So You Wanna Be A Mail Order Star...Lois Therrien
It doesn't take much to get into the mail-order personal-computer business. After all, Dell Computer Corp. founder Michael S. Dell did it from a college dorm. All you need is a supply of components such as disk drives, mother boards, and monitors--all available from dozens of suppliers. Then, you slap them together, run an advertisement in a computer magazine, and wait for the phones to ring.
Staying in business is another matter. Nearly 130 companies advertised computers for sale in the June, 1990, issue of Computer Shopper, the 800-plus-page PC mail-order bible. In this year's June issue, just half of those companies were still advertising.
JUST AS GOOD. But the survivors, companies such as Gateway 2000, CompuAdd, Northgate, and Zeos, are growing so fast they could soon give Dell a run for its mail-order money. The market is exploding, too. Mail-order companies will account for 29% of all PC sales in 1995, vs. 22% in 1991, figures market researcher WorkGroup Technologies Inc. That's because big business is discovering what consumers already know: Mail-order PCs are often as good as store brands, but they sell for up to 30% less.
The new buyers are people such as Paul Q. Hannan, an engineer at General Motors Corp.'s automatic-transmission plant in Toledo. He has bought more than a dozen CompuAdd Corp. computers since 1989. The machines have been "rock-solid," Hannan says, and the prices were right. "We could buy two CompuAdd computers for the price of one IBM," he says.
To be sure, many customers are leery of buying a computer over the phone. So, many mail-order PC suppliers offer free trial periods of up to 60 days, money-back guarantees, long-term product warranties, and toll-free phone lines.
The best of the Dell "wannabes," like their role-model, design and build their own machines. Then they look for a niche to market them to. Gateway 2000 Inc., for instance, claims it offers rock-bottom prices and focuses on pushing volume. With just 700 employees doing everything from assembling machines to answering phones, the North Sioux City (S. D.) company sold more than 100,000 computers in 1990. Zeos International Ltd. in St. Paul, Minn., on the other hand, offers features that buyers can't get from other companies. Its desktop, for instance, has two fans instead of one to extend the life of the PC's components. Northgate Computer Corp. emphasizes support. It recently helped boat and bowling-ball maker Brunswick Corp. replace a mainframe computer system with a network of 300 PCs.
Keeping costs in line, however, is thebiggest challenge faced by any mail-order PC seller. Ask Northgate. After it addeda sales staff to call on big customers last year, overhead skyrocketed, and it lost$6.9 million. Chairman Arthur B. Lazere named a new president, sacked the sales force, and refocused the Eden Prairie (Minn.) company on mail order. The payoff: Northgate reported a $2.2 million profitin its March quarter.
HITTING THE `WALL.' Is there a limit tothe number of PCs a mail-order company can sell? Bill Hayden, owner and chiefexecutive officer of CompuAdd in Austin, Tex., thinks so: about $250 million worth a year. At that point, he says, "everybody seems to hit a wall," because there are so many mail-order suppliers and only so many PC buyers who are willing to shop over the phone. That's why Dell branched out into direct sales and why Hayden added high-performance workstations and peripherals to his product line and opened a chain of 93 stores.
Maybe somebody ought to tell Gateway 2000 about that wall: Chairman Theodore Waitt says he's going to sell $500 million in PCs by mail this year.
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