Tougher to Stay on the Shelf

Distributors are cutting unprofitable products.

Its getting increasingly difficult for second- and third-tier component vendors to stay alive. Both Tech Data and Ingram Micro, the only healthy mass distributors, have been systematically slicing out product lines to make room in their warehouses for newer technologies.

Over the past year, both distributors have cut hundreds of vendors from their line cards because they dont sell enough volume, their margins arent high enough, or the cost of doing business with them is too high.

"Were looking at every product, from cables to memory," says Elio Levy, senior VP of marketing at Tech Data. "We dont need to carry six brands of cable, so we look at the ones that are less profitable, give them time to fix the situation, or we cut them."

The situation is roughly the same at Ingram, where COO Michael Grainger says the company has been looking closely at profitability for all vendors and products it stocks. "Weve been looking hard at our inventory levels," says Grainger, adding that Ingram cut out between 100 and 200 vendors.

Distributors are wrestling with the value of shelf space and whether it pays to keep every vendors product, or whether they can reap higher profits by adding new products.

For instance, Tech Data says that in the past two quarters it has added telephony and storage-area-network products, as well as Internet appliances, but even in new technology areas, tier-one brands have a major advantage.