ELKO Group

Elko Group is a Latvian IT distributor representing products of more than 200 manufacturers, including companies such as Acer, AMD, HGST, Intel, Lenovo, Microsoft, Seagate, Toshiba, Western Digital, etc.

The group offers products, solutions and services in 30 countries in Europe and Central Asia. In total, she has more than 7.7 thousand customers.

The main office of Elko Group is located in Riga, Latvia. The company's offices are also located in Lithuania, Estonia, Russia, Sweden, Ukraine, Romania, the Czech Republic, Slovakia, Slovenia and Kazakhstan. As of mid-2018, the group has about 770 employees.

Performance indicators

2021: Turnover growth by 3.2% to 1.85 billion euros

The turnover of Elko grupa in 2021 amounted to 1.85 billion euros, which is 3.2% less than in 2020. Net profit of the group increased by 30.4% to 39.45 million euros.

Business in Russia

2022: Sale of Russian business

Latvian IT distributor Elko grupa sold the business in Russia, which was announced at the end of April 2022. From that moment, the company began to separate operational and technical business processes.

Elko grupa got permission from all interested parties for sale of two subsidiaries in Russia: Elko Rus (LLC Elko Rus) and Absolyut trading house (LLC TD Absolyut), - it is said in the statement (quote by Interfax).

Latvian IT distributor Elko grupa sold business in Russia

According to the group, the deal will not only reduce the risks associated with the Russian market, but also improve the financial balance of Elko grupa. The currency risk associated with the Russian ruble will be eliminated, and the total costs of core activities will decrease, which will allow continuing business development in other markets.

After the start of the special operation of Russia in Ukraine on February 24, 2022, Elko grupa ceased deliveries to the Russian Federation, and the sale of subsidiaries was registered on April 25, 2022. From that moment, the transfer of assets and the separation of business processes began. For this, a transition period of one year is established.

According to SPARK-Interfax, Alexander Yamnitsky became the new owner of both companies - he owns 100% in each legal entity. The financial terms of the transaction are not disclosed. According to open sources, Yamnitsky oversaw the work of Elko grupa in Russia, the agency said.

By the end of April 2022, Elko grupa had three offices in Russia: in Moscow (central office), St. Petersburg and Krasnoyarsk. The company works with more than 5 thousand partners. Logistics centers are located in Moscow and St. Petersburg.^[1]

2018

In Russia, Elko's office has been operating since 1995. The company's Russian offices are located in Moscow, St. Petersburg and Krasnoyarsk. As of mid-2018, the Russian staff of the company has 177 employees.

Among Elko's more than 4,800 Russian customers are computer manufacturers, system integrators, retail retail chains and major resellers.

Business Structure

Distribution of Elko sales in Russia by the main types of customer business for 2017 and the first 5 months of 2018 "(data source - Elko Russia)"

Purchase of an Absolute trading house

On July 23, 2018, ELKO Grupa AS, an international IT distributor, announced the completion of the transaction to acquire 100% of the shares of the Absolute Trading House. Entering into a purchase agreement between companies will increase the reach of customers, giving them access not only to IT products, but also to consumer appliances and electronics (more...).

Elko: IT distributors were predicted to disappear, but they remain needed

In the mid-2010s, the IT distribution market in Russia is undergoing significant changes. Repeatedly, distributors were predicted to disappear as a loose intermediary between vendors and consumers of goods. And although the role of distributors of consumer and corporate IT products in Russia is changing, they are not threatened with extinction. Maxim Stomakhin, commercial director of the parent company of the Elko group, told TAdviser about the progress of this transformation in May 2018.

Maxim Stomakhin believes that distributors have a number of advantages that allow them to maintain a position in the market

Shifts in the consumer distribution market

Today we can talk about significant changes in the system of meeting consumer demand in recent years. 25 years ago there was a vendor - a manufacturer of a finished product or components, and there was a distributor who received the right to buy products directly from the vendor and sell it to second-level partners in his country. For example, resellers, retailers. For each manufacturer on the market there were a limited number of such distributors - rarely more than 4-5 companies, but each of them had many small customers with a regional spread.

Then large retail chains began to appear, including local federal and regional ones, and coming to Russia from abroad.

At the same time, the specifics of Russia is that it is a vast country with complex logistics, there is a transport problem here. And at one time there were no large transport companies here, unlike Europe, which could deliver products anywhere in the country at a reasonable time for reasonable money, says Stomakhin.

This made it difficult to distribute networks: they needed some one contractor, or a distributor who could deliver goods to all points. Distributors tried to implement this, due to the development of logistics functions and substitution of transport companies. The distributor became a transport operator: he could not have his own transport, but he could conclude agreements with many transport companies in different cities and, thereby, ensure effective delivery to all regional points.

The specifics of recent years both in Russia and in the world are the enlargement of retail chains. This carries risks for the consumer, for the distributor, and for the manufacturer. There are "monsters" that the antimonopoly service must observe and evaluate their impact on the market, and their decisions can be dominant and have an impact on the availability and availability of goods. From the point of view of the consumer market, a stereotype arises - to come to the store and buy everything there. But in the end, this is not all due to the fact that the chains have their own policy regarding product portfolios. Networks affect both the consumer, the vendor, and the distributor, dictating their conditions, "Stomakhin explains.

Against this background, there is a natural takeover of small companies that do not survive in the current conditions, says TAdviser interlocutor. This applies to retailers and distributors. If previously there were regional resellers who could purchase goods in the central or border cities of a larger supplier and distribute products in their region, now this is not so necessary. Large distributors, having developed the logistics function, are ready to deliver products to medium-sized partners in the regions, and small companies can purchase products in retail at an acceptable price. Therefore, small resellers in the market began to suffer, their functions are increasingly transferred to large retailers.

The enlargement of retailers in the consumer market is a radical change, and how antitrust authorities will respond to this in the future is still difficult to predict, Maxim Stomakhin believes. At the same time, in his opinion, such enlargement in Russia is now going at a faster pace than in the world. This may be due to the fact that the Russian economy is younger than Western European or American. There, similar processes took place several years earlier.

There are, however, separate regions in Russia where enlargement has not gained such strength, and local players continue to occupy strong positions: such as, for example, the Caucasus and some regions in the Asian part of Russia.

Which allows distributors to stay on the market

10-15 years ago there were active discussions that distribution would soon die, and these discussions are ongoing. But this will not happen, the commercial director of Elko believes: initially, the distribution company, at least in the Russian sense, carried a number of key functions. Firstly, this is the choice of products and the definition of a supplier, since before the market was less transparent than the European one, and it was necessary to make efforts to understand what should be brought to the country and who should buy it from.

Secondly, the opportunity to buy goods directly from the manufacturer: someone could know what he wanted to buy, but due to the small size of his business he could not buy it directly from the manufacturer. That is, these are commercial and logistical components - the purchase of products and their delivery. The main delivery centers were in Moscow, St. Petersburg, Yekaterinburg and Vladivostok, and the rest of the customers bought products from there.

Another function was financial: it was necessary to finance the purchase of goods and their availability. And the fourth function is marketing: it was necessary to convey to your partner - a retailer or reseller - information about the properties of the product and advantages.

Now the retailer is strengthening and can purchase products directly from the vendor. Because of this, there is an illusion that one "extra" link is removed. Vendors are trying to reduce the funding cycle. If earlier it could be assumed that the vendor was ready to provide credit in the amount necessary for the purchase of goods and their maintenance in the warehouse, the distributor had to find financing to provide a loan to his client and, possibly, finance part of his own warehouse, says Maxim Stomakhin.

At the same time, the trend of recent years - vendors are trying not to finance anything with their own funds and even minimize the financing of their own production cycle, and ask the buyer - distributor or retailer - to pay before the goods are ready for shipment.

It turns out that the buyer must finance his own warehouse, loan the client - by himself or bank instruments and in some cases - finance part or the entire production cycle of the manufacturer, says the commercial director of Elko. Vendors now strive not to produce "future" goods and maintain warehouses, but to produce only what they order from them within the agreed time frame.

Thus, commercial planning and obligations no longer arise from the manufacturer, but from the buyer. And as a result, in different product categories with different speeds, the retailer comes to the conclusion that the distributor is unnecessary, because he can buy products from the manufacturer directly.

But in practice, it turns out that the manufacturer, instead of the 60-120 days of credit that the retailer is used to receiving from the distributor, must pay for the goods at best 30 days after shipment, and at worst 30 days before it. The retailer and financial institutions may not be ready for this. For banks, a client with certain risks becomes more expensive, due to such a client, the loan portfolio deteriorates, and this is reflected in the conditions for lending such a client not in his favor.

There is a need for an intermediate link that can deliver goods for reasonable money and takes part of the risks and burden, including financial. The distributor can add its own tools to carry out the delivery, "notes Stomakhin.

Another factor that, in his opinion, does not allow distributors to "die" is logistics. Few retailers develop this not key competence for them. Transport companies are ready to do transportation and provide insurance, but the servants of the most effective of them are not cheap. The distributor, according to Stomakhin, can now perform this function better than any transport company, because over the years we have developed expertise and experience in operating with several transport companies at once and can receive good discounts at the expense of wholesale.

What about enterprise IT product distribution?

Distributors also retain financial features and benefits in the distribution of enterprise IT products. There is also an important difference from distribution in retail: many new IT solutions appear, often not "box," according to which local integrators have not yet grown expertise. At the same time, vendors-suppliers of such solutions are often small companies and cannot themselves finance the training of all system integrator engineers or the end customer. Therefore, in the old fashioned way, they are forced to purchase solutions from a distributor who learns and evaluates solutions.

The distributor, which at the same time works in different countries, can bring to the country solutions that have gained popularity in other countries, but which in Russia may not yet know about, indicates this as another advantage of distributors Maxim Stomakhin.

He added that in Russia for some time the concept of "value-added distributor" (distributor with added value) has been present on the market, which can be understood as different things. One of the options for the added value of the distributor is his understanding that in some country the product is beginning to be widely used, and the opportunity to bring this product to another country, said the commercial director of Elko.

New Challenges

One of the trends of the last 2-3 years is pressure from both Russian government agencies and European and American on the transition to direct imports, said the commercial director of Elko. Prior to this, many Russian distributors had foreign companies, representative offices that purchased products and imported them into the territory of the Russian Federation.

At the same time, Western companies - vendors and banks - wanted to see the most transparent supply chain. They did not want to work with a distributor that is represented abroad by one company, and in the sales market - another, it is easier for them to work with a point within the country.

Subsequently, various regulatory acts were adopted in Russia, including stimulating distributors not to contain foreign infrastructure, but to support only the Russian part of the business.

However, all this has a negative effect, says Maxim Stomakhin.

The share of transactions that do not comply with some norms and rules of regulatory authorities in the past may have been present, but, in the end, this negatively affects the cost of financing for distributors. Foreign financing is noticeably cheaper than Russian: a foreign distributor company can attract finance at lower rates, he says.

The Russian company of the distributor is forced to attract financing at higher rates, then in the end it is reflected in an increase in the final price of the product for the end consumer. Sometimes the amount of financing for it decreases, which means the purchase of a smaller volume of goods in Russia.

Distributors who supply goods to different countries, simplifying deliveries to one country reduces the flexibility to relocate goods between different markets, increases the cost of financing precisely for the Russian part of the business, increases the administrative costs of maintaining this, notes Stomakhin.

History

2017: Entry into the Scandinavian market: purchase of Gandalf Distribution

Elko Grupa AS in early July 2017 announced an agreement to acquire an 85% stake in Gandalf Distribution AB. It is planned that the company will be part of the Elko group, but for the time being the company will operate under the Gandalf brand. David Nicander will continue as CEO and remain a minority shareholder in Gandalf Distribution AB.^[2] More here.

Notes