EDITORIAL: Ha, ha, ha, kerplonk

EDITORIAL: Ha, ha, ha, kerplonk

So Acer thinks it can get by without its distributors? That ha, ha, ha kerplonk you just heard is the sound of me laughing my head off.

If I were the genius at Acer who came up with this plan, I would be now looking for another job, because this is going to be a disaster and there is going to be a fall guy. I am tipping it will be this grand plan's author.

In the same way as the MENSA member behind Compaq's Connect retail fiasco bows no longer to the Q, so too will Acer's "one-tier visionary" become superfluous to requirements when the error of his ways fully manifests itself.

Let's face it. Acer is not having a good trot - either in Australia or globally. It had to do something, but sacking wholesalers which bring in an estimated $3 million per month for them is not it.

In recent times, the vendor lost a billion-dollar OEM deal with IBM because it was too aggressively competing against Big Blue as a brand in its own right. It also suffered a devastating fire in its main Taiwan production facility this month. And, by its own confession, is sitting on too much stock in Australia so that it now needs to slash prices in order to move it urgently.

In its battle to overcome the far superior consumer confidence in rival brands such as Toshiba, IBM, Compaq and so on, Acer knows it is only going to be able to compete if it can be significantly lower in price.

What we have here is a classic knee-jerk reaction from a vendor facing serious market pressures from classic economic dynamics. Demand is currently dangerously outweighed by supply, which means that prices must fall.

As those pesky distributors are taking a 3-5 per cent slice of the margin, it is simple mathematics that cutting them out of the equation will allow a 3-5 per cent retail price reduction. "They don't do anything important anyway" is obviously the mentality applied here by Acer.

Estimates of the number of reseller accounts Acer is hoping to manage direct relationships with has varied from 70 to 200. That is a lot of debtors' accounts to take on, and managing them will be a bigger drain on resources than the small margins distributors were taking. Especially since these former partners were also doing the selling, some nationwide stocking and returns management as well.

Resellers have told me that in today's economic environment, where brand loyalty is not an issue, credit terms with suppliers is a key purchasing motive.

If Acer wants to offer good credit terms to resellers - and I doubt it does - it may win some deals, but it is also going to get into an account management nightmare and get burnt by the occasional collapsed dealer. If it is planning on very tightly controlled credit terms, it is going to miss out on the deals that require some cashflow benefits to mask thin margins.

Meanwhile, outsourcing to a debtor account management service will cost more than the margin it has clawed back from distributors.

But it is not only Acer who stands to lose from this. Resellers which may think it is nice to buy direct from Acer should be very wary. The vendor has no history of dealing with a large number of resellers, therefore pre-sales support and after-sales service will be hard to come by. Strict returns policies on what is effectively a second-tier brand will eat into any margin you may be able to squabble for, and expect no loyalty or predictability in the future actions of the vendor.

As I reach down to pick up my cranium and re-attach it to the rest of my upper torso, I can't wipe the amused grin the sheer stupidity of this move has brought to my face. Acer obviously has no concept of how productive a mutually beneficial vendor/distributor relationship can be.

As a reseller, do you think Acer can do without its distributors?

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