It’s not exactly a startling revelation that distributors are being forced to change their business model to keep up with a changing, evolving industry. But a new report from IDC Canada suggests distributors are becoming increasingly concerned about the financial health of Canadian resellers.
So, to remain competitive, these distributors will have to evolve their business model and alter their approach to a number of core business functions, says IDC.And we’re already seeing this. Disties are dipping their toes into new areas – from consumer electronics to home technology integration to configuration management.
This isn’t surprising, really, considering that technology in general has become commoditized, with tight margins. So distributors are, consequently, moving away from their more traditional, core functions into newer, more profitable areas.
The problem, it seems, is that many resellers work on credit, and distributors are becoming increasingly concerned about large unpaid tabs – which also affects resellers’ credit ratings.
IDC found that distributors are seeking to share their financing of channel partners with vendors, who are also affected by the financial health of the channel. And IDC says it’s important for vendors to proactively take steps to not only safeguard them from some of the channel’s risks, but to create opportunities with distributors that will enhance their overall business.
These findings were anecdotal and, according to the research brief, covered Avnet, Bell Microproducts, Ingram Micro, Synnex and Tech Data.
But this isn’t exactly a new turn of events – we’ve heard this before. Can the problems in the channel be any greater than they were right after the dot-com bust?
No doubt, some resellers will go out of business. Others will merge or acquire or be acquired, and new entities will emerge. This is just the ebb and flow of the channel business – of any business, really.
The difference, however, is that distributors may become – and probably already are – tighter with their pocketbooks when it comes to handing out credit.
And resellers may have to prove that they are in fact credit-worthy.
And really, can you blame them? Remember last year, when NexInnovations went public with its financial difficulties, admitting that it owed Tech Data Canada $10 million in a secured goods and services agreement?
So while this situation isn’t exactly new, nor has it reached a crisis point, it is affecting the channel business. And distributors may have to consider a different approach to financing. IDC says this could include lock-box agreements or having vendors step in to reduce credit.
And it likely means that distributors will turn to other lines of business that offer more security when it comes to financial arrangements. So resellers who rely on credit may, down the road, find themselves out of luck.