Distribution 25: The Survivors of the Distribution Shoot-Out

In the 1995 Western, "The Quick and the Dead," Sharon Stone, Gene Hackman, Russell Crowe and an assortment of other desperados shoot it out in a series of quick-draw confrontations until only two of the gunslingers are left standing for the last battle.

For the past several years, distributors have been playing a similar deadly game. Though dozens of shooters are still standing, two giants dominate the landscape of the distribution marketplace: Ingram Micro, Santa Ana, Calif., and Tech Data, Clearwater, Fla.

Two of the formerly top competitors, Merisel and Pinacor,are out of the picture as general-purpose distributors. Merisel sold its Merisel Open Computing Alliance (MOCA) subsidiary to the Melville, N.Y.-based Arrow Electronics (NACP division) and has reduced its U.S. distribution activity to software licensing and logistics services, while the Pinacor division of bankrupt MicroAge Inc., Tempe, Ariz., reinvented itself as a telephony distributor and was auctioned off May 1, 2001, to ScanSource, Greenville, S.C., as part of MicroAge's Chapter 11 proceedings.

Technical and regional distributors have also continued to consolidate. In the technical distribution arena, for example, Tempe, Ariz.-based Avnet purchased Savoir Technology Group and integrated a majority of the business into its Avnet Computer Marketing Division VB108, making it the leading distributor of IBM midrange server products in the Americas.

While the smoke is clearing from last year's battles, Ingram Micro and Tech Data are still standing and are relatively healthy, despite the weakness of the economy in general, and in IT sales in particular.

"Ingram Micro and Tech Data are the players that emerged most dominantly in the volume two-tier space last year," says Anthony M. Penzarella, an analyst for International Data Corp., Framingham, Mass. "Good financing has kept them strong in the trenches on the lowest industry margins." Ingram's revenue for 2000 increased 9 percent to $30.7 billion, while Tech Data's sales rose 20 percent to $20.4 billion.

The same soft market conditions that confront other IT businesses have hit distributors with a vengeance, but now that the competition is thinned, the survivors have room to grow, even flourish. And technical or specialty distributors can still find niches, add value and make themselves vital partners to their solution-provider customers.

"The competitive landscape looks more favorable," says Brian Alexander, a technology analyst for Raymond James & Associates, a St. Petersburg, Fla.-based securities company.

Though the role of distribution continues to evolve as both end users and resellers source significant chunks of their computer products directly, resellers say distributors are still a necessary link in the supply chain. Even a giant like Dallas-based CompuCom Systems VB17, a $2.7 billion solution provider that supplies IT services to enterprise customers, still depends on two-tiered distribution while also sourcing product directly from vendors and maintaining its own logistics capabilities.

Part 2: Supply-Chain Advantages

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