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Being relevant in UK tech distribution in 2019 and beyond

Dave Stevinson, Managing Director of QBS Software and GNR:Tech, looks at the UK tech distribution channel consolidation and shares four insightful observations.

There are less distributors than ever before and the channel is exhibiting all the signs of a mature market. The old adage of “get big, get niche or get out” is exemplified by the UK tech distribution channel. Here are four observations and a takeaway for your consideration.

One: The big get bigger

Sharp-eyed observers will have noticed the oligopoly emerging in UK distribution. This is far from surprising and happens in every market – particularly large and valuable ones; think the big four accountancy firms and the big six energy companies. Viewed through my lens – the big four in UK distribution are Tech Data, Exertis, Westcoast and Ingram Micro. These companies have revenues far in excess of £1 billion and are gaining share through a blend or organic growth and some sizeable acquisitions. These are the default source for almost every reseller and dominate the market.

Two: Specialist disties are gaining a laser focus

As an undergraduate back in the early nineties, I can still recall being taught that the holy grail of success in business is becoming the noun/ verb for your product. Notable examples were given – Hoover for vacuum cleaner, BandAid for a sticking plaster. I will hasten to add for the younger readers that the best example today is to use the term Google for search. If I relate this to distribution, we have – Midwich for AV, Brightstar for mobile, Arrow for enterprise, QBS for software, Infinigate for security solutions, VIP for PC components, and M2M for memory. Each of these companies should have a laser focus on what they do and, if management execute correctly, should signifi- cantly outperform the market in growth and sustainable profitability. A failure to specialise for a sub scale distributor will ultimately lead to a decline in growth and a lack of relevance.

Three: Corporate resellers are getting bigger too

There are many success stories out there with the likes of Computacenter and Softcat firmly established in the 1 billion club for UK revenues. Recent press speculation put CDW in that category too.

I was privileged to attend the recent Insight Connect event and witness the upbeat presentation from management. Mutterings were overheard from some of their suppliers that it will not be long until they are in the club too. Growth from the large consultants and SIs is also impressive with the likes of Atos, Deloitte, Cap Gemini and DXC growing heavily and leveraging distribution more and more. Amazon for Business is steadily scaling up too and cannot be overlooked. I think we will see 10 resellers in the billion-pound club by 2022.

Four: Consumer-focused resellers are evolving

The last few years have seen a complete, rapid and not unpredicted decline in bricks and mortar retail. With notable high profile failures such as Maplin and HMV (again). The last bastion of retail Dixons Carphone still remains the optimum channel, yet even the best of the best have suffered with their market cap declining to roughly 25% of the value of 2016’s high. Agile and focused “ecommerce first” etailers such as Ebuyer, LaptopsDirect, CCL and Scan are demonstrating attractive returns and are capable of surviving and even thriving from the Amazon effect, choosing a blend of fulfilment direct from the manufacturer or via distribution. Yet the opportunity that is most valuable for the smaller independent retailer is to get out of consumer by becoming a fully fledged MSP with monthly recurring revenues, long contracts and managing their client’s entire IT problem opposed to focusing on break fix or margins from pure product fulfilment. The consumer retailer must co-exist with Amazon and/or evolve into a business-focused MSP to continue to thrive with the majority of profits derived from software renewals.

In conclusion, the consumer market is uncertain, and challenging. Experts assure us all it is only going to get tougher and channel play- ers who are sub scale in size or demonstrate a lack of focus in the eyes of their customers will become irrelevant. I refer back to the old ad- age raised in my second sentence. My advice for resellers is to choose your distribution partners very wisely, move to a business model with a significant component of recurring revenues and keep a laser focus on business software as it is the gift that keeps on giving.

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