Arrow ECS A/NZ exit highlights ‘value add’ priorities as distribution landscape shifts

ANALYSIS: Arrow Electronics’ announcement this month that it is shutting down its ECS operations in the Australian and New Zealand market generated shock across the industry.  Speculation has been rife across the market over what went wrong.

Many have pondered how a thriving disruptor in the distribution space could go from the heights of success in 2020 with approximately $700 million in revenue down to $161 million barely three years later. 

Market conditions, economic headwinds, a dwindling product line card, demand and supply may have been factors, but there’s also the leadership chain that influences business performance. 

The operation’s profitability in the Australian market also took a massive hit, crumbling from $4 million in the black in 2022 to $4.5 million in the red in 2023.   In New Zealand, revenue halved over the past few years from $17.2 million in December 2019 down to $8.4 million in December 2022. 

In a statement to ARN, the distributor said it will honour its global contractual obligations, maintaining a limited presence to support these commitments and also confirmed 31 March as the date it will discontinue operations. Arrow Electronics’ components business in Melbourne is not impacted by this decision.

Arrow’s entry through acquisitions

Arrow ECS made its mark in the A/NZ market in 2014 through the acquisition of Observatory Crest, followed two years later by the acquisition of Distribution Central to help bolster its market share.  

At the time of the Distribution Central acquisition, Arrow had around 40 staff in Australia and revenue of approximately $4.2 million per employee, while Distribution Central operated 130 staff at around $2.4 million per employee. 

After the acquisition closed, the business continued to thrive, and revenue grew, according to former Distribution Central co-founder, Nick Verykios. Verykios led the Arrow business as managing director from 2016 until 2019 before another former Distribution Central stalwart Andrew Assad took over the reins.

In 2021, Arrow ECS underwent another change in guard as Assad left the business, with Karl Sice appointed general manager for the A/NZ region. Sice left the role in early 2023. 

Following Sice’s departure, Paul Marnane – who has worked for Arrow in Europe in various roles for the past decade – was flown in from Ireland to take on the leadership role.  

This may have been a case of too little, too late as the warning signs were already on display in the market particularly as Arrow began losing key vendor deals across its portfolio such as F5 and NetApp.

The product line shrank considerably in the past couple of years with its most recent loss being HPE at the end of 2024. Distribution Central’s prior lucrative relationship with HPE has been noted as one of the key reasons Arrow was originally interested in acquiring the business.

Market sentiment 

Nextgen CEO John Walters said it was a shock that a global, listed distributor would close operations in an important region and not contemplate any other avenues to keep operating. 

“It’s disappointing,” he said. “I don’t believe it’s a sign of a weakened market, not at all. 

“It’s all about relationships and looking after your key stakeholders such as your vendors, partners and staff, and it all comes down to leadership.” 

Westcon-Comstor Australia managing director Phil Cameron echoed these sentiments and said in these current economic conditions, financial management, working capital with flexible payment solutions and managing credit terms, and FX requires strong discipline.  

This is on top of delivering and exceeding expectations from vendors and partners, which Cameron said continues to be of “utmost importance in distribution”.  

Whether this was across subscription-based models, providing data and analytics targeted to help partners along with ‘Distribution 101’ in providing quoting, credit, support across both technical and sales, managing complex supply chain and inventories, complex deals, 3PL and working capital – these remain critical elements.  

“We’ve got to be delivering for vendors and partners every day. Providing tailored, bespoke commercial business demand generation marketing, leveraging and delivering vendor initiatives, and meeting partner expectations,” he said. 

Leader managing director Theo Kristoris added it was important for vendors to protect the ecosystem and appoint distributors that can add value. 

“Vendors need to watch who they partner with and stick with long term players that have a strong team and distributors that can help the channel grow,” Kristoris said.  

“Australia is a unique market and what works in other countries might not work here. Vendors need to understand service is very important and they require a distributor that can provide a lot of value and support the channel. 

“At Leader, we’ve got to make sure we’re continually evolving, listening to the customer and understanding what partners need to grow their business.” 

Dicker Data CEO David Dicker added it was a surprise to hear of Arrow ECS shuttering its A/NZ operations and doesn’t expect it will have much of an impact on the local market. 

“The real problem, and this has been the case for a very long time, is that if you can’t get critical mass, you can’t really get into the market,” Dicker said. “It’s exceptionally difficult and hard to get an edge. It’s easy to get squeezed out.” 

“You can be the best driver in the world, but if you don’t have a quality car, you won’t win the race.” 

A key turning point for Dicker Data’s business was the acquisition of Express Data in 2014, which is when the distributor excelled in Australian market, Dicker reflected.  

“I wasn’t in a strong position before the acquisition, not even close to where we are today. I’d been in distribution for 30 years before I got an outcome and created a billion-dollar business,” he said. “With Express Data, we managed to shift the business significantly.” 

To succeed as a distribution business in 2025, Dicker said you need to have correct metrics, a strong commitment to holding on to them and look after your staff. 

Challenging the status quo 

Verykios pointed out the two biggest problems facing the A/NZ distribution market was shrinking product margins and the amount of business going direct, further hightlighted by the amount vendors trading through marketplaces such as AWS. 

“In 40 years, the rules of distribution haven’t changed. Profitability of a distribution business is in the extra bits, the ‘value add’ and the way that is managed,” Verkyios said. “Distributors are smothered by pressure to be like everyone else in the market.” 

Verykios pointed out that distributors that have gained business due to another distributor’s loss were in fact, only dabbling in ‘bad’ business, which brought along ‘big headaches.’  

“If you’ve had a successful year because someone else was performing badly, you’re picking up bad business and if you buy bad business, you’ll be challenged,” he said. 

“There are still several distributors in the A/NZ market that are killing it because they’re doing something that someone else isn’t. Distribution doesn’t have to be hard.” 

Verykios said the biggest asset for a distributor was not logistics, providing credit and having an install base, but rather its ability to execute and in-turn innovate.  

“This is an industry-wide issue,” he said. “In a period of innovation distributors need to assess and redeploy in other areas, the ones that don’t and stick to things in certain ways, won’t be going forward. 

“There’s a massive hole in the distribution market at the moment that only innovation can fill.” 

While many distributors can look good on paper, Verykios said the ability to execute was a crucial factor that many vendors often overlook.  

“Vendors need to do their due diligence, not on strategy, but on the ability to execute,” he said.  

Insights into the install base is another key area that distributors should also concentrate on. 

Verykios said there were many dormant sales within the market and if companies unlocked that install base data, many more sales would flow through. 

This is particularly prevalent as more vendor transactions are run through marketplaces such as AWS, opening up the opportunity to take control of transactional management – taking stock of the lifecycle of sales. 

“It’s a goldmine,” Verykios said.  

Transformation time 

The whole distribution landscape is shifting significantly, according to Tech Research Asia analyst Mark Iles.  

“We will see more of that in 2025 and probably some more acquisitions,” he said. “There will be more rationalisation and consolidation in the market and the margins are always slim in that business. “

Recent acquisitions in the A/NZ market include Nextgen and Exclusive Networks, and SoftwareOne and Crayon.  

“Strategically the traditional boundaries between distributor, vendor, channel partner and end users are blurring,” he said. “Those rules about who sells to who, are going by the wayside. The way the ecosystem works and how goods and services get from the people that make them, to the customer at the end, everything in the middle of that, is changing.” 

Iles also highlighted the tremendous growth of marketplaces.  

“It’s another channel to market. The whole landscape is shifting and only the fittest will survive,” he said. 

Arrow ECS was approached by ARN to provide further comment for this story but said they did not have anything further to add to their original statement on the closure of operations in A/NZ.