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It's time to get big or get out

It's time to get big or get out

Consolidation is shrinking the number of top quality resellers but there has been significant growth in one-man bands and smaller consultancies, according to Acer's A/NZ managing director, Charles Chung.

This is typical of any maturing market as it becomes oversaturated with resellers. Competition, sometimes from unusual or unexpected quarters, sees profits plummet as goods and services become commoditised. Customer loyalty is weakened and so begins a vicious circle.

We have seen lots of indicators of this during the past year. Larger resellers like Commander and ComputerCorp have been devouring competitors to leverage economies of scale and service existing customers at lower cost. It was also in response to some vendors ramping up direct sales and service models.

Another factor was larger consumer electronic stores moving into SME and enterprise. These organisations have been selling off-the-shelf branded PCs, notebooks, printers, security, storage, software and third-party installation at very competitive prices.

An executive at a leading SME organisation recently told me it had left a relationship with a dedicated and reliable IT reseller in order to buy from a consumer chain or via the Internet because it was significantly cheaper. This company also outsources system and helpdesk support because it is not rocket science any more. It will eventually move to a fully ASP hosted solution and remove all in-house servers and support staff. This emerging trend will have a detrimental affect at the top end of reseller town.

Moving down the food chain, when did you last hear of somebody wanting to invest in an IT retail business? The modus operandi in this sector is to circle the rotting corpses of the smaller stores, pick up the pieces for a bargain then franchise the re-birthed store. The only money made here is the franchise fee. One franchisor I spoke to boasted of success in reselling its franchises but admitted regularly foreclosing on partners because they could not make a profit.

And we must not discount the impact of convergence. The entry of CE players into the IT market and the impact of convenient, colourful and ever-hungry national consumer chains mean this market is in danger of being lost.

So is this crunch time? Are we going to see large-scale retailer failures, more distie consolidation and high-end reseller mergers? You can bet on it.

It is a tough market so how can you succeed? Whether you are an independent retailer, online store, repairer, reseller, service provider, distie or manufacturer you need to take stock of what you are good at. I mean serious navel gazing here - not lip service.

If you are just another vanilla-flavoured cog in the wheel then it is time to merge with a competitor, refocus and rationalise in order to enjoy life a while longer before another issue comes from left field and rips the rug out from under you. It is better to have 10 per cent of a business that works than 100 per cent of one that does not.

If you do offer real points of difference that are being translated into sales then look for other firms that you could replicate this value to. Now is not the time to be precious or sentimental about business - it is time to make it work.

Make this the year you take risks by approaching your competitors for a frank and open exchange. You may find you have a lot in common and that you both need to do some serious thinking about the future.


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