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ISP Rebates Squash Summer PC Sales Slump

Retailers reported that the rash of ISP rebate promotions now available is creating a surge in PC sales, all but erasing the traditional July PC sales doldrums with double-digit growth.

Several regional chains have avoided the usual summer PC sales slowdown because consumers are taking advantage of the $400 Internet service provider (ISP) rebates that can reduce a computer’s price down to free.

Micro Center, of Hilliard, Ohio, Miami-based BrandsMart USA, and ABC Warehouse, Pontiac, Mich., are among those citing double-digit gains over last July.

BrandsMart president Michael Perlman said July sales were up 10% to 20%. “We’re doing great,” he stated, “and we expect to be up for the year by about the same percentage”

At Micro Center, purchasing VP Tom Fritz said the $400 rebate promotion the chain has been running in conjunction with MSN “has been popular. Business typically dies in July, but we’re up by double digits. I think there are new customers coming into the stores.”

Micro Center and CompUSA, which is also participating in ISP rebates, will continue their promotions indefinitely.

RadioShack jumped on the free PC bandwagon in mid-July, offering a $400 mail-in rebate from CompuServe to purchasers of any Compaq PC with a monitor from RadioShack. The rebate extends through October 9.

According to Reston, Va.-based research firm PC Data, free PC rebates lifted June sales by 35.4% in units over June 1998. Director of hardware analysis Stephen Baker said the results were impressive considering the rebates started only at the tail end of the month. “Sales in the last week of the month more than doubled versus the prior week,” said Baker. “The strong unit growth was also impressive as the retail PC market contended with the sales bump provided last June by the release of Windows 98.”

PC Data reported the unit gains were the highest this year to date. Revenue growth, which had been in negative numbers for most of the year, turned positive in June, with Wintel PC revenue advancing 6.1% over the same month last year.

Whether the rebates are bringing in first-time PC buyers or those purchasing their second, third or fourth PC is still unknown. However, one retail analyst noted that the free PC business model has advantages other than just drawing in new customers.

“With the ISP rebate, the retailer is capturing the customer’s e-mail address, allowing them to directly market to this specific customer base,” said senior consultant Barry Levin, of Levin Consulting, Beachwood, Ohio.

CompuServe (America Online) first offered the ISP rebates, then Prodigy and MSN, through national retailers beginning in June. This placed the smaller retailers at a grave disadvantage. Best Buy, CompUSA, Micro Center and OfficeMax were able to offer the deep rebates from the ISPs in exchange for signing customers up for a three-year commitment to the sponsoring ISP.

The smaller retailers could not secure direct deals with the ISPs and had to wait until later in July when IBM and Compaq debuted their own rebate programs in conjunction with CompuServe.

For that reason, smaller regional chains such as American Appliance, Pennsauken, N.J., State Street Discount, Portsmouth, N.H., and Nationwide Computers & Electronics, Edison, N.J., said sales were typical of July, although most expected a surge with the launch of Compaq’s ISP rebates on July 25.

Steve Hassell, PC buyer for American Appliance, said, “I think we’ll participate with IBM and Compaq. So the playing field is leveled now because the manufacturers have packaged the deals for the smaller retailers to capitalize on. We’ve been $400 too high-priced for at least four-and-a-half weeks in Philadelphia. Thank goodness it wasn’t August or September. We were petitioning Compaq to start their production two weeks earlier.”

Compaq’s $400 to $600 rebates with AOL began on July 25, and the company plans to extend them to notebook computers. However, some industry watchers doubt the promotion will have the same effect on $1,500-plus notebooks because the discount is proportionately smaller than on a $400 to $600 desktop, which is free or nearly free as a net result.

Larger retailers said the free PC promotions are so successful they are planning to continue them indefinitely, leading industry members to claim that the nearly free PC is here to stay.