As we enter the second half of the year, we have given much thought to how the year is going for office technology dealers and OEMs. We will have a better sense of course when we complete our 2024 Survey analysis which will be published in our October and November issues.
Post-Pandemic Profitability
As we see it, manufacturers still feel the struggle caused by the pandemic. What tells us that is they seem reluctant to hold their usual annual dealer meetings. At least three have gone to alternate years, and others host multiple smaller meetings around the country. Plain and simple, they do not have the budget for it. Let us not forget that the rise in food prices has increased the cost of catering a dinner by 30%.
There is no question that manufacturer profitability is not where it was prior to the pandemic. We estimate that their entertainment budgets have decreased by 20%.
We can tell you categorically that our business is still not back to where it was in 2019. A sizable portion of our revenue comes from manufacturers, although this year, we will experience an increase in total revenue greater than the prior three years. We are all in the same industry, and we seriously doubt that our numbers are off.
The 8% of dealers whose revenues are increasing are creating encouraging signs based on our 2023 Annual Dealer Survey. The problem is that the 16 dealers who reported $100+ million in annual revenues were only 3.4% of the responding dealers from last year and were responsible for 45% of the $17 billion those 2023 Survey’s 458 dealers reported.
Our one major concern is that dealers are still looking for answers from their manufacturers. This comes from dealers who their respective manufacturers highly regard. Those questions that remain unanswered have mostly addressed areas that directly impact profitability.
Good News for Dealers
The good news is that greater revenues are coming from alternate sources. We are referring to the soft side of the business. VoIP has certainly been an immense help to IT services. Dealers’ increasing efforts in diversification have stimulated much encouraging conversation. Our Annual Survey shows us just how much that effort represents.
Hardware manufacturers have not stopped product development, and today’s machines are infinitely more reliable than the ones they replaced. Ergo, the cost of service has decreased. Third parties providing supplies such as Katun (our estimate) are having a banner year. Once again, this has increased profit for dealers using secondary or third-party sources.
Let us not forget e-commerce, which provides a positive return to those who participate in more ways than one. Stay tuned; next month, we will present a Fridays with Frank focusing on e-commerce.
The Impact of Acquisitions
We are seeing that acquisitions are continuing and strengthening the remaining dealers. A portion of those selling their dealerships did it much too soon. Dealers who sold during the days of Alco Standard have told me they should not have done so. When I asked them why, they said, “I could have done what they are doing.”
This was long before dealers began acquiring in significant numbers. That may still apply today. We would not be pointing this out if we were not optimistic about the remaining dealer population.
The sell-off that is going on today is increasing the value of those who are hanging in. Think about it. When a dealer sells, that leaves a slight vacuum in the geography they vacated, and usually, the employees of the acquired dealer may want to seek employment elsewhere.
The manufacturer, who was the dealer’s primary A3 provider, wants to ensure the MIF is protected. So much depends on who is buying it. We passionately believe if fewer dealers seek to sell in 2025 this will mean greater opportunities to sell and potentially at higher prices.
Whoever picks up the dealership inherits a business that could give the buyer options that he previously did not have. This means there is an opportunity to add talent to the company’s roster. It can also possibly mean a new manufacturer offering various products expanding the buyer’s portfolio. At the same time, a pool of new employees could screen and discover new and different talent.
There are many ways to look at this current model, and I believe there is a significant benefit for those who elect to stay active in the business.
The Tipping Point
That said, there must be a tipping point, and an erosion of distribution also comes with a degree of negativity. For the short term, it is not a bad thing, and staying with the business and the opportunities currently being offered could lead to significant gains in the business.
That does not mean you should just stand pat and wait for a better opportunity to sell. You need to invest in increasing the productivity of the workforce, including sales and service. AI is a tool to do just that.
