Wholesale computer distributor targets niche software makers

HANDS-ON EXECUTIVE IS BEHIND TECH DATA'S SUCCESS

November 25, 1991|By Jim McNair | Jim McNair,Knight-Ridder News Service

CLEARWATER, Fla. -- Enter the three-story glass building that houses Tech Data Corp.; take the elevator to the officers' suite on the top floor and you won't be anywhere near the company's chief executive, Steve Raymund.

Now, backtrack to the first floor and step into a large room crammed with 160 employees talking on phones to customers across the country. There you'll find Mr. Raymund, contentedly running the company from an office whose wide glass walls make him something of a hamster for curious employees.

"I really don't like the idea of executive suites," said Mr. Raymond, who at 35 is barely older than some of the salespeople within his view. "I think managers need to be out there with the people."

Mr. Raymund certainly has no reason to hide. Under his leadership, Tech Data has become the nation's third-largest wholesale distributor of personal computers and PC hardware. Since 1986, when Mr. Raymund took the company reins from his father, Edward, Tech Data's annual sales have grown twelvefold to $441.8 million.

Tech Data has continued its growth through the first half of 1991, as if the recession were occurring on another planet. At a time when the PC industry is reeling, Tech Data has managed to double its profits and push up sales by a third in the past year. And when the company needed to reduce short-term debt and open up credit lines to accommodate further growth, investors turned its $34.4 million stock offering last month into a sellout.

All this should come as no surprise to anyone who has followed Tech Data's share price in the past year. After an earnings collapse in 1990, the stock bottomed out at $4 a year ago. Recently it has been trading in the neighborhood of $30. The only thing shareholders can really complain about is the lack of a dividend.

Tech Data was founded by Edward Raymund in 1974 as a seller of supplies for the larger computers that preceded PCs. Its customers, almost all of whom were in Central Florida, were mainly hospitals, government agencies and other institutions.

By 1981, Tech Data was generating about $2 million in sales a year. That was also the year IBM introduced its fabled PC, and Tech Data jumped into the market. It came at a high cost: the company took on too much debt and the PC business was running in the red.

That's when son Steven, a 26-year-old graduate of Georgetown University's School of Foreign Service, took charge. With his father's backing, Mr. Raymund hired a telemarketing sales force to call PC dealers. He also produced a catalog and began running ads in computer magazines.

By 1986, Tech Data had been transformed. As a wholesaler of PCs, printers, disk drives, keyboards and other supplies in the booming PC market, Tech Data reached $37.7 million in annual sales and was growing fast enough to go public. Steve Raymund started the new year as chief executive officer.

Mr. Raymund's moves couldn't have been better timed. As it became clear in the early 1980s that PCs were going to be a permanent part of society, consumers flocked to buy their first machines. Retail PC stores popped up on every corner.

But as the decade progressed, consumers decided they didn't want to pay high prices at stores that knew practically nothing about their needs. More and more, they turned to discounters and mail-order firms.

Ultimately, a breed of dealers emerged who not only sold standard lines of hardware but could tailor software specifically for their customers. These were called value-added resellers, or VARs. Instead of appealing to the general public, they sought niche markets such as architects, restaurants or real estate brokers.

The development of these specialists is where the story of Tech Data really takes off.

Tech Data's best-known customers are an all-star cast in PC retailing: Sears, ComputerLand, MicroAge, CompUSA and Inacomp. But less than 25 percent of Tech Data's revenue comes from retailers. The rest comes from nearly 25,000 VARs that, typically, have fewer than 10 employees and less than $5 million in sales.

Tech Data is a true middleman. It makes no products of its own. All it does is take orders and ship goods.

"Our purpose is to fill demand, not create it," said Timothy Godwin, who was promoted to president last month. "If a customer calls and asks for an AST computer, our salesperson isn't going to try to talk him into buying a Toshi

ba or an Everex."

In its 11 warehouses in North America, Tech Data carries products made by most of the players in the $25 billion North American PC market. Until recently, each of the big PC makers, IBM Corp., Apple Computer Inc. and Compaq Computer Corp., bypassed companies like Tech Data and shipped directly to dealers and corporate customers.

But earlier this month, Compaq signaled a change when it announced its entry into the wholesale channel. It named Tech Data as one of its first two distributors.

"The few profit margin points that vendors have to give up to us are less than what they have to give up to dealers," Mr. Raymund said.

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