Microsoft To Drop Wholesalers ... Sunday May 30 12:06 AM ET
Microsoft To Drop Wholesalers
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Sun - Microsoft Lawsuit
By Aaron Pressman
WASHINGTON (Reuters) - Microsoft Corp. (Nasdaq:MSFT - news) plans to phase out its use of wholesale distributors for most products in its new home and retail division that includes computer games, the popular Encarta encyclopedia and the Works productivity suite, a Microsoft official told Reuters.
Robert Bach, head of the software giant's new division which has sales of about $1.2 billion, said the wholesale distribution model was failing for consumer-oriented titles like Encarta and top-selling games like Age of Empires.
''From a retail perspective, we were one of the few consumer software companies that went through distribution,'' Bach said in an interview. ''It's an execution driven business and doing that through a distributor was just hard.''
Microsoft's decision to deal directly with its largest retail store chains for home and retail division products will have no effect on the Redmond, Wash. firm's continued much larger sales of its Windows operating systems and Office software suite to wholesale distributors, Bach said.
Under the old system, Microsoft sold its products to number 1 wholesaler Ingram Micro Inc. (NYSE:IM - news), along with Tech Data Corp. (Nasdaq:TECD - news) and Merisel Inc. (Nasdaq:MSEL - news), who in turn negotiated deals with retail store chains that sold the products to consumers.
Under the new plan, to be phased in over the next 12 months, Microsoft will negotiate and sell directly to its 12 largest retail store chains accounting for 85 percent of home and retail division sales, Bach said.
Bach said products in his division are sold mostly around Christmas and have rapid price and feature evolution cycles, complicating wholesale distribution.
''We're going to take our top 12 accounts direct so we will be negotiating and selling with our top 12 retailers -- about 85 percent of our business -- over the next 12 months,'' Bach said. ''Retailers have asking for that from us for two or three years.''
The wholesalers are cut out, although Ingram Micro will perform some services as a Microsoft ''outsourcer'' like warehousing and shipping software products.
A spokeswoman for Ingram Micro said the company generally does not comment on such issues but added that the company was pleased to be selected as Microsoft's outsourcer.
Tech Data declined to comment.
Merisel officials could not be reached immediately.
Ingram Micro stock opened on the New York Stock Exchange Friday at $29.125, unchanged. On the Nasdaq, Merisel opened at $2.9375, up $0.1875, and Tech Data opened at $37.125, down $0.125.
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