Light at the end of the tunnel for the channel

Vendors are struggling for market share and profitability, quarter on quarter growth has been slow and declining, consumer spend is low, and this has a knock on effect throughout the channel.

July 15, 2013

There is no doubt that the first six months of 2013 have been incredibly tough for the channel. Vendors are struggling for market share and profitability, quarter on quarter growth has been slow and declining, consumer spend is low, and this has a knock on effect throughout the channel. These challenges are driven in part by continuing economic trouble across the world, coupled with a weaker Rand, which has reduced the budgets of consumers, causing sales to slow.

Says Kalvin Subbadu, Components Sales Manager: WD South Africa: “The volatility of the Rand has had a huge effect on sales, as consumers have a limited budget. This means that the margins of vendors and distributors are being continuously squeezed, as retailers need to move products, but require lower prices in order to do so. Profitability is further challenged by the need for vendors and distributors to maintain stock levels, which costs money, particularly if this stock is not moving.”

Says Anamika Budree, Branded Sales Manager: WD South Africa, “A combined effort between manufacturers and retailers is what’s needed for all parties to maintain a healthy level of profitability. With the right products, at the right time and correctly priced, it could be a win-win situation for everyone involved. Due to the current financial climate we cannot expect significant margins that we’ve been used to in the past but at WD we continue to use our technological innovations to create storage products and solutions that consumers need. Furthermore, this is at a price point that benefits both our channel partners and end-users.”

Coping with a declining market requires innovative strategies across the channel. One way is to maintain lower stock levels, and buy forward cover to try and ensure products are purchased when the exchange rate is more favourable. Businesses also need to become leaner, to maximise efficiency and reduce overheads in order to increase profits. But ultimately, says Budree, it is a matter of ‘waiting out the storm’.

“It is a difficult situation, but vendors and distributors need to be patient and allow the economy to strengthen and the market to normalise. The entire channel also has to work together to change customer expectations; we should all be selling a solution and not just a product on price. We need to sell the value of products rather than the price, and maintain this in the minds of consumers as we still believe the consumer will pay a very small premium for a complete solution that will add value to their day to day life,” she says.

Although the current market paints a picture of doom and gloom for the next six months, there is light at the end of the tunnel. New products and innovation always drive additional consumer spend, and the lead to the holidays should see an increase in consumer spend.

“The market is tough, and profitable sales remain a challenge, but this is not something that will last forever. The channel needs to partner with the right vendors, who deliver products that add value for consumer. It would also be wise to explore new markets in the interim, targeting niche customers, becoming more innovative in their approach to sales, looking for new avenues to create business, and possibly exploring business outside of South Africa where margins may be higher. Ultimately improving efficiency and running a lean business are the best options not only to relieve pressure in the short-term, but improve profitability in the long term as well,” Subbadu concludes.