Compaq's retail plan angers Aussies

Compaq plans to compete against traditional partners in Australia by opening its own retail stores. Partners don't like it.

In a shift to direct sales, Compaq Computer announced plans to open a chain of retail stores in Australia, angering some of its traditional partners and shaking up the market Down Under.

While Compaq is yet to announce specific details of its plans for retail stores, officials have said it will open a number of Compaq-branded stores in major metropolitan locations by the end of the year.

Compaq Australia spokesperson, Anne Eckert said that the company is not yet able to release details of the plans, but has been consulting the industry. "Over the last few weeks (Compaq has been briefing) retail and other partners on what our plans are, on rolling out Compaq-branded stores," Eckert said.

"We're not keeping secrets," she said. "But we're not in a position to talk. We have commented publicly that by the end of the year there will be stores. We are in between a rock and a hard place. For ideas like this, a lot of hard work needs to happen. These things don't happen quickly."

Eckert said the stores will be fully-fledged, "standalone... Compaq-branded stores, with a Compaq sign on the door," and not confined to concept spaces within large retail outlets, as speculated.

Compaq's move to establish its own stores upset one of Australia's biggest consumer computing retailers, Harvey Norman, so much that, despite weeks of secret negotiations, the retailer, this week, chose to sever ties with the brand that currently represents millions of dollars of its business. "The decision has not been made lightly. There's been a lot of soul-searching, but Compaq's decision to sell direct through the Internet, stores and its call centre now means they are a competitor," said Harvey Norman's John Slacksmith.

"Compaq is not our largest supplier, HP is our largest account. But Compaq was one of the biggest," Slacksmith said. The split now represents "a wonderful opportunity for our other business partners, IBM, HP and Packard Bell to fill the "$97-million gap," he said.

"We're very disappointed," said Compaq spokesperson Anne Eckert. "They (Harvey Norman) are out there making a big noise about it today," Eckert said, the day after the split. "It's a scare tactic for IBM and HP, should anyone else decide to do what the customer wants," she said.

That Compaq would be a competitor to the retailer is an issue that is also under some dispute. Compaq's retail stores are planned to attract "experienced computer buyers", whereas Harvey Norman stores are for "first time computer buyers", Eckert said. Industry analyst Graham Penn, who is general manager of research for IDC Australia, also made the distinction.

"I think there is a lot of posturing in this," Penn said of the ruckus. "There was a danger that the tail was beginning to wag the dog. Harvey Norman was the tail," he said. "Over a period of time, vendors have had varying relationships with retailers. They help ship the volume of products, but they also make more demands. When dealing with the market power of Harvey Norman, demands may include special payments for ads and other subsidies."

The split will undoubtedly cause other vendors to reassess their business models, if they are not doing so already, Penn pointed out. "The vendor has to ask, 'is it good for my business?' Compaq and the other vendors have to decide if it still makes sense. Given the changes in the market, lower prices, lower dollar margins, support costs, there's little profit left for anyone," Penn said.

Compaq declined to speculate on the effect the split will have on its sales figures between now and the launch of its retail stores, planned for sometime this year. "We're working with our other partners and doing all that we can to ensure strong sales," Eckert said. The split "will probably reduce what Compaq sells in the short term, but they are building a new strategy and new ways of getting products to customers. I'm sure they are looking at the bottom line", Penn said.

"In the short term alternative brands may get an advantage but undoubtedly they too will look at their own business plans," he said.