'Hint of profiteering' among IT suppliers during lockdown

2 July 2021

The average margin paid by IT buyers rose to more than 50% as suppliers inflated prices during lockdown, according to research.

Technology services provider Probrand said its research showed before the first UK lockdown average margins were 9.4%, but rocketing demand from people working from home and disrupted supply chains saw this balloon to 50.84%.

Proband’s report analysed of £4.7m of tech spend across 14 sectors and found factory closures in China, the grounding of air freight, remote working leading to panic buying, and suppliers profiteering contributed to the rise.

Extreme cases included margins of more than 1,000% on items such as HDMI cables, software licences and label printer cartridges.

The health sector secured the best deals, paying an average margin of 5.5%, while central government paid the highest mark ups at an average of 32.2%.

Financial services, the media and retail paid significantly above average margins.

Probrand said the Society of IT Managers recommended 3% as a best practice margin for IT purchases. However, even before lockdown buyers were regularly paying margins that far exceeded this.

Ian Nethercot, supply chain director at Probrand, said although companies were generally becoming more shrewd when paying margins to suppliers, the Covid-19 pandemic changed the landscape.

“We witnessed both a huge spike in demand and a significant contraction in supply, due to factories closing in Asia and planes being grounded,” he said.

“There is no doubt that this extreme supply and demand scenario resulted in panic buying, with people prepared to buy whatever they could get their hands on at whatever price in order to equip staff working from home.”

The report noted patterns where channel prices had fallen but the reduction was not passed on to buyers. There were also instances where buyers were charged higher prices for the same products over time, even though there had been no corresponding rise in the channel price.

Nethercot said it was clear some suppliers took advantage of panic and inflated their margins. 

“It’s true that whenever demand outstrips supply you’re always going to see prices rise,” he said.

“But what some suppliers were asking of their customers during lockdown far exceeded any increases we were seeing in the channel, and by some distance. The trade prices didn’t increase 50% on average, so there was definitely a hint of profiteering here.”

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