Ibm, Apple, Compaq... And Vobis And Escom?

Ever since Apple Computer founders Steven P. Jobs and Steve Wozniak started working in a garage in 1976, the computer jock who makes a fortune bringing personal computers to the masses has been a quintessentially American hero. But in Germany, two bold upstarts--Theo Lieven of Vobis Microcomputer and Manfred Schmitt of Escom Computer--are beating Americans at their own game of selling PCs on the cheap.

Never heard of Lieven and Schmitt? Well, executives in Europe of such giants as IBM, Apple, and Compaq have. Lieven's Vobis has rocketed out of nowhere in the past three years to grab more than 19% of the German PC market (chart), the world's third-largest: U.S. and Japan are bigger. The company sold more than 390,000 of its Highscreen PC clones last year by crunching prices in Germany 40% to 70%, bringing them roughly in line with U.S. discount-outlet prices. Even more impressive: With $890 million in sales last year, Vobis ranks fifth in Europe, challenging the likes of IBM and Compaq Computer Corp. Vobis, backed by $31 billion German-Swiss retailer Metro, sells through Europe's largest computer retailing chain, with shops from Paris to Warsaw.

RIVAL ALLIES. Vobis quickly inspired a local imitator, Escom Computer. Since copying Vobis' strategy in 1991, Schmitt's Escom hit $650 million in sales last year and now holds 6.9% of the German market. Like Lieven of Vobis, Schmitt is expanding, opening new stores with the goal of boosting his 173-outlet chain to 200 by yearend.

But Vobis and Escom want to move to a larger stage. So they're forging powerful marketing alliances with their U.S. competitors. On July 9, Vobis announced it would sell Compaq ProLinea, Deskpro/i, and Contura PCs, along with service contracts provided by Compaq. Escom cut a similar deal in March with Apple to sell Macintosh Performa PCs and PowerBook notebooks. These links could boost store traffic, especially among Europeans shopping for their first PCs.

The recipe for Vobis' and Escom's success isn't unknown: Like cut-rate clonemakers in the U.S., they do little engineering. They assemble PCs from Asian parts. Along with high-volume purchasing power, just-in-time production for their own stores pares costs to the bone. Vobis and Escom clones are priced 15% to 30% below IBM or Compaq machines, even though both U.S. giants slashed prices by 40% to 60% last year. Vobis' 19% gross margins are the tightest in the industry. "I'll have to match that," admits William E. McCracken, head of IBM's PC business in Europe.

Living so close to the edge is risky, of course. Vobis hopes to double business outside of Germany, to about 50% of sales, but Lieven says, "the new stores don't have the same productivity." Sales during the first two months for his new Paris store just off the Avenue des Champs-Elys es have been "difficult," he says.

"NO FAT." According to Schmitt, Escom is doing better in Britain, where sales have matched German levels. But if the European PC market--which grew about 20% over the past six months--stalls, both companies could be squeezed badly. "We have no fat. If costs rise 40%, we need 40% growth in turnover," concedes Lieven.

Both clonemakers figure their store networks will help keep them in touch with customers. Lieven, for example, developed a sophisticated inventory-control system to analyze daily data and show what is selling and the profit per sale. "Their extensive retail network is their competitive edge," says Natalie Spitz, a PC analyst at Dataquest Inc. in London.

To one-up Vobis, Escom is bolstering existing stores with additional services, such as on-site repair, and expanding into electronics superstores, one of which opened recently in the German city of Bochum. With 11 more such outlets by 1994, Schmitt hopes to position Escom as a distributor of forthcoming multimedia products, which bridge the world of computers and consumer electronics. In the meantime, he's preparing Escom to live with net margins as low as 1%, instead of the already lean 3% to 5%.

To stay on top, analysts say, Vobis must reinvent itself as well. The new alliance with Compaq is a start. Lieven is also concentrating on a broader product line with "more products in the $100-to-$1,000 range." Lieven plans to brainstorm new gadgets such as "personal digital assistants" and have other companies produce them if he can't do it for a price that is low enough. If he succeeds, U.S. electronics makers could learn to fear the words "made in Germany."

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