12/23/2008 5:29:00 PM
Brightstar president predicts distribution movement in 2009
Rod Millar, president of Brightstar Europe
The performance of distributors, and the sectors overall, will be driven by two key factors: the buoyancy of the economy, and the state of the credit markets.
Falls in consumer spending combined with operators reducing their acquisitions costs will squeeze the sector. There will simply be less subsidy in the ecosystem as a result of the lower demand for handsets as well as lower average selling prices.
Secondly, and perhaps of more specific significance to distributors, is the ability to draw funds from the credit market.
Most distributors use a lot of working capital and are highly leveraged. The ability to secure loans and funding has become a lot tougher for a lot of companies – outside mobile distribution and even outside the wider mobile industry.
We have already seen the credit insurance companies reviewing a lot of large business and you can bet it will continue. It has the potential to disrupt distributors trading or at the very least make it much more expensive.
It will force distributors to make a number of strategic decisions. With some large retail chains applying pressure on distributors to push down margins, and demanding more onerous terms, many distributors could decide they want to focus on fewer channels.
The underlying point for some could be facing the question of whether they can simply afford to take on the volume of business they did in the previous year. The people who have got a strong balance, access to funds and flexibility of costs will prosper.
How many businesses are in a position to readjust their cost bases? I would estimate that staff represent a third to a half of most distributors' costs, with the remainder made up by warehouses and IT systems. Those last two are tied up over a longer period and are difficult to adjust.
On the plus side, distributors could see the strengths they had in their business that were of marginal value in the past suddenly become a greater competitive asset in the new conditions.
Do I think survival is winning? No, but I do think it will be a very tough year for us all.