Latest reseller collapse highlights difficulty facing distributors
Although management blamed the demise of Computer World last week largely on the alleged theft of stock by an employes, the company's collapse is also indicative of the difficult market it was trading in. Several suppliers contacted by ARN when the story broke indicated they were aware that Computer World had been struggling for some time and general manager, Hasan Yuvarajah, admitted business had started to drop off last year.
Management pumped $2 million into the business during the past couple of years but to no avail. That money now accounts for almost half of the company's unsecured debts estimated at $4.7 million.
Although there were extenuating circumstances, the collapse of Computer World is the latest example of the fine line being walked by companies that base their business solely on the resale of commoditised hardware like PCs, printers and components. Maintaining store fronts in that space is very difficult when you have to compete against the mass merchants on one side and Web only traders with tiny overheads on the other.
It is also a reminder of the difficulties facing the distributors servicing this space because it must be so difficult to keep track of thousands of smaller customers. How do you decide when to react to warning signs that all is not well with a particular company when it has been sourcing product from you for years? Cellnet, Dicker Data, Ingram Micro and Multimedia Technology were all left holding the baby this time but will have the hundreds of thousands of dollars they were owed cushioned by insurance. What impact that has on their premiums remains to be seen.
Several industry insiders pointed to Synnex as a potential creditor of Computer World but its management denied being owed anything and there was nothing in the administrator's report to suggest otherwise. Of the big IT distributors operating in Australia, I think I'm right in saying that Synnex is the only one that chooses not to insure against bad debt with a third-party organisation. It has claimed in the past to have a pot of money set aside to cover such eventualities but this looks like an increasingly risky strategy when so many smaller resellers are doing it tough. When your profit margins are as thin as those enjoyed by a broad-based distributor, it wouldn't take too many incidents like this to erase all the hard work done in a year.
At the other end of the reseller market, Commander has also been through the mill recently. The company did manage to get itself reinstated to the ASX last week but there's a long way to go before it gets out of the woods. At the time of writing the share price was continuing to fall, investors were still twitching and the vultures were continuing to circle in hope of an easy meal.
There aren't too many champagne corks popping over at Cellnet just now either. The troubled distributor's management met with HP last week and is awaiting news of its fate. Rumour has it the relationship will be terminated but neither party was willing to confirm or deny the speculation at the time of press.