In the face of austerity, where does UK distribution stand?10 February 2012
A determination to deliver new technologies and assist customers struggling with the adverse economic conditions is helping to keep the UK distribution market relatively buoyant. David Davies reports on a sector whose prospects remain bright as 2012 gets underway.
Conditions are somewhat challenging but, all things considered, they could be much, much worse. That was the overriding impression conveyed by the distributors, consultants and other industry observers who spoke to IE for its latest UK market focus.
Indeed, given the prevailing economic mood, there is some sense of surprise that activity levels have remained fairly buoyant. A handful of companies even reported a modest-to-encouraging upturn for full-year 2011.
This robustness on the part of distributors appears to have several root causes. Firstly, there is a general recognition that consumers are increasingly in need of comprehensive, integrated solutions; few would argue with the suggestion that a straightforward box-shifting operation no longer cuts the mustard. Secondly, a great many distributors are emphasising the necessity of looking towards new, emerging areas of technology – from cutting-edge lighting solutions to interactive displays – and undertaking the research necessary for them to get up-to-speed. Thirdly, the general acknowledgement of economic pressures on customers is prompting some distributors to devise new finance packages capable of making the difference between a sale and a no-sale.
Customers’ desire to deploy eco/energy-sensitive solutions is also having a positive impact on the market, while a return to more specialised distribution channels is another primary strand of what is, on the whole, a cheeringly upbeat portrait of the UK market.
Commercial vs residential
The strength of the French CI sector compared to some other areas of the business was one of the key themes of last month’s country report. In the UK, too, it appears to be an especially bright spot in the market as the retail and commercial spheres continue to evince reduced levels of confidence.
“The custom install market is still a very strong sector, along with the opportunity for professional audio into the professional AV market,” says Darren Lewitt, AV director of Midwich, a leading force in UK distribution comprising eight specialist companies.
Lewitt’s sentiments about CI are echoed by Gordon Innocent, chairman of RGB Communications, which works with brands including Barco, Canon, Kramer and Stardraw.com. Highlighting the strength of “high-end custom install”, Lewitt partly attributes RGB’s success in this area to the popularity of the Savant home automation and building control systems. Available from RGB as of April 2011, Savant appeals to higher echelons of the market “where money is still available”.
Conversely, there are signs of struggle in the public and commercial sectors. Retail appears to be particularly badly hit – an observation that is fully in line with a glut of gloomy headlines over the past 12 months. For example, PricewaterhouseCoopers reported that 375 UK retailers went into administration in Q2 alone – an increase of 9% on the same period in 2010.
“The commercial market is where we are finding it particularly tough right now,” observes Innocent. “Retail is struggling, the public sector doesn’t have any money, and the city isn’t spending either.”
Not everyone concurs with this sentiment. John Midgley is managing director of Polar Audio – distributor of Aviom, beyerdynamic, Biamp and Renkus-Heinz, among other esteemed audio brands – and observes that “blue-chip companies, including banks,” constitute one of the strongest sectors at present.
Elsewhere, the renovation/refurbishment of companies’ existing facilities and associated energy-saving schemes are offering respite in a more pressurised commercial sector. There are also some reports of companies investing in videoconferencing technology – a development that indicates a determination to achieve longer-term cost-savings as a result of reduced travel expenses.
But with many businesses struggling to access even low levels of credit, it is hardly surprising that large-scale projects are fairly few and far between at present.
Ringing the changes
While distributors report reasonable levels of activity, the more challenging operating conditions – not to mention the fear of what might be around the corner – are prompting some manufacturers to review their distribution arrangements. One symptom of this is an increase in the number of companies selling directly to resellers.
“For us, the biggest changes have been AMX going direct to resellers as of January 2010 and projectiondesign as of January 2011,” says RGB’s Innocent. “Manufacturers will – like us all – do whatever they think is necessary at the time to hit their targets.”
James Knight – church relations manager, UK, for AV engineering specialist Hans Kolberg – also observes a tendency by some brands to cut out their distribution partners. It’s clear that he harbours reservations about the trend on practical and product-related levels: “There are certain brands in the UK that have stopped going through distributors – calling them ‘unnecessary middle men’ – and have tried to ‘go it alone’ to take more margin, which has resulted in the release of new products which don’t necessarily fit into their current portfolio in a desperate bid to attract attention. All the distributors that we work with do a great, honest job and support their brands really well with marketing, post-sales support and application engineering – so it really makes us wonder… why do certain brands with little distribution experience think they can do better?”
There were also multiple allusions to a longer-term shift away from general distribution models. Midwich’s Darren Lewitt pinpoints “a migration back towards adopting a specialist-only distribution channel. Hitachi, NEC, Casio and Panasonic have consciously decided not to use IT distributors (which includes broadline distributors with small AV divisions). Over the past two or three years, most of the tier 1 vendors have walked away from general distribution models in favour of a more specialist channel.”
Lighting and control solutions developer GDS is among the manufacturers to have embraced a more specialist approach, and recently announced that a network of established companies – including Hawthorns, Northern Light, Stage Electrics and White Light – had been selected to distribute its product range in a development that took effect on 1 January 2012.
The ability of customers to experience reduced lead-times and access in-house expertise are expected to be among the benefits of this revised approach. In addition, Matthew Lloyd, managing director of GDS, says the UK dealer model will mean the company “can expand more internationally while maintaining the UK market”.
Sid Stanley, head of Maverick UK – which works with brands including Draper, Promethean and Samsung – believes that the “two-tier distribution model is becoming increasingly important both to vendors and resellers. We are seeing vendors generally wanting to move from direct to in-direct models as they look to make savings.”
This impression of a distribution sector that is more fluid than at any time in recent years is further underlined by Mark White, UK/Ireland regional manager for lighting solution provider ETC: “There has been some shifting of dealer/distributors, usually as a result of companies going out of business or being unable to supply finished reliable goods in a timely manner.”
For Midwich, the “tougher” conditions have meant an increased emphasis on “solution selling” and the targeting of new technologies. The whole area of interactivity, says Lewitt, has been particularly rewarding, and has even prompted the creation of a dedicated interactive division. “The future looks bright with an array of solutions just arrived, including the new Microsoft and Samsung developed surface table solution, and a number of interactive displays from Sharp, NEC, iiyama and Samsung.”
The desire to offer the latest and greatest solutions is reflected in many of the new contract wins of which our featured distributors are most proud. Lewitt, for example, cites Midwich’s UK exclusive with Samsung SUR40 to sell the aforementioned surface table solution. “It is a 40in touchscreen that makes it possible for people to share, collaborate and explore together. It can process more than 50 simultaneous touches and recognises fingers, hands and other objects placed on the screen. Featuring PixelSense technology, which gives LCD panels the power to see without the use of cameras, it is far less bulkier than its predecessor,” enthuses Lewitt.
In general, however, many companies who spoke to IE to this feature declined to talk about specific recent contracts or projects on grounds of confidentiality.
Credit and support
In another development set to help keep business moving, some distributors are also reviewing their approach to finance. Many now offer a range of packages to their customers, while there is also an increased emphasis on collaborating closely with installers to help optimise the delivery of cost-effective solutions.
“As an independent we have always been less able to offer the sort of extended terms that the major brands appear to offer,” admits Polar Audio’s Midgley. “However, by working closely with both our suppliers and integrators we are able [to] ensure that products are available in a just-in-time fashion, thereby ensuring the maximum use of the applicable credit terms. We are also offering more support to our integrators with design, programming and project support to ensure cost-effective solutions.”
Credit, says Stanley, is “a key offering for TD Maverick [Maverick is the specialist AV division of Computer 2000, which is part of Tech Data]. This year, for example, to assist resellers in the education peak we extended credit terms and raised credit limits to help resellers fuel the seasonal peak. We have a very progressive approach to credit.”
Midwich also maintains a flexible philosophy regarding credit. “We have always been able to review credit on a case-by-case basis,” says Lewitt. “Offering a range of finance solutions to help ease pressure, including end-user billing and leasing solutions and bespoke credit facilities, is very important to our customers.”
Simultaneously with the need to ensure sufficient credit flexibility, distributors are confronting increased stress in terms of margins. “Margin pressure has been constant since the start of the first recession, but more recently there has been considerable pressure post-contract award to cost-engineer projects,” says Midgley.
“Yes, pressure on margins is a growing factor,” echoes Stanley, “but in this market the value you deliver is reflected in the margin you retain. The investments we have made to date have therefore allowed us to earn the margin we planned for."
Investment with regard to reseller support is also helping to stabilise business in these unpredictable times. Maverick’s Sid Stanley says that a number of initiatives have contributed to the company’s “more than double-digit growth” since 2010. “However,” he adds, “the area that has really worked for us is our investment in business development heads who spend time with resellers supporting them and better enabling them to sell”.
As client requirements become increasingly specialised and demanding, the need to guarantee this kind of 360º support will surely only become more acute.
The general mood of positivity reflected in this feature doesn’t mean that there aren’t some concerns about the way the market is developing. ETC’s White observes that there are “often too many dealer/distributors in the shrinking market”, but is confident that “market forces will shake that out in the time-honoured fashion”.
Gordon Innocent, meanwhile, expresses frustration at “what is, in the main, a fact of life for us distributors: if we do a bad job we get replaced; [if] we do an average job we get added to; and when we do a great job the manufacturer takes all the credit and takes over.” Hmm – is there anyone who can envisage that changing any time soon?
Such caveats aside, however, the majority of contributors appear to be relatively satisfied with the current shape of the UK distribution market. Bearing in mind the prevailing economic circumstances, there is a sense of relief – surprise, even – that trading conditions remain as positive as they do. Nonetheless, there is also a feeling that this is no time for laurel-resting, hence the enhanced levels of support and flexibility being offered to customers and resellers. These and other initiatives will help the business to navigate whatever flows its way in 2012.