Market Focus
To Retail Or Not
By Ramdas S
 In 2005, right at the onset of IT retail boom in India, several traditional sub-distributors (SDs) set up retail outlets as a natural business expansion. While it was business as usual thus far, in the recent past several resellers and retailers have started voicing concerns. They claim that SDs often offer better deals at their retail stores than what they offer to the resellers, and this is adversely affecting their business.
Says K Balaji, CEO of Vignette Informatique, a Bengaluru-based reseller, “Recently, a customer complained that we were quoting a higher price for a popular notebook brand than a retailer nearby. The said store is owned by the regional distributor (RD) of the same brand. The RD offers end-user prices that are on par with reseller-transfer prices. When we confronted the RD, he gave a feeble excuse,” he laments.
The affected resellers are asking their respective associations to urge SDs not to sell directly to end-users. One of the appellant, Francis Xavier, CEO of Kochi-based Zone Systems & Peripherals, says, “I have requested our association to boycott SDs that sell products to non-registered dealers or end-users at lower prices.”
Sridhar R, President of Bengaluru-based Association for Information Technology (AIT) feels that resellers’ concerns are genuine. “If SDs start selling directly, the channel ecosystem will collapse. Resellers will find it difficult to do business. So, this issue requires attention.”
Toshy Mathew, President, All Kerala Information Technology Dealers Association (AKITDA), also confirms that such complaints have been coming from partners for long. “When SDs start selling to end-users, the market operating price (MOP) gets affected. As an association, we have taken due notice and are working on a framework to redress the issue.”
AKITDA plans to put in place a mechanism to check the Sales Tax related forms of SDs. “At a recent meeting we proposed that in case of complaints against a SD, the association should be allowed to check its Form 8 and 8b—to ensure that there is no discounting in pricing to end-users vis-à-vis resellers. A number of SDs are willing to accept such a system, as they are keen to follow fair trade practices,” claims Toshy.
The association has also advised its SD members not to operate retail and sub-distribution businesses from the same premise, and have asked both distributors and vendors to come up with policies to ensure that SDs don’t take undue advantage of their volumes.
AKITDA plans to freeze the framework by the end of 2010, after holding discussions and taking all members into confidence. “While we are not against retailers distributing and distributors retailing, we need price parity so that MOPs remain constant and everyone makes money.”
Some SDs agree that the practice of SDs selling to end-users is unfair. Manish Goyal, CEO of Byte Peripheral Systems, an Indore-based SD, says, “We do not sell to end-users, as we want to ensure that our partners get decent margins. Also, in the longer run, it will alienate our partners.”
Arvind Modi, CEO of Bits and Bytes, a Jaipur-based SD, who also has a large retail business, puts the blame on vendors. “Vendors should ensure that their authorized SDs do not retail. In Jaipur, SDs of Acer and Dell also retail. That, I believe, is not a fair practice. As a SD, we distribute networking products and retail computer products. We make certain that we don’t undercut any of our resellers.”
Sensing that SDs opening up retail outlets could upset the balance with tier-3 channels, vendors such as Acer and HP have introduced unwritten policies disallowing SDs to set up authorized retail outlets. S Rajendran, CMO, Acer India, says. “We generally do not encourage our Master Resellers to start Acer Malls or Acer Points. Also, our channel and pricing policies do not give unfair advantage to volume players.”
But resellers complain that many SDs find a way around this and open their retail business under a different company. And when they do that, vendors turn a blind eye.
AKITDA’s Toshy advises that channel associations, vendors and distributors need to work together to address the issue. If not addressed soon, he cautions, the situation could affects the health of the overall channels rather adversely. |