Tech Data To Restructure European Operations

Tech Data recently missed expectations for its first fiscal quarter and announced a reorganization of its european operations to increase profitability in the region. On a conference call with analysts, Tech Data chairman and CEO Steve Raymund said, "People will lose jobs, costs will be incurred, but we are serious about restoring the health of our european organization." Raymund later spoke with Distribution Editor Scott Campbell about the restructuring and whether it would affect solution providers in the United States. Here are excerpts:

CRN: Will the reorganization in Europe lead to layoffs and the closing of some warehouses?

RAYMUND: It would, of course, be some headcount. We have plans in regard to warehouses country by country. Some countries will have little impact, depending on the severity [of the reorg]. We have not outlined exact numbers because we have a variety of programs in place. It will not be a one-quarter event.

CRN: Will the European reorganization have any impact on North America, such as jobs?

RAYMUND: No, except if you're talking linkage in a macroeconomic sense, such as GDP growth. If Europe gets sick, it could mean that U.S. exporters get sick. But it's a little early to suggest that things are so bad there that we face any impact here.

CRN: Were the challenges in Europe related to a general downturn there, or was it more something for which Tech Data did not plan?

RAYMUND: We planned for more revenue to materialize in Europe. We saw a bigger slowdown than we expected. It has affected some countries more than others. People say it's probably a result of a weakened economy to start with, then you add the soaring euro and domestic suppliers competing with imported product. Then there's the soaring price of oil. That puts a double whammy on an already relatively fragile European economy. The United States historically has been more flexible and able to adjust to shocks to the system.

CRN: Where is the demand softer?

RAYMUND: Germany, [United Kingdom] and France—and those are some of the bigger markets in Europe. But we have all hands on deck committed to an effective execution of this restructuring plan.

CRN: How much less do PC sales play a role in Tech Data's revenue strategy now, compared to a year ago? Is it fair to say you have or are weaning yourselves off of a reliance on systems, especially as a means to offset vendors' direct business? And have you replaced it with other products?

RAYMUND: It's a bigger factor for us in Europe by far. In the United States, our share through distribution has relatively been stable with vendors. It's not a deliberate weaning off systems, but we are capitalizing on the higher growth opportunities that lie elsewhere in the market, which may require a different strategy.

CRN: But reaching new markets requires more investment on your part, which can be challenging as you look to cut costs, correct?

RAYMUND: You have to spend more to make more. Some of these niches offer potentially higher growth margins, but at the same time, they require more infrastructure, more tech support [and] sales. Hopefully we are generating a good operating margin. It's a little different model [than selling PCs], but it's not a dramatically different model.

CRN: Where are some areas where the investments have paid off?

RAYMUND: We've seen good success in POS/data capture, but there are more heads per dollar revenue there than there are with printers and computers. In general, the higher-value segments of our business will require more people to supplement the after-sale.