Hartco to Exit Distribution Business

Tech Data Canada's Rick Reid on picking up Hartco's distribution business

Tech Data Canada president Rick Reid

After more than 30 years in the Canadian distribution scene, Hartco is exiting the business, citing decreased profitability and a desire to focus itself more completely on serving franchisees and attracting new VARs to its network. The company has struck a deal with Tech Data Canada that will see the bulk of its Hartco Distribution business handed over to Tech Data Canada, which will provide logistical support for Hartco’s MicroAge and Metafore franchises.

Distribution has been part of Hartco’s business models since the late 1970s, but Hartco president Pat Waid said it has seen the market shifting, and believes there are greater opportunities for his company in its franchising business.

“Distribution continues to be profitable for us, but the volume has been eroding,” Waid said.

The business never fully rebounded from the late-2008 financial crisis in terms of volume, plus there are the inherent challenges of the current PC business. Add to that a desire on the part of many vendors to work with fewer, larger distributors, and Waid said he believes the next few years would have proved “extremely challenging” should Hartco stay in the distribution business.

“Rather than wait until our profitability is really challenges, we decided to make the move now, negotiate from a position of strength, and position ourselves for what lies ahead,” Waid said.

Hartco franchises typically have “second source” arrangements with most of all of the major broadline distributors, and MicroAge and Metafore locations make up a significant business for each of Tech Data, Ingram Micro, and Synnex, as well as working with value-added distributors like Avnet, Arrow, and Westcon. Waid said he has a lot of respect for the job that all of the broadline distributors do, but ultimately, he felt that Tech Data Canada offered “a difference in terms of quality of service.”

For Tech Data Canada, it’s a matter of moving the needle. The company has been on a mission to increase its value-added offerings for the last few years, but ultimately, Tech Data Canada president Rick Reid is quick to point out, “there’s value in volume.”

“Bigger is always better, and volume has been hard to come by over the last few years,” Reid said. “This doesn’t compare to the acquisition of Globelle, but it’s a big volume of business.”

The deal was especially rewarding because although Hartco franchises bought a fair bit from Tech Data, Reid said Tech Data was not Hartco’s “largest broadline distribution partner,” suggesting that in addition to picking up a good deal of the volume Hartco Distribution was doing and adding that scale, there are opportunities to do some share shift from competitors. Hartco’s pure distribution business was doing in the neighborhood of $150,000 to $200,000 annually. Not all of that is going to transition to Tech Data Canada necessarily. Franchisees will continue to work with many broadline and value-added distributors, and Tech Data does not have deals with all of Hartco vendors, meaning that franchisees will have to look elsewhere, at the very least, for some vendors’ wares.

The two companies expect to have Hartco’s distribution business shifted over to Tech Data by the end of the year. Up first is an effort to better integrate the two companies’ electronic ordering systems, a move which will make it easier to then move Hartco inventory into Tech Data Canada’s Toronto- and Vancouver-area distribution hubs. Both Waid and Reid said that customer service for Hartco franchisees was a top concern in making the deal, and Waid said he believed that Hartco franchisees across Canada would see at least the same level of service they’re used to seeing from Hartco Distribution, while support would likely improve for those close to Tech Data’s major distribution centers.

Shutting down distribution and handing the inventory over to Tech Data means the end of Hartco’s Montreal-area distribution hub, and Waid said that will mean job losses for distribution-focused staff. Although he said Tech Data will offer opportunities that might crop up to Hartco staffers, the fact that the two companies’ distribution centers are at best a province apart makes that a tricky proposition. Waid said that Quebec-based franchisees will not see any changes to the level of service they receive in the shift.

On Tech Data’s side, there will be some additional roles in its distribution facilities and relationship management teams to accommodate the new business. Reid said the deal was announced internally on Thursday, and he’s already getting existing staffers interested in helping out on the new team that will guide the transition and the Hartco business going forward. They will join “a fairly sizeable team” already servicing the distributor’s business with Hartco franchisees.

For his part, he believes franchisees will see a service upgrade.

“Availability and next-day delivery in particular will be an improvement over what they’ve been accustomed to,” he said.

For Hartco’s part, exiting distribution means more time and energy spend on its core business of attracting and developing franchises. Waid said he expects to increase marketing services, sales and technical supports for franchisees as a result of this renewed focus. And he thinks it’s coming at just the right time.

“This new model will be better received than our traditional model with prospective franchisee candidates,” he said. “It’s going to be increasingly difficult for independent VARs to compete, and there a lot of benefits to franchising. That’s something we’re going to take to market.”

Hartco is the second legendary name in the Canadian distribution space to exit this year as the big distributors continue to get bigger. Earlier this year, distribution stalwart Supercom, led by industry icon Frank Luk, was snapped up by Synnex Canada.Tech Data Canada’s Reid has long made the argument that Canada as a market is overdistributed, and is likely to continue to do so for the foreseeable future. But with the departure of major second-tier players like Supercom and Hartco, it’s certainly a lot less overdistributed than it was even on January 1 of this year.