1996-11-18: Computer Reseller News, the issue of November 18, 1996 Distributors Roll Dice, Hope To Land $1B Goal (Thanks to "Why_Nut" for the transcript)
Computer Reseller News, the issue of November 18, 1996 Distributors Roll Dice, Hope To Land $1B Goal
by Pedro Pereira
Access Graphics Inc. plans to get there with a strong focus on integration, consulting and sales of Unix servers and workstations.
Synnex Information Technologies Inc.'s strategy revolves around carrying the top three vendors in each product category.
And PC Wholesale has opted to challenge the multibillion-dollar distribution players with high-profile lines: The IBM PC Co., Compaq Computer Corp. and Toshiba America Information Systems Inc.
The goal is the $1 billion revenue mark. To multimillion-dollar distributors, it is like the fire that Prometheus brought down from Mount Olympus to share with the mortals. Reaching the revenue milestone, in essence, turns mere PC-distribution mortals into figurative wholesale deities.
This year, at least four distributors expect to reach the $1 billion mark. Globelle Corp., Minneapolis, which had revenue of about $950 million last year, expects to finish this year with more than $1.2 billion in sales. Gates/Arrow Distributing Inc., Greenville, S.C.; Access Graphics, Boulder, Colo.; and Fremont, Calif.-based Synnex also should reach the magic number.
Other distributors, such as PC Wholesale, Bloomingdale, Ill.; Campbell, Calif.-based Western Micro Technology Inc.; and Southern Electronics Distributors Inc., Tucker, Ga., seem headed for the coveted revenue milestone by the turn of the decade.
What is the significance of the $1 billion milestone? Distributors believe that once they reach billion-dollar status, the vendors' perception of them changes for the better. Big-name manufacturers, such as Compaq or Hewlett-Packard Co., may not even look at smaller wholesalers as potential partners, but distributors believe that reaching the $1 billion level proves to vendors that they can handle large volumes for a wide customer base.
And there are other benefits.
"As a billion-dollar company, we achieve a lower cost of operation as a percentage of sales, become more efficient, have a stronger reach, and have the ability to execute deeper programs and initiatives," said Access Graphics President John Ramsey.
Ramsey points out, however, that $1-billion has become less significant than when the distributor set it as a forecast goal several years ago.
"I don't believe it is a particularly significant milestone; however, it will afford us advantages in our business," Ramsey said. "What is important is that a business like ours continues to develop mass and efficiencies, and grow the revenue base, but grow the base profitably."
Profitability can become an issue, as has happened with such multibillion-dollar players as Merisel Inc., El Segundo, Calif., and Intelligent Electronics Inc., Exton, Pa. Increasing sales without increasing profitability is like letting the fire burn out of control until it gets you.
And when a distributor's execution falters, resellers seek other suppliers. Just ask Merisel, IE or AmeriQuest Technologies Inc., all of which are believed to have lost some business as a result of their struggles with unprofitability.
"Growth for the sake of growth is impressive in the short term," said Dan O'Brien, PC Wholesale vice president and chief operating officer. "However, the method used to grow your business is really what is the most impressive."
O'Brien dismisses mergers as the best strategy to increase sales. "It takes no particular skill besides writing a check. What is really important to both the vendors and dealers alike is the confidence in a distributor who understands the channel and grows his business through legitimate product-line acquisitions and through value-add programs," he said.
Van Baker, an analyst with Dataquest Inc., San Jose, Calif., said the $1 billion mark is important for specialized distributors, such as Access and Synnex, but it "is largely irrelevant for the broad-spectrum distributors as this revenue level is minor compared to the majors, such as Tech Data Corp. and Merisel."
It is small wonder, then, that distributors on their way up the $1 billion hill stick to strategies off the beaten path, be it Access' Unix focus, PC Wholesale's big-name systems or Synnex's emphasis on mass storage and networking. |