Catalog distributors draw big imitators

It's no secret that catalog distributors outperform the overall distribution market year after year. Now, large distributors are looking for a piece of the action.

By James Carbone -- Purchasing, 5/17/2007

If imitation is the sincerest form of flattery, then catalog distributors are feeling very admired these days. It's a peril of success.

Large distributors such as Arrow and Avnet have borrowed a page from the catalog distributor's playbook and have opened up their own small-order business units in an effort to imitate the success of catalog distributors.

Catalog distributors sell small quantities of parts often to design engineers working on new products or to companies that have small production runs.

Some say that catalog distributors are recession-proof because most electronics companies are always designing new products and have to buy parts for those designs. If revenue growth of catalog distributors in 2006 is any indication, OEMs must have designed a lot of new products.

While the average overall growth rate for the Top 75 distributors was 9.2%, catalog distributors' growth rate was 21.5% compared to 2005. Mouser, which was acquired several years ago by passives specialist TTI when TTI decided it wanted to benefit from the small order business, grew sales 33% to $184 million in 2006. It was the highest growth rate among the four major catalog distributors.

Mike Scott, vice president of active components for the Mansfield, Texas-based Mouser, expects growth to continue into 2007. 'We are hoping for another banner year. We expect to grow more than the industry average.'

One reason for Mouser's growth is that it is boosting its Web capability, says Scott. 'We put in a lot of effort to make sure we had the entire portfolios of our suppliers loaded up on the Web rather than just a sampling of the products they offer,' he says.

'We aren't looking for suppliers that can second source other suppliers. Instead Mouser is trying to give customers parts for the full bill of materials for a system design,' says Scott.

Scott says Mouser differentiates itself by not requiring minimum orders or charging a handling fee.

In addition, Mouser comes out with a new catalog every 90 days. 'We try to touch every single page of the catalog,' says Scott. 'The idea is to make sure that obsolete parts or parts that aren't recommended don't get used in new systems,' he says.

'At the end of the day, we have a simple business model: get the newest products into the newest designs and not worry about going after volume and other things that convolute the message,' says Scott.

That is a reference to Digi-Key, a catalog distributor in Thief River Falls, Minn. which in recent years has been pursuing production business as well as small orders. Digi-Key has been successful in developing its production business and now 40% of its revenue is from its volume business, says Mark Larson, Digi-Key president. Larson says he expects that percentage to grow and volume sales should eventually eclipse 50% of Digi-Key's total sales.

That doesn't mean Digi-Key is giving up on its small-order business. 'The engineering side is still our core business. Our goal is to make sure we are strong in each area,' says Larson.

Larson says that while Digi-Key's volume business is growing, it is not the only reason that Digi-Key grew its North American sales 25% in 2006. 'Our growth can be attributed to a combination of things. We maintain high in-stock percentages so products are available off the shelf,' he says. 'We ship the same day we get an order. If there is a problem, we resolve it quickly and fairly,' he says.

Catalog distributors’ revenue growth usually outpaces the growth of the overall electronics distribution industry.

Signing agreements with new suppliers that have in-demand products based on the latest technologies is always important to catalog distributors if they expect to add new customers and win repeat business.

Reaching new customers is a constant priority for Allied Electronics based in Fort Worth, Texas. Allied grew its sales 21% in 2006 and expects double-digit if somewhat slower growth in 2007, says Rob Birse, director of marketing communications for Allied.

He says the sky is the limit when it comes to growing its long-term sales because there are many customers Allied is not yet reaching.

''We've barely scratched the surface,' he says. 'We are doing business with about 60,000 companies on an active basis but we could be doing business with 250,000 so it is a continuing quest,' he says.

While Allied is trying to increase its number of customers and sell more to existing customers, Birse says the efforts by large distributors to go after the small-order business should not hurt Allied's efforts.

He says it is flattering that distributors want to go after small orders.

DeWight Wallace, president of Newark InOne in Chicago, agrees catalog distribution is different than large, broad-line distribution. 'It's a different business model and it may be difficult for large distributors to reconcile it with their broad-line businesses,' he says.

He understands why the large distributors are looking into small orders. Margins are higher and revenue growth is stronger. Newark InOne enjoyed double-digit growth in 2006 as it grew its sales 11% to $607.6 million.

Wallace says Newark InOne grew sales in part because it was able to capitalize on Restriction on Hazardous Substances (RoHS) legislation.

'We took a lead position with RoHS. We positioned ourselves as an information source and a true partner rather than just a distributor,' says Wallace. 'We were first to market with a lot of information. We had a RoHS-specific catalog.'