Hail the age of Distribution 2.0

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This article appeared in the 18th August, 2008 issue of CRN magazine.

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Hail the age of Distribution 2.0
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Some distributors have been traditionally pigeon-holed into two areas: niche and broadline.

With niche players, resellers can source specific products with high levels of services, but by no means cover all their customers’ needs.

With broadline, resellers expect a broader range and tighter logistical operation, but with a reduced personal touch.

This is obviously a generalisation and by no means indicative of all Australian distributors.

However, it does form a platform for an insight into the direction of local distribution.

If you ask many distributors which could be labelled niche, if they are just that, you will often be greeted with an explanation on how they offer niche support with an ever-broadening set of products.

The broadline guys are saying much the same in reverse.

So are we entering the age of Distribution 2.0?

A time where resellers can use a distributor as a one-stop broadline partner with niche support and expertise? The distributors certainly think so.

We’re both actually.

“Altech has been successfully doing both [niche and broadline] for much of the past 10 years,” said Antony Sheen, managing director of Altech.

“Both approaches are common, depending on the size of the distributor. To go broad-based you either need to have a considerable infrastructure already in place to build on or very deep pockets and the acceptance that profits will not flow for some time into the future.

"Going niche is often as a result of a particular product opportunity and can be more evolutionary due to the better margins that usually accompany such a move.”

Sheen said in recent years we have seen the distribution channel “polarising”, with the big distributors focusing more on cost reductions and slicker logistics and less on the products and vendors. This has resulted in smaller distributors having eroded margins and forced some of them out or into niche opportunities.

“Since the very beginning Altech has tried to maintain a strong product and vendor focus, high level of customer service with dedicated account managers and local warehousing, while building up strategic niche opportunities. This strategy seems to have worked as we continue to grow at more than 30 percent annually, with no slowdown on the horizon,” claimed Sheen.

He said the biggest advantage for small distributors going niche is to stay in business and profit, which over the past few years is an achievement in its own right, given the dubious pricing strategies of some of the big players on the market.

“For Altech, a balance of broad-based and niche products in our catalogue is the right recipe for continued growth, however we stand by products being profitable in their own right and do not use profitable products to subsidise products strategically sold at a loss, which some larger people seem to have as their core modus operandi,” added Sheen.
Aidan Fitzgerald, general manager of IT sales at Cellnet, said: “We are something between [niche and broadline]. Our focus is to remain as we are and provide increased value around the vendor portfolio we have, alongside adding complementary vendors that will produce solution offerings.”

Fitzgerald said niche distributors still have what could be labelled a broadline of offerings in specific areas.

“A more niche player is always going to have an advantage over the bigger players due to the focus they can give their vendors. We only carry 20-something vendors, so we can do better with those vendors, rather than a pure volume player,” added Fitzgerald.
Peter Agamalis, senior channel manager of Impact Systems Technology, said: “We are both [niche and broadline]. Why? Because we exercise niche products and we have stock of broadline products as well.

“The obvious advantages to niche are that you can have products pretty much to yourself and enjoy sales and margins with minimal competition, though with this comes the responsibility of proving the vendor a sales track record to be maintained as the exclusive partner. As for a broadline business model, you typically have safeguards whereby stock comes from the distributor, you can take liberty of stock whenever required and you can also obtain the benefits of the vendor’s programs at the same time,” said Agamalis.

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