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IBM Ceases Retail Sales To Go Direct

Retailers and industry analysts expressed little surprise regarding IBM’s decision last week to abandon the retail market in favor of the direct model, but they were split on whether the company would find success in the online arena.

In a move reminiscent of how the Colts stole out of Baltimore in the middle of the night, IBM very quietly informed some retailers on October 14 that as of January 1, Aptiva PCs would be pulled from shelves.

The withdrawal is part of a restructuring announced earlier this month. The effort consolidated the Aptiva PCs, ThinkPad notebooks and Netfinity computer servers under one marketing umbrella and included 1,000 layoffs.

IBM’s personal systems unit posted a $992 million loss last year. Industry watchers gave IBM credit for recognizing its faults and for making a move to try to correct the situation, but they placed the blame for the retail failure squarely on the company’s shoulders.

Adam Levin, president of the retail-consulting firm Levin Consulting, Beachwood, Ohio, said the story behind the move is that IBM has performed better in the e-commerce field than at traditional retailers. “I give IBM credit for making this decision,” he said. “For IBM this is more a matter of retail not working out for them but realizing e-commerce does.”

Another point in favor of the direct model for IBM is that customers who buy direct purchase higher-end PCs and are interested in the services that IBM excels at delivering, Levin said. “IBM’s problems are pricing and timely product delivery, so by going direct it can react faster.”

Why IBM could not make the grade at retail, even after 18 years in the market, was obvious to some retailers. Steve Hassell, PC buyer for American Appliance, said, “The IBM culture is one of red tape. It is not entrepreneurial and just could not keep up. It was always too interested in its policies and simply controlled itself out of business.”

For this reason Hassell does not expect IBM to succeed with the direct model. IBM finds it difficult to deal with the fast-paced retail market, he said, and this will just be exacerbated on the Web where changes must be made even faster.

Ahron Schachter, VP/general manager of New York retailer DataVision, said IBM was just never able to get its act together in the PC market. “IBM always had its heart in the right place but could never deliver,” he maintained.

IBM will continue to sell its Thinkpad notebooks at retail, and a company spokesperson would not rule out a return to retail at a later date. OfficeMax will be the sole retailer retaining Aptiva PCs through the IBM boutiques that are now being test-marketed by the office supply chain.

In the past several years IBM has seen its share decline to about 10% of the market, below Compaq, Hewlett-Packard and newcomer eMachines. Hassell said that American Appliance customers, who tend to be PC neophytes, usually lean toward purchasing a well-known brand name but have not shown any interest in IBM models.

PC Data, Reston, Va., did not have an IBM PC in its list of the five top-selling models for August.

Levin said that despite the announcement he expects Aptivas to remain in demand until the end of the year, primarily due to the severe PC shortage that is developing for the next several months. Then after IBM completes its pullout, Compaq and HP, along with a few second-tier vendors, should quickly gain control of IBM’s market share.