Comstor Seeks Organic Growth
By Richard McCaffery
Chantilly, Va.-based distributor Comstor has dropped a plan to reach $1 billion in revenue by 1999, linking future growth to a budding partnership with Cisco and closer ties with its blue-chip parent.
A partnership with networking ace Cisco Systems Inc., San Jose, Calif., is still a vital part of Comstor's strategy to grow its business. "We've got a good horse and we want to continue riding it," said Barry Culman, who has been president of Comstor since 1995.
But a plan of a little more than one year ago to seek swift growth through acquisitions has changed, as has the status of two senior marketing officials. Both Ira Barkoe, former vice president of strategic development, and Anita Creasi, vice president of marketing, have left the distributor in recent months.
While Comstor had plans last summer to reach its $1 billion revenue goal through a multipronged approach, including possible acquisitions of larger companies, its parent company has forged a new path.
"All goals have changed," Culman told Washington Technology. "We're now part of a $2.5 billion distributor." Founded in 1986, Comstor sells computer hardware and software to government and commercial resellers. Bought by General Electric Co., Fairfield, Conn., in 1996, Comstor had revenue of $210 million in 1997.
Last November, Comstor became part of GE Information Technology Distribution Group, in Boulder, Colo. That group, formed in November, has grown into a $2.5 billion company in the past year through two acquisitions. Access Graphics, a Boulder, Colo., distributor of computer products that primarily focuses on commercial customers, was acquired last November.
In March, the group acquired Integration Alliance, a mainly commercial distributor based in Englewood, Colo. Financial terms of the deals were not disclosed.
As a result of these acquisitions, Comstor is no longer in the market to buy other distributors, said Culman. He forecast revenue of nearly $400 million for Comstor in 1998.
Last September, Comstor bought Data Storage Marketing Inc. of Boulder, Colo., a distributor of personal computers and peripheral products. DSM had 150 employees and revenues of about $100 million in 1997, Culman said. The DSM purchase gives Comstor a greater mix of commercial business as well as new distribution centers in Colorado and Texas, according to Culman.
Comstor, which distributes microcomputer and network equipment and provides integration services, technical support and sales support for systems integrators and value-added resellers, now has 370 employees.
Comstor's government reselling business has dipped from 65 percent of its overall business in 1997 to about 40 percent in 1998 because of the DSM buy. The company is looking to more than double its Cisco revenues this year, growing from $50 million in 1997 to as much as $120 million in 1998. In 1999, Culman expects its Cisco-related business to double again.
"Cisco is pushing a lot of product through [our] line," he said.
Comstor is one of three firms authorized to distribute Cisco products to government resellers; the others are Ingram Micro Inc., Santa Ana, Calif., and Tech Data Corp., Clearwater, Fla.
"It makes sense [for Comstor] to sign up with Cisco," said Arnold Berman, managing director of Soundview Financial Group Inc., Stamford, Conn. "They've already won the war."
Other than distribution giants Ingram Micro and Tech Data, many distributors have had trouble developing business plans that are sustainable since their margins started dropping in the past several years, Berman said. Comstor's parent, GE IT Distribution, is expecting Comstor's growth to continue in both the commercial and government markets, said Perry Monych, president of the GE distribution group.
His plans for organic growth of the 1,200-employee distribution group call for an expansion of its service offerings in the United States, Canada, Latin America and Europe.
"There's a very good opportunity for distributors to develop services complementary to value-added resellers and then attack the middle market," Monych said.
One example of this strategy is Comstor's relationship with Cisco. "If we develop [Comstor] and they sell more Cisco products, we win," Monych said.
For Cisco, its partnership with Comstor provides it with a key partner in the government sector.
"They've got some pretty competent individuals that really understand our products," said Paul Cantwell, Cisco's director of federal government channels. "Comstor really seems to cater to a lot of smaller resellers in the Washington area."
Cantwell added that Comstor's relationship with GE allows Comstor to offer its resellers financing, which gets Cisco products into the hands of more customers.
"GE is a very large company and it's in the financing business," he said. Cantwell expects Cisco's relationship with Comstor to keep growing.
As profit margins in the distribution industry have fallen, many distributors have honed in on niche areas as a way to survive.
Comstor keeps its business model focused, selling products from 100 vendors to about 3,000 resellers. It's a narrow strategy compared to distributors like Tech Data Corp., which sells more than 75,000 products to more than 100,000 resellers worldwide.
Both Monych and Culman stressed GE and Comstor need to stay in their respective niches.
"We're not looking to compete with Tech Data," Monych said. "We will never be an Ingram [Micro]."
Fast-growing Cisco sells computer products like switches and routers, used to direct the flow of information in computer networks. Comstor formed an exclusive partnership with the company in 1996. Cisco had $8.4 billion in sales for the year ending July 25.
Culman wants to see the Cisco name paired with Comstor the same way Sun Microsystems Inc., Palo, Alto, Calif., is matched with Access Graphics, and the way Bay Networks Inc., Santa Clara, Calif., is matched with Westcon Inc. of Eastchester, N.Y.
Westcon, for example, sells only Bay networking products and uses this specialization to help its resellers better serve their customers. Comstor sells only Cisco networking products on the high end, Culman said, passing over products made by Cisco competitors such as Bay, Cabletron Systems Inc., Rochester, N.H., and Ascend Communications Inc., Alameda, Calif.