Resellers feel market squeeze
- 31 October, 2007 09:46
Industry representatives are predicting more price-sensitive resellers will face the chopping block as market conditions continue to tighten.
Sydney-based independent retailer, Plus Corporation, is the latest casualty in the battle for consumer dollars. The company appointed Jirsch Sutherland as voluntary administrator on October 23 and has shut down its store and website.
According to Plus Corp owner and managing director, Nigel Fernandes, it owes under $200,000 to creditors. They include major suppliers, Altech ($62,000), and TodayTech ($36,000).
Fernandes said he had personally invested about $600,000 into the company and was now looking down the barrel of bankruptcy. Plus Corp was founded in 1992 as Peripherals Plus. As well retailing a range of IT hardware and software, it assembled PCs.
"The market out there is unbelievably bad," Fernandes said. "In the last three months, our sales had halved. It's an incredibly difficult market to be in." According to Fernandes, one of the major problems retailers such as Plus Corp faced was competing against online-only sellers with lower overheads and cut-throat pricing.
"The Internet that made us what we are has also been our downfall," he said. "People want us to price match against guys who don't have any staff, or have to pay rent, but are getting credit from suppliers." Fernandes said administrators were now talking with several parties interested in buying the company's IP and leftover stock. The first creditors meeting will be held on October 30.
The news of Plus Corp's demise comes one week after Melbourne-based reseller, Computer World, appointed administrators and closed its doors. That company owes $4.5 million to creditors. Earlier this year, retailer, AAA Computer Tech, closed owing $1.5 million.
Altech Computers Victorian sales manager, Adrian Blong, said bigger resellers with positive cash flow and better buying power were getting stronger, while smaller players were becoming increasingly sporadic with their purchasing. He wouldn't name names, but claimed smaller resellers were struggling.
"Because these guys are up to their eyeballs in credit, they are finding it more difficult," Blong said. One of the issues affecting resellers at the bottom end of the market was the volatile economic climate.
"Interest rates continue to rise, which means the people buying from them are facing higher mortgages," he said. "Consumer confidence is low as a result. It's also low because of the impending election. People aren't sure what will happen to their pay packets or whether tax will increase or decrease."
Blong said the brief drop of the Australian dollar against the greenback in August also hit resellers. He predicted more would hit the skids.
"Resellers have been running their credit lines too long and have not been able to dig themselves out of the hole," he said.
Synnex managing director, Kee Ong, agreed market conditions were tough and said it was no surprise to see resellers going under.
"Some people have fast-tracked expansion plans and grown their business. But if you grow your business out of chaos, you can expect disaster is going to happen," he said.
Page BreakTodayTech managing director, Jack Zhong, said a few resellers were trying to undercut already bottom-dollar product prices, making matters worse.
"The market has been slow and we don't see things improving in November," he said. "We're disappointed by the news [of more resellers closing], but these things happen in every industry." Multimedia Technology (MMT) general manager, John Hassall, said the IT channel consisted of a mix of resellers genuinely struggling to make ends meet, and businesses that lacked competent management skills.
While agreeing that more resellers would fall, he pointed out the industry had already gone through a major clean-out after the GST was introduced in 2000.
For Aus PC-Market's Michael Vorsterman, those most at risk were resellers who relied on price-sensitive consumers to drive sales.
"We work with a lot of corporate customers who continue to buy hard drives whether petrol prices have gone up or not," he said. "Consumers who are price sensitive will hold off purchasing a new CPU because they don't really need it.
"Those operating in that bottom segment of the market are the first to go to the wall because there's less fat in their business. If you lose 20 per cent of your sales and you're working on a 5 per cent margin, you're gone."
The difficulties are not restricted to resellers alone. Altech's Blong pointed out distributors like Altech, Ingram Micro and Westan were diversifying product lines in a bid to find new revenue streams and keep their heads above water.