A defining year for distributors

Sunday, February 1, 2004

About a month ago, I predicted to my coworkers that 2004 would be the year of distribution news. And even though we’re only a few weeks into the year as I write this editorial, that expectation has come true so far.

In our January issue, we carried news about the branch and product stocking overhaul at North America’s single largest distributor of security products – ADI. This month, it’s news about electrical supply powerhouse Graybar joining our market and security product manufacturer Napco Security leaving ADI to do business solely with independent distributors.

My prediction is that more news on the distribution front, such as stories on new players entering the field, additional coverage about the new look of ADI’s branches and the move by independent distributors to garner more market share, is on the horizon.

Along with the CCTV market, the distribution market is a highly competitive field. While the surveillance industry competes with the likes of Asian manufacturers who make and sell products for a fraction of what it costs to do the same here, security distributors compete with hundreds of supply houses similar to themselves.

Each one is jockeying for the same thing. They all want to be the supplier of cameras, door contacts, burglar alarm panels and keypads to the security dealer and systems integrator. Depending on whom you speak with, some peg this pool as ranging between 10,000 to 15,000 companies.

But being the middle-man is no easy task. Not only are margins tight, but distributors need to provide a real service and value to their customers – and that’s both the installer and the product manufacturer.

If a distributor does not perform and move the products its stocks, it risks losing the right to sell a manufacturer’s product. And if the supplier doesn’t sell the kinds of products that integrators need to install, then it can lose installers as its customer to a competing distributor.

It’s a delicate balance to make sure that distributors serve both channels and that one is not left out in favor of another. And with more new competition entering the market, like Graybar and Anixter, which began selling security products about two years ago, that balance becomes ever so important.

Then what is the answer in a segment of the market where each company – the distributor, the installer and the manufacturer – all have so much to gain and lose if a relationship doesn’t work out? For the distributors, I expect much of it will come down to service – who can supply the right products in the right amount of time. Sure, people care about the price of a product. But when you look at the entire picture and truly how many people make business decisions, many people will choose to do business with a company they like and one that provides good service over price.

The coming year could be tell-tale for the distribution part of the market. With new competition afoot, changes in store at ADI and the push by independent distributors to gain more business than ever before, this could be the year that helps to define the distribution market for years to come. We’ll just have to wait to see.