Compaq to roll out direct retail stores
- 14 July, 1999 13:05
Compaq continues to strain the nerves of its channel partners, this time with the possibility of a national retail chain that will sell its products direct to the consumer.
Compaq remains scarce on details, but a spokesperson denied the project had gone beyond "investigating a retail model".
"This is an idea that has been floated for some time. But we are still in the final stages of making decisions," Compaq's spokesperson said.
Industry sources were more forthcoming, however, claiming that Compaq is definitely planning to roll out a "major initiative in direct selling".
The prospect of a Compaq retail chain has forced Brenton Wight, managing director of small Adelaide reseller Binary Logic, to undertake drastic measures.
Wight believes the stores are inevitable as opposed to possible. He said the plan adds to a string of Compaq mistreatment that includes poor product quality in Australia compared to the US, delayed supplies and distributor rationalisation.
"This attempt at retail is the last straw. Our company policy has always been that we refuse to conduct business with any unethical organisation, supplier or customer, so we will no longer be promoting or selling Compaq products in any shape or form," asserted Wight.
It is resellers and retailers like Binary Logic, at the low end of the channel, who will be most affected by the retail stores.
"If Compaq doesn't compete against the likes of Harvey Norman-style outlets, they will be competing against dealers such as ourselves," Wight said. "I'm sure they [Compaq] won't want to be seen to be competing against the large dealerships who have a high commitment to Compaq."
Don Bastian, proprietor of Best Software and Computers in the Sydney suburb of Chatswood, agrees that for the smaller retailer, there is no good news to be found in Compaq's retail proposal. He feels that in a lot of ways the future for small dealers in the Compaq channel is bleak.
"At least a third of my sales are Compaq and I don't know whether I will be able to sell too many of Compaq's after they open their own stores. I also don't know how I would be able to replace 33 per cent of my revenues."
The larger retailers and channel players are feeling more optimistic with Tony Gattari, general manager of Harvey Norman's computer and communications department, relying on the fact that approximately 75 per cent of Compaq's Presario range of PCs is sold through the national retail chain.
Gattari said he had received assurances from Compaq that the retail stores are not designed to attract Harvey Norman business or customers.
"We are quite satisfied they will do nothing to jeopardise our relationship which was worth in excess of $60 million to them last financial year," he said.
Yet Wight warns even the large retailers that Compaq retail stores are a threat, despite the vendor's reassurances. "When stocks are short, which happens frequently with Compaq, who is going to get the last few boxes in the warehouse? Harvey Norman? Small/medium dealers buying through Tech Pacific or Express Data? Major direct dealers? Or Compaq's own retail chain? If it's the latter, then Compaq will lose all of the other channels," Wight said. "I simply don't believe Compaq when they say it won't affect the large retail chains and I find it difficult to believe that they [Compaq] think they can do it better."
Despite Compaq's assurances that this operation is still in the planning stages, the IT industry is sceptical, forcing Compaq to reassure its channel and start a communication process that was lacking during the development of the retail model. This communication sent Compaq into damage-control mode last Wednesday after an article was published in the Sydney Morning Herald on the rollout of the retail stores. Compaq's spokesperson challenged the accuracy of elements of the report that suggested Compaq had confirmed the rollout of the retail project.
The spokesperson also denied it had decided the retail initiative would be based on a franchise concept similar to McDonald's.
"We have set up meetings with our channel in response to the Sydney Morning Herald article," Compaq's spokesperson said. "The channel is critical to Compaq's success with 95 per cent of our business today going through the channel," the spokesperson said.
Compaq is adamant that if it does go ahead with the retail shops, they will be able to coexist with current channel structures. "This will just be another step in realigning our channel, growing our business and expanding the markets we operate in," explained Compaq's spokesperson.
Dicker Data general manager Fiona Dicker agrees that the move will propel Compaq into new segments. "With the exception of Harvey Norman, they don't have strong direct relationships with the large retailers and very few small retailers. There's a clear gap in their current market reach," she said.
Although Dicker recognises Compaq's predatory tactics, she has managed to maintain her optimism, despite Compaq's proposed retail chains most likely bypassing the distribution channel. In fact she encouraged resellers to fill the void if franchises were offered to existing partners. "It would be a good opportunity for resellers wishing to invest in it," Dicker said.
Channel players are dubious that Compaq will even be able to understand the retail arena and are sceptical of the vendor's ability to dedicate resources to such a diverse multi-sales model.
"It is not their area of expertise. Compaq has no experience in retail, so for the first couple of years they will stuff it up - guaranteed," Gattari said. "Compaq then faces the other issue of how they will compete against companies like Harvey Norman which is currently spending in excess of $30 million per year on advertising to get people into the stores," Gattari added.