Compaq: Resellers are redundant

Compaq has announced its intention to boost its direct sales to 40 per cent of all global sales, according to a Wall Street Journal report.

Compaq CEO Michael Capellas said in the report that the vendor expects 40 per cent of global corporate sales and 60 per cent of North American corporate sales will be direct by the end of the year. The announcement followed the company's reported loss of $US448 million on sales of $12.2 billion last year, the report said.

According to the Journal, Capellas detailed a plan to Wall Street analysts whereby the company would shift its business 'rapidly' to direct sales, first in the US, with Europe soon to follow.

However, Greg Healy, general manager of Compaq's Australian business division, said locally most of the company's corporate PC sales are already operating this way.

In fact, local MD Ian Penman said the company's eight Compaq Connect stores, which were launched late last year, were each earning more than $1 million per month (ARN February 2, page 1). The total turnover for those stores in 1999 was almost $30 million.

'You could classify this technically as 'direct',' Healy said, although he maintained all the company's direct corporate sales involved the assistance of the company's business partners for installation and services.

'In the case of some of the projects we did last year . . . we shipped the product directly to the customer and took on the invoicing, but the partners were there to integrate the products to the customer environment,' Healy said.

Currently, Compaq lists Volante, Senteq, BCA (Business Computers Australia) and Data 3 among its local business partners.

Healy said the emerging global e-commerce market was more conducive to direct sales than traditional reseller channels. He said the traditional supply chain model would need to change 'dramatically' to keep up with the Internet market.

'The linear approach to the supply chain is something we're evolving from . . . The term 'reseller' is redundant. It refers to people who make money from selling other people's product. I don't think there are many intermediaries out there who are not evolving rapidly. The notion of the partner taking a product and moving it is completely redundant,' he said.

However, Healy said many of Compaq's enterprise-level customers still preferred to purchase via the reseller channel than from the vendor directly. Configuration, upgrades and other services were more cost-effective through the channel, he said.

Compaq Australia posted a 14 per cent revenue increase and a 25 per cent profit for the year ended December 31, compared with the same period last year. Globally, Compaq announced net income of $US569 million for 1999 compared with a net loss of $2.7 billion in 1998.

According to the report, 9 per cent of Compaq's products are currently sold direct.