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Compaq's channel resurrection underway

Compaq's channel resurrection underway

The demise of the Compaq Connect direct retail model has left a wry smile on the faces of many in the reseller community, but most believe there is little reason for holding a grudge against the vendor which tried its hand at a direct strategy and failed.

As reported in last week's ARN, Compaq has closed down the last of the remaining Connect retail stores, coming to an agreement which allows the sole franchisee, a Sydney reseller, to turn off the Compaq neon and return to its original name.

Mark Norris, proprietor of Nortec Computers, confirmed he had come to a mutual agreement with Compaq, and has been advised not to comment on how the Connect saga had affected his business. "We've come to an agreement for our departure and will return back to the Nortec name," he said.

While Nortec Computers will return to its original role as a supplier of IT goods to the SOHO and SME markets, Norris said he is re-assessing his options and is planning to open a second business in the near future. Named Nortec Business Solutions, it will focus on networking sales and support.

Tony Bill, director of the new Access Business Group at Compaq, acknowledges that its decision to have a branded retail strategy was unsustainable in the current market climate.

"In a strong market it seemed to look good, but when the market went south the strategy didn't hold up," Bill said. "I will quite openly admit that it was the wrong strategy for a soft market. As a result, the channel has again proved to be the best way for Compaq to deliver products and services."

Compaq resellers have concluded that the vendor has learnt a valuable lesson about how difficult it is to penetrate the retail sector. Ron Harris, managing director of Harris Technology, said that like Gerry Harvey, he objected to the Compaq Connect model when it was first announced, concerned the stores would be subsidised by Compaq and given an unfair advantage in the market. But when the franchise model was introduced his fears were quelled, as he was sure the model would not work. "I've been retailing IT for many years, working the store seven days a week, and I can tell you it's a hard business," he said.

Pieter Kolkert, founder of Hobart-based reseller Comstra, said Compaq never really gave the impression they were looking at retailing on a long-term basis. "The lesson Compaq would have learned is: 'Wow . . . this is harder than we thought'. That's what resellers have been telling them for a while."

Kolkert said such a lesson can only make Compaq more appreciative of the tough environment its resellers work in. "They now recognise the market share they got through the channel was very hard-won," he said.

Analysts also agree the retail market is too tough for a PC vendor to succeed in. IDC analyst Logan Ringland believes single-branded stores are not suitable for the small business market. "Retail is specifically aimed at the small business sector, and they like to take a look, touch, feel and compare different products," he said. "I think Compaq recognises that now."

Distributors reacted positively to the Connect closure, but all suggested there was little reason for the channel to hold a grudge against Compaq. Fiona Dicker, managing director of Dicker Data, said distributors supplied the Connect stores anyway so it was never perceived as a problem from their end. Steve Rust, managing director for Ingram Micro, and Andy Hilton, managing director for Simms International, both agreed.

"I think it's a good sign for the channel because it re-affirms their role," said Dicker.

IDC analyst Ringland acknowledges the Connect model upset resellers, but they would be unlikely to hold a grudge. "It has upset the channel. [Compaq has] been changing their mind one way or another for the last 18 months," he said. "But to be fair, the market has been changing on them just as quickly. It's been a tricky time to be playing with the channel."

Ringland said the Connect stores were not selling enough volume for their closure to have any great impact on the vendor's sales. He believes the biggest impact of the Connect Store saga was that it cost the vendor their relationship with Harvey Norman. Ironically, Compaq sales picked up quite well in the year following the Harvey Norman split, and Ringland believes it is unlikely the vendor lost market share in the SMB space as a result of the Connect strategy.

Greg Mikaelian, national channel manager for Acer Computer Australia, is not so sure. He says Acer has benefited significantly from the mixed message Compaq has been giving the channel.

"[Compaq] have lost a lot of mind-share in the channel," Mikaelian says. "The Connect stores missed the mark because they were specifically targeted to the small business sector -- the only area left where the channel can really value add. SMBs need the support the channel offers."

Ron Harris said he has seen Compaq realise the importance of the channel in the last 18 months, and his relationship with the vendor has matured to the point where Harris Technology sells more Compaq PCs and servers than any of its other vendor partners.

"The strategy looked good on paper, but in reality it was tough -- too tough for them in the end," he said. "I admire them for making that decision."

Mikaelian says the last few weeks has seen Compaq dumping price points in order to regain the lost love of resellers. However, he is sceptical about the strategy's success rate. "People have long memories, especially in the channel," he says. "I think we'll see them come back as spot-buyers rather than loyal partners -- if Compaq has a special on they'll buy it."


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