In my experience within a similar market environment, the distributors sell products to retailers at cost or very, very close to it. They do not rely on large markups to survive. They make a profit by selling an enormous volume every month. When they hit a particular volume mark, they get rebates of 5% to 10% from the manufacturers. So the wholesale distributors are very motivated to move large amounts of inventory--even if they have to sell nearly at cost--so they will get their rebates on the back end from the manufacturer.
The only way you, as a small operator just starting out, could compete in this marketplace would be to join an electronics industry buying group or focus on selling to a niche that is not already being served by the big companies and will allow you to get a good markup even though you'll be selling a smaller volume.
Look into electronic industry associations--you can find them on the Internet or by asking your reference librarian for directories of business and trade associations--and inquire about buying groups. These groups consist of several smaller companies that band together and pool their resources so they can place larger orders with the manufacturers and get better prices.
As an alternative, or in addition to that idea, see if you can specialize in distributing electronic brands or models that the larger distributors and retailers do not routinely carry, so you won't have to compete head to head with the big guys.
--Michael Fox, president,
M&M Paper Co., Van Nuys
If you have a question about how to start or operate a small business, mail it to Karen E. Klein, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or e-mail it to firstname.lastname@example.org. Include your name, address and telephone number. This column is designed to answer questions of general interest. It should not be construed as legal advice.