Insight

Distribution finding ways to thrive despite challenges

In a shifting channel landscape, distribution tends to be singled out as facing stronger headwinds than other channel players.

There have been questions over the role that distribution might serve in an increasingly digital world, and whether traditional functions that include warehousing and logistics have any place in the modern partner ecosystem.

We do know one thing: warnings of distribution’s death have always been greatly exaggerated. High levels of private equity are still being invested into distribution, clearly indicating it’s space in the ecosystem. The difference is that those investments are increasingly going into online B2B marketplaces, services and distribution’s aggregation capabilities.

Westcon-Comstor, a specialist distributor, recently acknowledged that with the economy shifting to subscription models, and vendors to recurring revenues, the firm needed to change the way it works. As such, they launched a new division to support vendors and partners in the growing cloud and collaboration space.

Additionally, Canalys forecasted that the face of IT distribution is going to change even more over the next decade. Although two tier distribution will grow, a bigger proportion of growth is going to come from cybersecurity, cloud and software.

Growth of European IT distribution

New research from CONTEXT confirmed the healthy state of distribution, stating that European IT distributors (excluding telecoms) will see impressive revenue growth of 3.7 percent in 2022.

Interestingly, that figure represents an increase on the 3.2 percent year-on-year (YoY) growth predicted at the start of 2021. And, that revenue growth is particularly remarkable following  the gloomy IMF GDP forecast, which downgraded predicted global growth from 4.4 percent to 3.2 percent throughout 2022.

Now, as we continue through Q4 of 2022, CONTEXT forecasts a 5.8 percent growth (excluding telecoms), followed by a softening in successive quarters brought about by recession and reduced backlogs. Although the supply chain issues that impacted network and server components in particular eased in Q3, there are still long lead times for some networking products.

But for all the talk of cloud, hybrid working trends will continue to fuel demand for hardware. Growth will also come from IT infrastructure, and government investment in health and education, supported by the NextGenerationEU Covid relief fund, said CONTEXT. 

CONTEXT’s predictions for 2022 were based on strengthening infrastructure, software and services, which are driven by business demand across servers, networking and storage.

In addition to their revenue predictions, CONTEXT made some forecasts for the following sectors:

  • PC demand will remain muted due to slumping consumer confidence and inflation pushing prices up. Businesses will also remain cautious, with demand for PCs likely to be pushed out, and no major government-backed education projects on the horizon.
  • Displays will be heavily influenced by a continued decline in consumer demand on the one hand, and rising business demand on the other, due to office refurbs. A return to mass live events should also help the market for LFDs.
  • Imaging sales will continue to be influenced by geopolitical and economic uncertainty and high inflation, undermining both consumer and corporate confidence. SMBs will be the main driver of the printer market for the rest of 2022, although supply chain challenges remain.
  • Enterprise infrastructure is on a roll. Datacentres will see the greatest distribution growth of any sector over the next few months, and there’ll be major opportunities in security software and services. Infrastructure software will continue to provide a solid revenue stream for distributors with the skills and focus to take advantage.
  • Enterprise storage and server sales will perform well thanks to a reduction of server backlogs/improved component availability, and continued strong business demand for storage – despite the loss of the large Russian market.
  • Enterprise networking sales will benefit significantly from a loosening of supply chain constraints, especially in the enterprise switching space. Hybrid working and digital transformation will also drive demand, although falling prices, depressed revenues and demanding YoY comparisons may limit growth.

We are in the era of channel transition. Nevertheless, demand for hardware remains strong, and distribution is exploring new avenues such as online marketplaces, so the future still remains bright for the sector.

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