What does Arrow exit mean for ITAD market?
In the wake of Arrow's decision to wind down part of its ITAD operations in the US, UK and elsewhere, CRN asks whether this is indicative of a weakening market
In a move that took many by surprise this week, Arrow announced it plans to dump a chunk of its IT asset disposal (ITAD) business across several countries in which it operates, including the UK.
When the distie bought Computacenter's ITAD operations RDC in 2015, CEO Michael Long stated at the time that the move would "further broaden Arrow's value recovery business in Europe [and] allow us to better address the growing requirements of our global customers".
Fast-forward four years and it seems as though the purchase hasn't quite lived up to Arrow's expectations.
Long explained that the business is not "sustainable" in the long-term nor is it any longer "aligned" with its strategy as the company's PC and mobility asset disposition business posted a Q2 loss of $17m.
Press reports also suggest that the distributor plans to cut more than just client devices, with a spokesman telling US outlet Channelnomics that it "…will not be retaining the enterprise ITAD and decommissioning services internally".
As one of the largest players in the ITAD space abandons it over concerns about its financial viability, what does it mean for the broader asset disposal market?
Rag and bone IT
Steve Haskew, strategic commercial director at Portsmouth-based ITAD firm Circular Computing, dismissed the distie's reasoning that it isn't a financially sustainable business.
"Just because Arrow says it's financially not sustainable for their business, does not mean it's not good business," he explained.
"It just means that maybe their costs are misaligned with the ITAD sales strategy. It doesn't mean there's no business in second-hand technology.
"It might be a strategic play by that organisation because it values other things that it's doing, which it sees greater value in. It doesn't mean there is no value in ITAD because there is."
Haskew added that asset disposal is often a misunderstood sector in the channel, which can lead to other companies and customers not seeing the value in what it offers.
"There is a massive demand for it, but it's whether or not people value it enough to pay what they should be paying for those services," he stated.
"ITAD is kind of like the rag-and-bone end of the IT industry and it is still perceived that way because people don't understand it; because they don't understand it, they don't value it and if they don't value it, they won't pay for it."
Arrow had evidently placed a lot of value on its ITAD business when it shelled out £56m to Computacenter for RDC, but evidently, it was struggling to attract those chickens home to roost judging by its second quarter performance this year. It reported revenue of $78m (£62m) for its PC and asset disposition unit.
The Asset Disposal and Information Security Alliance (ADISA) is an organisation that audits and certifies companies in the ITAD space and counts Stone, Restore Technology and Bell Integration among its members - as well as Arrow.
Steve Talbot, managing director of Restore Technology, said that he was "shocked" by Arrow's shuttering a part of its UK ITAD business, but that he had known it was struggling, claiming that he'd seen "a lot" of employees and customers leaving the distie's ITAD unit.
"RDC was a successful company when it was owned by Computacenter - I guess Arrow wasn't moving with the times," he mused.
"Obviously the value of the kit is going down all the time as technology progresses.
"I think Arrow was really looking at it as a commodity rather than as a service.
"They took their eye off the ball, then their returns on the equipment will be less and less. But we look at it from the customer's point of view, which is all about data and hard drives.
"ITAD has moved on and we do a lot more than we used to do, ie picking up at the end of its life, helping customers move it around and redeploying the imaging kit. The market is built around security of the data and GDPR has made a huge difference to us - it is fundamental to what we do.
"We've had to go further up the food chain to be able to provide a proper service all the way through."
Not all in the channel were surprised about Arrow's move, however.
Credit management expert Eddie Pacey said it's a move the distributor should have made a year ago.
"Given the losses that they sustained, in the last two quarters, in particular, they should have probably dropped it a little bit earlier than they have," he said.
"I don't think ITAD is a dead market. I think it's a market with a relatively short lifespan given current events, the issue of green, the issue of businesses hanging on to their kit, the issues of uncertainty with what's happening with Brexit."
Pacey (pictured below) added that Arrow might have purchased RDC in order to expand its customer base and that once those customers were locked in and loyal, it had no further use for its ITAD business.
"In the early days, asset disposal was just a means of retaining and locking clients and making sure that when they did refresh the piece came to you for a refresh.
"I very much suspect that when you buy an asset disposal business, your primary return is in the clients that you're actually acquiring.
"I don't think that the distributor should be involved in it at all."
Is sustainability sustainable?
Arrow's decision to wind down its PC asset disposal activities in the UK -as well as in the US, Sweden and Belgium - also leads to questions about the long-term future of the green economy in the channel.
The growing buzz around sustainability has led to increasing customer interest in opting into the circular economy.
This means that an organisation refreshing its hardware would pass its old kit to a third party, rather than throwing it away, and it would then be resold.
Andy Wright, commercial director at XMA (pictured below), said that he is seeing the circular economy explode in the public sector, as organisations try to keep up with tech advancements on a limited budget.
He said he was "gobsmacked" at Arrow's move out of the ITAD market, but said that he hasn't noticed any weakness in the circular economy nor the demand for refurbished tech.
"I think this is more a sign that Arrow hasn't been able to adapt its business to it and take it forward than the market [weakening]," he stated.
"The work we're doing with HP in terms of upcycling is a strong business. I'm not taking it as a negative in terms of the ITAD market and the sustainability agenda at all.
"Maybe the problem it has got is that it was a pure ITAD play - maybe that doesn't work. Maybe it works for people like ourselves because we're not a pure ITAD, we're doing the full lifecycle of the device, hence there are other revenue streams."
Future asset
Though one of the largest players in the UK space has exited, none of the ITADs we spoke with believed there to be a weakening in the market - quite the opposite, in fact.
Computacenter CEO Mike Norris told CRN that securing an asset disposal operation for his clients is a priority for him at the moment.
He said that he was considering a number of options, which included the possibility of buying back RDC.
Restore's Talbot said that though he feels for the employees who've lost their jobs, he would have been interested in working with Arrow, had he known their plans.
"We would have jumped at the chance of trying to do something with them if we'd known, but clearly that wasn't part of their strategy and they're just pulling out," he explained.
"Which is a shame but it gives opportunities to the rest of us in the industry to fill the gap and hopefully keep the customers happy."
Talbot predicted that the next few years will see the ITAD space follow the consolidation trend seen in other areas of the channel.
"It is still very fragmented, but I do see it being consolidated in the next three years quite quickly," he explained.
"I see a lot of smaller players probably taking the opportunity to sell up and with the trade association, everyone's having to be much more professional with how they provide the service. If you don't have all the right standards in place, then you're going to get left behind.
"For an ITAD to be successful, you have to be focused on data sensitivity. As long as the kit is being dealt with properly and environmentally that's the second part of it.
"But to base your whole business on the resale value of kit - it's not going to work this day and age."