Challenging Year Ahead -- Distributors prepare for more changes
Dec. 17, 1999 (Computer Reseller News - CMP via COMTEX) -- New York-No distributor is celebrating yet, but the consensus among executives is that 2000 will be better than 1999.
However, executives still expect to face plenty of challenges as they adjust to a market increasingly dominated by dot.com companies. For most companies, 1999 meant adjusting to changing vendor conditions, increased competition and reduced-if any-profits.
"The biggest issue is finding the right business models and a balance that restores profitability to the channel," said Jim Illson, president and chief operating officer of Merisel Inc., El Segundo, Calif.
The premise sounds simple, but most distributors found it difficult to turn a profit in 1999. Pressure came from vendors, in the form of tighter terms and conditions, and resellers, in the form of increasing service demands, and even from themselves, in the form of price wars.
The good news is most distributors think the worst is over. "I see positive signs," Illson said. "I think there is an awareness of the need to be profitable, such that distribution can make investments needed and support the business models of our manufacturer and reseller partners."
Demand will be high in 2000, said Jerre Stead, chairman and chief executive at Ingram Micro Inc., Santa Ana, Calif. The key is to work with resellers and vendors to create more value for that volume and recognize that distributors cannot bear the brunt of the changes alone, he said.
"We need to ensure that people create value in each step of the channel.
Real value," Stead said. The way to accomplish that is for resellers to concentrate on providing solutions to small and midsize businesses, where they become the virtual service organization, he said. The distributor becomes the entire order-management, fulfillment and back-room operation for the resellers, he said, while manufacturers focus on creating demand among end users by making better products and solutions.
Distributors must do a better job marketing their Internet infrastructures in 2000, said executives.
Tech Data Corp., Clearwater, Fla., is doing $3 billion in annualized E-commerce business, said Steve Raymund, chairman and chief executive, but that fact has been overlooked by analysts and investors.
"It's easy to overlook the click-and-mortar hybrid companies that are being created, such as Tech Data, in the market's zeal for the dot.com'ers and the instant riches they appear to be creating," said Raymund. "The fact of the matter is we're very centrally involved in this EC tidal wave."
Distributors are knitting a seamless electronic chain that will enable them to get product where and when it is needed, Raymund said.
"We're all involved in all this. Unfortunately, the tumult in the industry obscures all the positive things going on in distribution," he said.
Distributors could drastically change their directions in 2000, said Jim Manton, president of Pinacor Inc., Tempe, Ariz.
Pinacor is considering distribution outside of IT products, as well as becoming the back room for more manufacturers and resellers.
"[Distribution] is not in the OEM's portfolio of competencies. We're building relationships within our industry and other industries where our skills are appropriate. We've taken a look at our capabilities, created a footprint and overlaid that on other kinds of industries," Manton said.
With falling margins and profits, distributors' stock prices took a beating in 1999. Earning the confidence and support of the financial community will come with consistent profitable performance, said executives.
"Until that happens, it will be difficult to get the support from [Wall Street]. Once you have [profitable performance], there is a compelling story to tell," Illson said.
By: Scott Campbell
Copyright 1999 CMP Media Inc.
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