Compaq cops channel hiding (2)

Some retailers were surprised and some were buoyed when Australia's best known computer retailer, Harvey Norman, last week declared it will no longer have a bar of Compaq products after the vendor decided to set up stores of its own.

Dealers and large retailers who spoke to ARN last week differed in their opinions as to what it all meant, but in general there was not a lot of support for Compaq and a consensus that there is no hope for any margin in going head-to-head with the vendor.

However, one source, which asked to remain nameless, said the move by HN is "hypocritical in the extreme" as it is still prepared to sell HP and IBM hardware as both those vendors jostle for direct sales as well.

Whichever way you look at it, HN's move appears to be a serious blow to Compaq. Prior to last week's announcement, the HN/Compaq partnership was on target to achieve revenues of $97 million this financial year, according to John Slack-Smith, Harvey Norman's new general manager of computers.

The retailer's decision to sell off current stock and not buy any more could spell disaster for Compaq's consumer systems business in Australia, as sources indicated as much as 60 per cent of Compaq's most popular consumer model (Presario) was sold through the retail juggernaut.

"Compaq is no longer a business partner of ours, it is a competitor," Slack-Smith said. "Walking away from nearly $100 million in projected revenues this year is not something we have done lightly, but given the nature of their business, we were left with no choice.

"There was no grey area here. How can any retailer afford to support its competitors?"

Peter Geer, computer buyer at Myer Grace Bros (MGB), said that it never reacts to what competitors are doing but confirmed it is "still assessing the situation" with Compaq and going over the many issues involved.

"I don't see this as a good thing but they are our third-largest computer supplier and we are very conscious of what people are looking for when they come into our store," Geer said.

He said Compaq will miss sales because "a lot of people don't make their decision [on brand] until they go into a store".

Meanwhile, one e-commerce retailer was happy about HN's decision.

"We noticed a surge of enquiries for Compaq products straight after the news broke [that HN had shed Compaq]," Steven Spilly, managing director of e-store, said before adding that it might come back and bite the IT retailing success story of the '80s.

"It could backfire on Harvey Norman because they are reducing the choice offered to their customers," Spilly said. "If Compaq makes a go of it without Harveys, it could send a message to other vendors that Harvey Norman isn't the be-all and end-all of IT retailing.

"Compaq has good branding in the home and SOHO market, so I think it will do well out of its own stores. My guess is that revenues will be hit [in home sales] in a few months but I think they will succeed at it eventually."

Bill Singleton, a director of Just Peripherals, which has a sister company selling small amounts of Compaq's retail range, said "Compaq are shooting themselves in the foot".

"Although we see Harvey Norman as a competitor, we do support their stand," Singleton said. "I don't think [HN] would have been making much margin on Compaq anyway. The turnover was obviously high but they always appeared to have a runout sale or special offer of some sort happening."

Mark Lampe, MD of Anything Technical in Melbourne, doesn't sell a lot of Compaq equipment, but is now less inclined than ever to do so. He said Compaq is shutting small retailers out of the market because it can make much better margins by going direct.

One prominent Queensland-based Compaq reseller who sells a lot of Presarios and Compaq services fears the three retail stores in Brisbane "could be the thin end of the wedge.

"It appears to be part of their whole process of becoming a direct company," said the source, who asked to remain nameless. "We also do a lot of services, so it will be interesting to see whether they start selling services as well."

This business is obviously both successful and Compaq-centric, including "significant" home product sales, so the said reseller probably wouldn't stop selling Compaq altogether. However, it was indicated that they would definitely be looking to "spread their eggs" in the future to limit the risk of exposure they are now facing.

"We still see the best option for vendors as being to work through the channel," Ross Whitelaw, general manager of independent retail co-op Leading Edge Computers, said. "Organisations make mistakes all the time and this is a mistake. I think that any vendor opening its own stores is underestimating the complexity of the retail business.

"No manufacturer of electrical goods has ever made [retail operations] work to date in this country. Compaq will be no different and one day they will have to come back to their retail channel."

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More about Anything TechnicalCompaqCompaq ServicesGrace BrosHarvey Norman HoldingsIBM AustraliaJust PeripheralsLeading Edge ComputersMyer Grace BrosNormanOn Target

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