IT channel consolidation has stepped up a gear over the past year as the industry continues to mature, forcing distributors to focus on optimisation and leading resellers to worry about pricing and procurement costs, according to the latest Context ChannelWatch Survey.
The study profiles the views, activities and intentions of a representative sample of 7 500 resellers operating across Europe and beyond, in Russia, Turkey, Australia, New Zealand, and Brazil.
It reveals that over 30 major distributor M&A deals have taken place in Western Europe in the past 18 months, as players increasingly seek out the sustainability, plus scale and margin improvement offered by IoT, refurbishment, attractive services margins and cloud adoption.
The past year has seen major mergers such as Tech Data and Avnet, Esprinet and Vinzeo, Synnex buying the US part of Westcon, and Ingram Micro coming under Chinese ownership through the HNA acquisition.
There’s likely to be much more to come, with speculation mounting over the possible takeover of ALSO by HNA via Ingram Micro.
In fact, the average number of distributors resellers are buying from has dropped from five to 10 in the last report period to just two to three this year — partly driven by the rise in purchases from etailers, especially in Turkey, Brazil and Europe, according to Context.
Many more distributors have ceased trading altogether across the globe, while those that survive are being forced to move away from box shifting towards holistic strategies focused on services and solutions.
Where margins used to reach double figures, half a percentage point now matters and this increases the importance of controlling costs, having well-oiled logistics, and looking for new, higher-margin opportunities, the report claims.
Resellers contract
The report also points to a consolidation in the reseller market.
Across 20 EMEA countries there has been a 3% year-on-year reduction of active resellers in the 90-day period in March — May 2017, according to Context’s Reseller Count Metrics tracking. If this trend continues, the reseller landscape could alter significantly in the next few years, the report warns.
“Although most consolidation has occurred in the long tail of smaller players and those in consumer channels, larger resellers and retailers are merging too: ie, Dixons–Carphone Warehouse, Dominion–Phone House (Spain), and MediaMarkt buying a slice of Fnac,” says Adam Simon, Global MD at Context.
“This activity can also be viewed in the context of increasing reseller churn, especially associated with transitioning business models linked to cloud adoption.”
Between 2016 and 2017, Context Reseller Metrics revealed the notional churn rate of resellers moved from almost three years to just over two years — a 20% acceleration rate.
The Context ChannelWatch 2017 Survey also shows that reseller perceptions of vendor and distributor consolidation on their own business are divided, but overall positive. Around half of respondents worldwide thought consolidation was a positive thing whilst a third remained neutral on the subject and 15% considered it a negative trend.
This chimes with Context Reseller Count Metrics tracking which finds that overall reseller revenue in the March-May 2017 period went up. It’s clear that those players which remain after consolidation are able to pick up the revenue lost by those that have been consumed.
“The main concerns of resellers are focused around rising pricing and procurement costs, which many believe will be the natural outcome of a consolidating market,” adds Simon.