Electrocomponents, RS PRO & B2B Distribution
Former President at Electrocomponents
inpractise.com/articles/electrocomponents-arrow-electronics-and-b2b-distribution
Why is this interview interesting?
- ECM is facing gross margin pressure as suppliers have more bargaining power and take back ownership of servicing end customer
- The broker community is pressuring ECM competitively by sourcing product more efficiently during tight supply
- Potential competitive risk if Arrow can find a way to get into high-service distribution
- RS Pro has room to expand to 25% of total sales which will drive gross margin
RS Group
Why is this company interesting?
Founded in 1937, Electrocomponents (ECM) is a UK-listed industrial and electronics distributor that provides MRO components, automation and control, and technical electronics products to businesses globally. The company is a high-service distributor that aims to provide value-added service beyond simply selling components that an Arrow Electronics would focus on.
Over the last 10 years, the company has faced gross margin pressure and lower conversion of gross to operating profit that has dampened FCF growth. Lindsley Ruth, ECM's CEO, joined in 2015 and has reorganised the business to focus on value-add services to drive organic growth in addition to multiple acquisitions. ECM has compounded FCF per share at over 10% for 20 years and still has opportunity to expand globally.
ECM is part of our global B2B distributor coverage to understand what drives a sustainable competitive advantage in this business.
Electrocomponents, RS PRO & B2B Distribution(March 3, 2022)
Kurt Colehower
Former President at Electrocomponents
Kurt has over 30 years in electronic and industrial distribution. He is the Former President of Electrocomponents (ECM) after being recruited by the current CEO of Electrocomponents to turn the business around. He was responsible for running the global electronics business and launching RS Pro, the private label offering for ECM. Kurt previously spent 4 years running Components for Arrow Electronics in the US and 12 years at Solectron on the manufacturing side.
In Practise Notes
- Electronic suppliers have more bargaining power over the distributor
- The evolution in technology and product functionality is a structural pressure on ECM gross margin
- Electronics suppliers are taking back ownership of servicing end customers and disintermediating the distributor
- 66% of RS Pro is own brand
- The lower conversion of gp to ebit could highlight the higher cost of labour to offer high-value add services
Interview Transcript
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