CDW Launches Stand-Alone Small-Business Practice Focused On E-Commerce, Digital Delivery

CDW unveiled a new practice aimed at accelerating small-business growth by doubling down on digital resources in both the consultative and purchasing spaces.

Lincolnshire, Ill.-based CDW, No. 5 on the 2016 CRN Solution Provider list, said it has moved the company's e-commerce team to its new small-business segment to point more digital resources at this fast-growing market. Separating small business from CDW's primarily medium and large corporate accounts should drive increased focus and accountability for both segments, said CEO Tom Richards.

"Our new small-business unit is focused on going to market the way their customers do," Richards told Wall Street analysts Tuesday on the company's earnings call. "Small business has kind of separated itself from how we serve and go to market with the MedLar [medium and large corporate] customers."

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CDW's small-business practice is focused on customers with between 20 and 250 employees, which Richards said means it does not compete much against Amazon, which is very strong among customers with less than 20 employees. Nonetheless, Richards described the small-business IT service provider space as "kind of a free-for-all," with everyone trying to differentiate their offering from the competition.

Richards believes CDW can add more value by staying away from very small customers since the company excels at simplifying more complicated IT environments through a combination of products, services and solutions. Richards said he had been contemplating how to best service the small-business market for some period of time.

CDW's differentiator, Richards said, are the digital capabilities it can offer small businesses around acquiring knowledge, technical support and even purchasing, supplemented with the benefits of a high-touch delivery model. The company is focused on growing sales, profitability and the kinds of solutions being delivered to the small-business marketplace, Richards said.

Thanks to the reorganization, which took effect Jan. 1, CDW now has a dedicated group of people who get up every day and have the marketing, technical, and e-commerce resources at their disposal to maximize the company's small-business opportunity, according to Richards.

Going to market with the small-business segment has moved beyond consuming information through live conversation, Richards said, and is increasingly embracing online, verbal, device, or artificial intelligence-based consumption models. The IT consumption patterns of small businesses are very different than their larger counterparts, Richards said, due to the unique economic dynamics they face.

CDW saw sales for the fiscal quarter ended Dec. 31 inch ahead to $3.49 billion, up 2.2 percent from $3.42 billion last year. That fell short of the consensus estimate of $3.52 billion, according to analysts polled by Seeking Alpha.

Net income jumped to $103.2 million, or 63 cents per share, up 15.6 percent from $89.3 million, or 52 cents per share, a year ago. On a non-GAAP basis, net income climbed to $140.4 million, or 86 cents per share, up 13.4 percent from $123.7 million, or 73 cents per share, a year ago. That crushed Seeking Alpha estimates of 81 cents per share.

On a full-year basis, sales increased to $13.98 billion, up 7.6 percent from $12.99 billion a year ago. Net income, meanwhile, improved to $424.4 million, or $2.56 per share, up 5.3 percent from $403.1 million, or $2.35 per share, a year ago.

CDW shares climbed $2.33, or 4.37 percent, to $55.74 in trading Tuesday morning. Earnings were released before the market opened.

Revenue for CDW's corporate business inched ahead to $1.8 billion, up 0.8 percent from $1.79 billion a year ago.

Sales to medium and large businesses slipped to $1.517 billion, down 0.3 percent from $1.522 billion last year. The segment is encouraged by the improved economy heading into 2017, Richards said, but has adopted more of a wait-and-see approach as it remains focused squarely on optimization and using more efficient architectures to free up more money for cybersecurity.

Small-business sales, meanwhile, jumped to $293 million, up 7.3 percent from $273.1 million last year as consumer confidence and sales picked up after the U.S. election in November, Richards said.

CDW's public sector revenue improved to $1.33 billion, up 3 percent from $1.29 billion last year.

Sales to the company's federal, state and local government customers rose to $529.6 million, up 1.5 percent from $522 million last year. State and local sales were up in the high single digits, Richards said, but the segments were dragged down by the delivery of more than $50 million of federal Windows 10 purchase orders being pushed into 2017.

Health-care segment sales inched ahead to $436.8 million, up 1.4 percent from $430.8 million a year ago, as the segment experienced continued "lumpiness," Richards said. And education sales increased to $365.9 million, up 7.2 percent from $341.2 million last year, despite continued delays in E-Rate funding for the K-12 space, Richards said.