UPDATE: Harvey Norman dumps Compaq

UPDATE: Harvey Norman dumps Compaq

In a move that will send shock waves throughout the entire IT retail channel, Harvey Norman today announced it has terminated its relationship with Compaq over the vendor's plans to open retail stores of its own.

The partnership was on target to achieve revenues of $97 million this financial year, according to John Slack-Smith, general manager of computers at HN.

The decision could spell disaster for Compaq's consumer systems business in Australia, as sources close to HN indicated that as much as 60 per cent of Presarios (Compaq's most popular consumer model) were sold through the retail juggernaut.

Negotiations between HN chairman Gerry Harvey and senior Compaq channel executives failed to find common ground so Harvey, true to his threat, showed Compaq the door over their plans to expand direct marketing activities through a call centre and online sales as well as retail stores. "That sort of marketing creates direct conflicts of interest with what we do as a retail business," Slack-Smith said. "They are no longer a business partner of ours, they are a competitor. Walking away from nearly $100 million in projected revenues this year is not something we have taken lightly, but given the nature of their business, we were left with no choice. Gerry was disappointed but as far as he was concerned there was no grey area here."

Slack-Smith said the ending of the Compaq supply opens opportunities for other global brands with IBM, HP and Packard Bell nominated as those most likely to step in to fill the vacant shoes. Local assemblers will also find more room to compete for punters at the 100 stores that are owned by Harvey Norman.

"Compaq is now a competitor, end of story," Slack-Smith said. "It is going to cause some serious soul searching by all retailers." Slack-Smith said he was unsure whether other retailers would follow the HN lead but doesn't understand how they can afford not to.

"How can any retailer afford to support its competitors," he said, before adding that there would be "a managed process for the closure of dealings with Compaq. All outstanding orders will be fulfilled and outstanding warranties honoured."

Compaq circulated a press release late yesterday commenting on HN's decision while still claiming its new distribution model was targeting new market segments for the company. It quoted Compaq MD Ian Penman's disappointment at the passing of what was "an excellent relationship".

"I would like to highlight the fact that Compaq has strong relationships with many other successful retailers which excel in providing quality products and services to consumers across Australia," Penman said.

"We will continue to work closely with these partners to ensure Compaq products are widely available."

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