted and highly integrated supply-chain operations. This report gives vendors a complete perspective – that comes from their own point of view, as it is based on the responses from leading vendors across multiple product categories.

The IT reseller channel and its SMB-focused solution providers show clear preference for one-stop sourcing, fast delivery on any order size, credit based on aggregate purchases, and services structured to meet their unique requirements. The advantages of two-tier distribution to vendor partners include reduced investment in inventory; lower shipping, handling, and warehousing costs; a credit shield with efficient collection processes from small and mid-size VARs; exceptional service levels to this customer base; and expanded overall market reach.

Such two-tier distribution advantages are further reinforced in the findings of this study, conducted by 21st Century Equity Research.

Access the Costs of Distribution study now!

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NYC Investor Conference Set for May 12

Buy- and sell-side financial analysts will meet with top executives of leading publicly traded distributors on May 12th at the 6th annual GTDC Investor Relations Conference. Held at the Millennium Broadway Hotel in New York City, the event attracts analysts from dozens of major firms that cover, recommend and invest in IT distribution.

Attendees learn from a variety of presentations, panels, breakout sessions and networking opportunities. “It’s a highly effective forum to ‘show and tell’ current and prospective investors what’s happening in IT distribution – and ultimately why distributors are positioned for a great long-term future,” GTDC CEO Tim Curran said, pointing out that U.S. and EMEA distribution leaders as well as vendor channel executive panelists will give attendees a well-rounded industry perspective. “These are challenging times for everyone, and it’s especially important for the financial community to understand the critical, evolving role of distributors and the channel.”

Visit the events section of the GTDC Web site for more information.

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GTDC Helps Bring Focus to Currency Exchange Rate Issues

Currency fluctuation is affecting many international industries, and IT distribution is no exception. The effects of exchange rate volatility are clearly illustrated in Canada, where many products are purchased in U.S. dollars and sold in Canadian – which in Q4 fell to its lowest rate in three years against the U.S. dollar.

During such times when currencies lack stability, vendors, distributors and resellers can all be caught in very difficult, money-losing positions. Quotes to end customers, for example, are typically based on exchange rates that can be markedly different when the sale actually occurs. If exchange rates are relatively consistent, as has historically been the case in Canada, there’s obviously far less cause for concern. In recent months, however, it’s become critical to take precautions.

Channel companies in Canada should strongly consider including disclaimers, if they don’t already, about how prices are subject to change based on the exchange rate. Other approaches such as quoting in American dollars can result in considerably lower overall profitability over time compared to pricing products in Canadian currency. Distributor procurement practices must also take fully into account currency volatility to limit corresponding risks.

The bottom line is that exchange rates are now a much more unpredictable factor in doing business internationally – and distributors and their partners need to be especially vigilant to prevent potential losses. You can learn more about the issue and related recommendations from the recent Currency Fluctuations & How They Impact Your Business Webinar that the GTDC co-hosted with a panel of Canadian market distribution industry experts.

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Silver Lining Stats:
93 Vendors with Double- or Triple-Digit Growth!

Despite softening economic conditions last year, 93 tech vendors with at least $15 million in U.S. revenue (through multiple distributors) experienced double- or triple-digit year-over-year growth based on distributor sales aggregated in The NPD Group Distributor Track®. The list includes a broad range of emerging and well-known companies across multiple technology categories, such as: ASUS with 130% growth, LG 101%, Red Hat 58%, and Polycom 49%.

“Such substantial growth rates are particularly impressive given the slowing demand environment,” commented GTDC CEO Tim Curran. “Distributors provide a full range of channel services, sales reach and coverage at the center of the IT supply chain. Their broad multivendor portfolios are less susceptible to any single vendor’s challenges, and distributors can also more quickly adjust their variable cost structures as market trends change.”

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Eyes on Europe: Smaller Notebooks Mean Bigger Business

Whether you know them as “netbooks” or mini notebooks, the reality is that these increasingly smaller mobile computing devices are gobbling up market share. Consider the European market trends, as reflected in the Context SalesWatch database that tracks GTDC member sales in the region’s leading countries for IT business.

For example, during the first week of December, the database reveals that Notebook unit sales grew 26% compared to the same period year over year. Excluding mini-notebooks, the category would have declined 4%.

How will the “mini trend” affect the overall notebook category – and the PC market in general? Who are the share leaders, how are their positions changing? If your products are in this space or affected by it, you can’t afford not to have reliable data to guide and support your decision-making.

European distributors drove substantial year-over-year growth in the notebooks category in 2008, according to Context SalesWatch reports. Here’s a snapshot by country:

Get Inside the Trends
Context SalesWatch gives you unprecedented insight to improve analysis and strategic planning for your business or the product lines you manage and market in Europe (or report on as a financial analyst). This offering with Context, a leading European market research firm, complements the GTDC’s partnership with The NPD Group in the U.S. Learn more by contacting the GTDC or Context.

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