VARs feeling half pregnant.
Jim:
Here is an interesting look at VARs' predicament in the wake of bifurcation of strategies of various vendors.
BTW what the heck is SKU?
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SHOW ME THE MONEY -- TO WIN THE SALES JACKPOT, RETAILERS NEED VENDORS TO TAKE SOME NEW APPROACHES
Dec. 11, 1998 (Computer Retail Week - CMP via COMTEX) -- Retailers are blaming vendors' lax distribution policies, direct sales competition and spotty communication for dousing retail profits in 1998.
Few singled out the usual bugaboo: price erosion. Instead, many praised technology leaders for sparking demand.
"Our CPU unit sales are up tremendously," said Tom Fritz, senior merchandise manager for Micro Center, Hilliard, Ohio. "[Price erosion] hasn't been a problem for us."
Craig Winn, chief executive officer of online retailer Value America, said, "I don't think it's a troubling trend to get technology in the hands of more consumers."
Jackie Trilling, vice president of purchasing for Comp-U-Tech Computers & Electronics, Maple Shade, N.J., said today's technology is "incredible."
"What we're giving to the consumer is amazing. It's just an incredible value for their dollar," Trilling said.
The average selling price of a PC fell about 15 percent from October 1997 to October 1998, according to PC Data, Reston, Va. But some retailers said what was lost in ASPs was made up in volume.
"I don't know if it's this way across the country, but a lot more people can afford a computer now, so our units were way up," said Joseph Cohen, president of Nationwide Computer & Electronics, Edison, N.J.
But in a year when Sun TV, Campo Appliances, Inca Computer and other retailers went belly up, not everyone was so sanguine.
"It's definitely harder to make the money we used to with margins the way they are," said Dave Freeman, CEO of ACP Superstore in Santa Ana, Calif., which switched to a refurb-heavy mix last month.
Falling component prices contributed to PC deflation, but so did widening distribution channels, fueled by cutthroat competition.
"It's pretty obvious that if a company, like a warehouse club, only has to make 15 percent or 10 percent [vs. about 20 percent for the average retailer] to be happy, then if they buy something, that's the profit they're going to make," said Warren Mann, group director of NATM, a retail buying group. "To include a retailer like that in distribution means all the other retailers have two choices. [They can] follow suit and remain competitive, or they can try something that is usually thought of as dangerous, and that's to say, 'Well, it cost more in my store, but I'm a better store.' And that hasn't been a popular philosophy lately."
Ahron Schachter, vice president and general manager for DataVision, New York, said vendors lack discretion. "I think everybody's guilty now because everybody's trying to be a Dell [Computer]," Schachter said. "The bottom line is: How many boxes do they move?"
A PC vendor who requested anonymity said working with only a handful of retailers can be dangerous. "If the relationship goes south, then you're stuck," he said.
Yet, as vendors strive to place products on as many shelves as possible, they often trade quality for quantity, retailers said. "Vendors have got to crack down on unauthorized dealers," said Dale Gensamer, vice president of sales, Computer Store of Pittsburgh. "Gray marketers are killing us."
Unable to stop falling prices or prevent vendor indiscretions, some retailers are reducing inventory to control costs, often using build-to-order programs. Online retailers, which boast much lower overhead but no profits, lead the charge.
Charlottesville, Va.-based Value America, for instance, does not carry inventory. It funnels orders to vendors, which ship the products directly to end users.
Best Buy saw strong profits in 1998, partially by clearing inventory. Under the direction of consultant Arthur Andersen, Best Buy upped its gross profit margins to about 18.5 percent (vs. about 16 percent last year) by streamlining its in-store offerings.
Late in the year Best Buy, Circuit City and others began offering BTO PCs, which not only reduce inventory, but also let traditional retailers compete with direct sellers Dell and Gateway. Results for BTO have been mixed so far. The only runaway success has been Gateway's Country Stores, which analysts said are more profitable, per foot, than CompUSA stores.
But retailers weren't the only ones gauging BTO's potential. By fall, Compaq Computer and Hewlett-Packard were selling directly over the Web to consumers.
Schachter said competition from vendors can be unnerving.
"It's a bit embarrassing when IBM has a SKU that first of all we've never heard of that's on the Web, that's very similar to another SKU, but our cost is higher than what they're selling it for," he said. "Are we a partner or not? With some vendors, I feel half-pregnant."
Some vendors are wary of the confusion wrought by direct sales.
"Online selling is a dangerous game right now," said Adrian Rice, vice president of sales and marketing for Curtis Computer Products. "It can be damaging to the vendor/retailer relationship."
Also damaging are communication gaps between retailers and vendors. Several retailers said they are often kept in the dark about new product releases.
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By: Todd Wasserman
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