ELKO CEO Svens Dinsdorfs has pointed to incredibly tough market conditions and ongoing commoditisation in IT distribution as the distributor looks to integrate its acquisition of a $300m player in Russia.
The Latvia-based player acquired household appliances distributor Absolut Trading Company in July last year, adding some 400 employees to its Russian operations and a larger warehouse on the outskirts of Moscow.
Dinsdorfs (pictured) said ELKO has made some headway in integrating the Absolut business. He said 50 to 80 Absolut employees have already been laid off as part of a warehouse reorganisation which will see all ELKO products move into Absolut's warehouse.
The warehouse restructure marks just one of several streamlining moves from ELKO as it begins cutting out costs and improving efficiency.
Only this December, the $1.5bn-turnover distributor sold off its head office in Riga, Latvia to an asset management group called Corum AM.
Meanwhile, Dinsdorfs also said ELKO has just completed an ERP software roll out across most of its office locations which cost the distributor around $500,000.
"We were working all of last year for this upgrade. The good news is: we didn't stall, we succeeded. System changes and upgrades like this are quite risky things," he said.
"I was very scared about what was going to happen. We had issues for one day after it was rolled out. We were doing some technical improvements and something went wrong, so we had one tough day but otherwise it's all fine and it just gives us opportunity to grow.
The ERP roll out as well as expansion moves into Sweden, Slovakia, Czech Republic, Russia and Poland over the last two years have all been ELKO's response to incredibly tough market conditions in distribution, Dinsdorfs claims.
"It's clear that without acquisitions, we wouldn't have growth at the moment," he said.
"I must admit I am looking with uncertainty and caution about what's going on in the market. Overall, looking at general trends, the first quarter looks weaker than what it was last year.
He added: "I think it is getting very transparent that distribution is becoming a total commodity. I think 20 years ago it was quite a hot industry and there was a lot of IT hype. It was a bit more complex because there were quite a lot of barriers in just trading and accessing the clients and markets. It's getting more and more transparent and automated, so it's a commodity.
"You need scale, you have to invest all the time to drive costs down, vendors want to pay less for distribution, and that's a force that's driving it down.
"We see that big Western disties are doing really well and the market has become really efficient and streamlined. If you look at eastern Europe, logistics are still quite complicated and it's not as easy or efficient. Bank transfers and things like that are more difficult and it's not as efficient to do those things so there's space for more distributors."
Integrating the Russian Absolut business will be at the centre of a 2019 that Dinsdorfs described as a "development year" for ELKO.
The distributor will also be ploughing ahead with integration efforts stemming from another acquisition. ELKO acquired Arašid, Slovakia's "largest specialised" games, gaming accessories and consoles retailers and a leading retailer of smartphones. The acquisition adds 15 physical stores to ELKO's business.
The move is another example of ELKO's strategy to grow through adding scale to its existing model.
"In Slovakia, we've been a bit more passive for around five years on the enterprise and non-Apple business. Because Apple has been dominating our business in Slovakia quite heavily but we've done some recruitment there and now we hope Slovakia and Czech Republic will get more active on the non-Apple side," he said.
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