Apple to slash dealer network

Hoping to cut costs and increase control over Mac sales and promotions, Apple is reportedly pruning its large network of authorized resellers.

Sources said the company this week dispatched "Dear John" letters to nearly a third of its 3,600 dealers, retailers and VARs nationwide. Meanwhile, Apple cut about 4,500 authorized service providers from its network of about 8,000, sources said.

An explanatory letter, posted on the restricted Apple Channel Site, said that with the company's renewed focus on creative professionals, education and consumers, "resellers who do not offer value added solutions and who are not advocates of Apple products will be deauthorized."

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The letter said Apple had conducted a detailed survey and cut resellers based on a number of factors. These factors included revenue history, especially recent year-on-year growth; Apple advocacy; knowledge of Apple products and solutions; and the potential of the reseller's market and metropolitan area.

Deauthorized resellers have until June 26 to honor current commitments, the letter said. Resellers can re-apply for authorization in a year.

"They've stabbed us in the back," said Steve Chappell, president of Acudata Partners Group Inc., an indirect Apple VAR based in Sunnyvale, Calif. that was deauthorized this week. "I'm distraught. They've killed half our business."

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Chappell said he had no idea why APG was deauthorized. He said about half of his company's $1.3 million annual revenue was generated by Apple business, with about $500,000 in hardware sales.

He said his company was one of the few in the area that served small to medium-sized enterprises. "It's insane," he said. "We are everything they say they're looking for."

According to sources, Mitch Mandich, Apple senior president of worldwide sales, told an audience of third-party developers at the recent Apple Worldwide Developers Conference that the company's reseller network had become bloated.

Mandich said cuts to the reseller network would put about $11 million in revenue at risk. By contrast, he said, the company gambled $200 million when it withdrew from national retailers such as Sears, Roebuck and Co. and Best Buy Co. Inc.

This week's moves are the latest in a year-long reorganization of Apple sales channels. Besides making CompUSA Inc. its only national retailer, the company cut its distributors from five to two (see 11.10.97, Page 1) and launched an online store to sell direct to customers.

The fate of Apple's five catalog resellers remains unclear. Sources said Apple is currently working on consolidating the mail-order channel.

"It's absolutely a good move," said analyst Tim Bajarin of Creative Strategies Inc. of Campbell, Calif. "They pointed out back in November that to continue the kind of support necessary was very difficult and costly. It makes sense to weed out the resellers that aren't supporting them."

Bajarin warned that the changes may hurt Apple down the line if its fortunes reverse. "They spent the last 15 years building up the channel and the last 10 months knocking it down," he said.

"Apple should have a channel that is in proportion to its volume of sales," said Charles Smulders, an analyst with Dataquest Inc. of San Jose, Calif. "This is an exercise in cutting costs."

Apple declined to comment.