Best Buy Launches Private-Label PC Program

EDEN PRAIRIE, MINN.— Best Buy's just-launched private-label PC line will face an uphill battle for success, according to an industry analyst, but the chain believes its high-spirited, tech-savvy sales staff will make the three-unit line a success.

David Morrish, Best Buy's senior VP and business group leader for computers, sees success for the chain's private-label vpr Matrix PC line where similar programs by competitors failed. He cited a variety of factors differentiating Best Buy's plan from those that have failed. For example, he said, having a private-label PC geared toward enhancing entertainment will act as a link to the CE devices the company sells.

"The main difference from what competitors have tried in the past is that the Best Buy sales team is non-commissioned. Our sales teams are young, "techno-tainment" enthusiasts who really fit the profile of who we see as the ultimate consumer for a product like vpr Matrix. This puts them in a great position to effectively show and explain the product benefits to our customers," Morrish said.

Morrish's explanation did not coincide with one industry analyst's thoughts.

"Generally these activities are not very successful in profitability terms, if they are operated by the retailer. Typically a retailer's supply chain model is not competitive enough, as it is subsidized by the vendors," said Charles Smulders, hardware platforms VP, Gartner Dataquest of San Jose, Calif.

Morrish defended the idea saying other retailers' private-label programs failed because they did not make the proper adjustments. "Other retailers didn't change their commission structure when they tried to launch their own brand. Their employees were committed to the commission, not the product. This led to inventory issues and, ultimately, a lack of success."

Analysts say that not only does Best Buy have to deal with the possibility of having fewer brands to sell, Morrish admitted it is walking a tightrope in dealing with the vendors already carried by the stores.

"When it comes to profitability, our vendors are not in an easy situation. Our goal is to increase unit share for all our vendors, keep them viable, and win some share for ourselves. We have strong relationships with our vendors, which include HP, Sony and Compaq, and we are working cooperatively with all of them and have kept an open dialogue about our plans."

Best Buy is trying to get around the brand name issue by touting the fact that the three models comprising the Matrix line are built around name brand components such as Intel Pentium 4 processors and nVidia GeForce 2 64MB graphics cards. The models are priced between $899 and $1,299, or about 10 percent to 15 percent less expensive than a similarly configured brand-name PC. No plans have been made to expand the number of SKUs or to add notebook computers to the mix.