Monday, May 13, 2019
Alex Tatham, MD of IT Distributor Westcoast, is enjoying another year of sustained growth despite challenging trading conditions. In this interview, Tatham spoke to TBT about the Westcoast journey and how the business is helping partners succeed in a world dominated by cloud services.
Relaxed as always, Tatham brings a certain level of calm and sense to most conversations. Despite the country’s political system in utter turmoil Tatham’s voice of reason has led the distributor to yet another consistent year of growth.
Westcoast’s latest financials revealed 10-11% growth in revenues to £2.465bn last year, which equated to about £24m in profit.
“We are a big business (1,372 staff members) in a low margin world. We also have some of the lowest costs in the business, our overall SG&A costs are about 1.6%. That is a very attractive cost to any vendor that wants to reach the mass UK and Ireland markets.”
On the year ahead Tatham says “Our target this year is for double figure revenue growth and that will filter through to the margins. As always, we are looking to deliver sustainable profit margins to our shareholders …which is 100% Joe Hemani!”
“Joe is still involved in the business and he is energised, he has the drive and hunger which really exudes itself to all his directors.”
The numbers are looking good, but where is the growth coming from exactly?
Tatham continues “The retail business is growing, despite the fact the market is challenging right now. We are winning good share because we have a very strong service for retail to take to their customers. That was around £420m last year. There is more to come this year because vendors are attracted by that low cost we have in the business, which helps drive good value into retailers. We are expecting that to grow another 10% this year despite the fact the overall retail market is going backwards.”
Direct fulfilment has been a strong area of growth for the outfit as vendors struggle to cope with the demands of end users “We are going to be doing a lot of direct fulfilment on behalf of vendors, again they are attracted by our cost and efficiencies. We are a Pan-European business and we have warehouses all across Europe. It doesn’t matter what type of vendor it is, we can do it.”
Preparations for Brexit?
“I’m delighted to talk about Brexit, however what I say will be out of date by the time people read this! The overall message is we have been preparing for a no-deal situation for the past year because that is what Her Majesty’s Customs and Excise told businesses to do. Clearly it’s costing us money and time to handle this. However, if it wasn’t Brexit it would be something else. Normally it’s a vendor causing us problems because they have changed their terms and conditions. It happens all the time!
Some of the work is going to be temporary, i.e. stocking up. Unfortunately you can’t stock up forever, we are just doing it to get us over a hiccup. That is largely to do with delays, I haven’t met a shipping agent or logistics company who doesn’t think they are going to be horrendous delays at port. That will affect the IT industry as much as the cabbage industry.
Stocking up is all about getting over that hiccup so both governments, the UK and EU, can prep their port facilities so these things can happen quicker. I think it will get better over the subsequent years to follow.
All partners can do is advise their customers there are going to be delays. If you have something configured to order, which a lot of servers are, by a vendor in Eastern Europe, those goods still have to get across The Channel. My advice to resellers is to make sure you are working with your distribution partner to ensure you can store goods and roll them out, and to make sure you are buying from Channel stock as opposed to configured to order stock.”
Westcoast has quadrupled the size of its Configuration Centre in order to service vendors, this has been driven partly by Brexit, normally the preserve of Eastern Europe we now are expecting to see an upsurge in local configuration across the board this year.
When it came to asking about Westcoast’s cloud business Tatham paused to draw breath. “It’s growing like crazy, it will probably grow fifty to sixty percent this year. When resellers commit to us we grow the business from within. As soon as the customers move onto Azure, and we are supporting them, they typically start spending more money on additional services.”
Tatham believes there is a huge opportunity for the Channel in the SMB space when it comes to the cloud. “The enterprise is mostly there, or at least for ninety five percent of them, in the SMB space it is probably nearer a third, that means there is bucket loads of space to grow for the Channel.”
“The world has moved on, I think everyone realises we are moving to a hybrid cloud environment. Westcoast is investing in the multicloud software along with HP, HedVig and Juniper. This is to ensure we can manage multicloud environments and move workloads across clouds, containers, on-premise, off-premise or wherever is needed. It’s a really important part of a reseller armoury, they need to be able to manage the workloads.
If resellers aren’t involved in the cloud at all then they will get muscled out of the end user. They must start talking to their customers about their cloud strategy. Technology and connectivity is improving all the time and it really is a journey for customers. If a reseller is not involved in that then they will lose.”
The impact of those born in the cloud partners are also starting to show, Tatham added “Our biggest cloud resellers are selling to some of the biggest companies in the country. The reason they can do so is they don’t have a legacy licencing business or legacy hardware to manage. They are totally focused on moving their customers to the cloud and supporting them through their cloud provisioning. You are seeing some of these partners compete on enterprise agreements. These agreements used to be the preserve of seventeen MSPs, they were the licencing providers that were anointed by Microsoft to do that licencing. Those agreements are now moving to the cloud and are now being competed for by a whole new range of resellers.“
So there is bit of a shake up going on? Tatham replied, “I love it, let’s shake it up a bit more!”
Sixty percent of partners joining Westcoast’s cloud business are new born in the cloud type businesses but it’s the other forty percent of traditional type resellers where Westcoast is really adding value.
“Everyone signed up with Microsoft initially thinking it was marvellous because they could cut out distribution, but then they didn’t sell anything! Partners found they needed the energy and support of the distributors which is why we are all doing so well in this space with Microsoft.
Westcoast aren’t alone in this, all the tier one partners are helping their customers get into the cloud. Microsoft have a partnership mentality and that is helping them compete against Amazon and Google. You are going to see Amazon invest significantly into their partnership base this year. Amazon has just taken a key person from Microsoft to head up their indirect business in the UK, you will see more happening this year whilst they build. It’s an interesting one because their natural mentality was to kill the partner off, but now they are going to support them.”
If you deny Amazon and put your head in the sand then that is an opportunity missed. You have to make sure you can work with them where you can and compete with them where you can’t.”
On the major drivers for growth this year Tatham remains bullish about the opportunities emerging.
He said, “Clearly, end of support for Windows 7 is going to drive a significant amount of activity this year in the UK. You will also see a whole range of opportunities for the MSPs because they will know where all these PCs are because they have all the right capabilities, particularly in the public sector. Fifteen percent of machines in the NHS are still on XP, what a huge opportunity! You will see plenty of hardware coming through also so it will be a good year for the IT industry.”
“What was considered value-added ten years ago is no longer a value-add. Partners now have to do what I would call the MSP work i.e. monitoring customers and providing them a real service. Westcoast will be at the heart of that, our services business will grow 5 fold this year”Westcoast Managing Director Alex Tatham
“I think you will begin to see the systems integrator channel and the service provider channel, people that own data centres, buy directly from distribution also.
You are going to see services, financial services, Device-as-a-Service, cloud services, configuration services be the preserve of distribution. The disties will invest more in this space, effectively helping resellers close down their warehouses and outsource it back to distribution to do the main logistics.”
Tatham concluded “What was considered value-added ten years ago is no longer a value-add. Partners now have to do what I would call the MSP work i.e. monitoring customers and providing them a real service. Westcoast will be at the heart of that, our services business will grow 5 fold this year. If you are not monitoring your customer’s business then you will lose out. Someone else will provide a managed service if you don’t!”