Startup Distributor Set to 'Score'

The environment is challenging, the two biggest players in the market exceed $20 billion each, and the industry has been consolidating for two decades. It doesn't seem to be an optimal time to launch an electronics distribution company. But Score Electronics is open for business, has six franchises, and is shipping product to customers.

"The best argument for a company such as Score Electronics is a supplier base that is not at the top of the food chain," says Ken Bloom, the San Francisco company's president. "Within the big global distributors, these lines are underrepresented to the customer base. In many cases, they may be on the linecard, but customers don't know they even exist."

Score's franchises are ZMDI, Richtek, ConnectOne, connectBlue, InnoDisk, and Harting. These are small, highly technical product lines that command a healthy price tag and profit margin.

"We haven't always been happy with global distributors' ability to provide focus and support for our products," says connectBlue North America president Bill Saltzstein. "This is a better match for us -- a distributor that can spend more time with the customer."

Saltzstein's complaint is not new. Global distributors carry hundreds of component lines, so providing the same sales and design support for each and every line can be a challenge. Competitive pressure dictates that these distributors focus on lines with the highest return on investment. Price competition is also intense. Domestic suppliers continually pit themselves against low-cost producers in the Far East.

"Our target customer base is in North America -- companies that are building 1,000 [units] of their product and require a lot of technical support," Bloom says. "The high-volume production customers are typically not in North America."

The niche distribution model also is not new. VEBA, once one of the world's three largest channel players, ran a number of highly focused distribution companies under the Memec, Insight, and EBV brands. Each was highly profitable, but customers were increasingly looking for a one-stop shop that could support all products and services worldwide. The VEBA companies were eventually parceled up and sold to Arrow Electronics Inc. (NYSE: ARW) and Avnet Inc. (NYSE: AVT)

Score is not starting entirely from scratch. It is backed by the German distributor Spezial-Electronic. Christopher Wuttke, Score's CEO, owns Spezial and is one of the owners of Score, which has a warehouse in North America and can draw on Spezial's inventory, logistics, and engineering capabilities.

The product lines are targeted at three major segments: industrial automation, medical, and healthcare. The design cycle in these industrial markets is much longer than in consumer electronics, and the lifespan of the end product can be measured in decades. The distribution industry's practice of demand creation -- in which a distributor receives a high level of compensation for getting a component designed into an OEM's product -- works well with highly specialized brands. For one thing, the parts aren't easy to swap out in manufacturing lines.

Score executives say they are confident there is room in the North American market for a niche distributor. "We have the ability to know these products inside and out. We can articulate their value person-to-person, and we feel there's a need for these technologies," said chief technology officer Peter Cornelius.

Bloom and Wuttke founded Score in 2011, and Cornelius joined the team in 2012. The company operated in stealth mode while acquiring franchises. "We are open for business. We are actively spending money to develop our customer base and filling the inventory pipeline," says Bloom. "We are taking purchase orders and have already fulfilled dozens of POs. We look forward to continued growth."