Channel confused by Compaq retail strategy

Channel confused by Compaq retail strategy

Compaq finally confirmed details of its plan to roll out Compaq-branded retail stores last week in a move that has left its channel partners perplexed about their positions in the new hierarchy.

An informed source has revealed a total of eight stores will be rolled out before Christ-mas in Melbourne and Brisbane, although those numbers and locations could change.

ARN's source suggested that industry speculation that Compaq retail outlets would be set up within existing stores was a distinct option and that the vendor was in discussions with retailers such as Harvey Norman and Dick Smith. However, this model does little to address the problems that Compaq's market research uncovered, the source suggested. "The research indicated that customers wanted a different type of buying experience compared to mass retail outlets like Harvey Norman and Dick Smith. People who buy there tend to be first-time buyers. Compaq expects its retail stores to attract more experienced customers and there just isn't a channel to provide that service."

Compaq's Greg Healy, general manager business and consumer, justified the "expanded distribution model" as a response to its minimal presence in certain Australian markets and was quick to claim the revamped distribution model was a response to customer demand and not a threat to traditional channels.

"The distribution model we announced will allow us to target new market segments that up until now have been dominated by unbranded PCs," he said.

Despite its apparent preference for independent stores, Compaq is still finalising arrangements with its retail partners, who have been asked to sign non-disclosure agreements on all discussions.

At present, major Compaq relationships hang in the balance, with negotiations between retail giant Harvey Norman ongoing. John Slack-Smith, Harvey Norman's general manager, computers and communications, said that the two companies were in the final stages of negotiation and an agreement should be reached sometime this week. "We have a strong relationship with Compaq and are looking at ways to continue that," said Slack-Smith.

Ron Harris, managing director of Coles Myer-owned Harris Technology (HT), has yet to enter into discussions with Compaq, even though HT is doing "a few hundred thousand dollars a month" worth of Compaq business through its Web, retail, catalogue and telemarketing operations. "They may be setting up as a competitor but I can't believe they would have a strategy and policy that is going to harm our relationship with them," Harris said. "We are selling a lot of Compaq product now. Compaq has until now been a very good partner but at this stage I don't know how this is going to change things".

Paul Connelly, managing director of Compaq distributor Daisytek, predicts that Compaq's existing channel will experience a "seepage effect" as a consequence of the retail store strategy.

"I think that they will lose business along the way and if I was a big retailer I would be looking around for other brands who won't compete against me," Connelly saidOther partners are taking a wait-and-see approach. "We wish them all the luck in the world," said Peter Greer, a computer buyer for Myer Grace Brothers. "But if they think shop-keeping is that easy they are in for a big surprise and will face many unforeseen challenges along the way," Greer warned.

Many people were surprised to see Compaq adopt a bricks-and-mortar direct strategy in an environment characterised by Internet initiatives from competitors such as Hewlett-Packard, IBM and Dell.

"Of all the things they could be focusing their energy on to improve their business this was probably the last I would have picked," said Greer.

Compaq distributor Express Data's managing director, Ross Cochrane, agrees that a retail store approach is contrary to present industry directions. "I'm not surprised that they are making changes based on their international results but this strategy goes against the trend of people getting out of traditional stores and into the Internet. I'm sure Compaq has done the research but I still find it strange."

Some retailers firmly believe Compaq's assurances that the new stores will have no bearing on their business, instead viewing the retail strategy as an extension to already existing channel strategies. "We are satisfied that their retail model is not in conflict with ours," said a spokesperson for the Vox Retail Group.

"The whole thing is definitely surprising but the retail stores will operate in a different market space than we do," said Fiona Dicker, managing director of Dicker Data. "We sell to the small reseller who then sells services and expertise to the user. Retail stores can't copy this level of support," she said.

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