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Compaq cuts deals to regain PC retail crown

The personal computer maker isn't taking its recent setbacks in retail PC sales lightly and is signing deals to try to regain its lead in the market from rival Hewlett-Packard.

Compaq Computer isn't taking its recent setbacks in retail PC sales lightly and is signing deals to try to regain its lead in the market from rival Hewlett-Packard.

The Houston-based personal computer maker today unveiled an exclusive arrangement with retail giant Sears to sell its Presario line of Windows-based desktops. The deal follows a similar move yesterday, when Compaq renewed an exclusive marketing alliance with RadioShack.

HP surpassed Compaq in February retail sales, according to market researcher PC Data. Although Compaq has been the number one PC company for years, HP has been gaining market share through offering product packages and cutting prices. Preliminary data for March, however, shows the companies are running almost equal.

The agreements could allow Compaq to regain some of its lost clout in the consumer market, International Data Corp. analyst Roger Kay said.

"They need to shore up against a very strong competitor," he said. "Under (former CEO Eckhard) Pfeiffer, I would have said they could not recover because they were too tangled up in their underwear to do anything. They understand what the problem is; they have the resources, and execution will tell."

Research firm NPD Intelect this week released research numbers similar to those found by PC Data. For February, the firm said HP beat Compaq in retail sales by nearly 10 percentage points.

Compaq has downplayed any direct challenge from HP. Yet it seems that the computer maker has taken a new aggressive stance in the competitive market. For example, the renewal of the RadioShack deal comes a year and a half before the original deal was set to expire. It will now run to early 2004.

"Compaq doesn't have a strategy of how do we go kill HP by trying to cut exclusive deals with retailers," said Leslie Adams, vice president of marketing for Compaq's consumer products group. "We want to do business with our retail partners the way they want to in the marketplace."

Compaq's retail alliances underline a new trend in retailing. Increasingly, retail outlets are looking to cut back PC inventory headaches by carrying fewer brands of computers. Internet service providers also have come up with similar exclusive deals with retailers. Late last year, Microsoft invested in Tandy, RadioShack's parent company, and crafted an agreement under which RadioShack will tout MSN Internet service.

"If you look at these deals, there's basically one winner in each," said Technology Business Research analyst Lindy Lesperance. "In the retail market, there is a definite trend toward simplification by retailers. They either want to reduce the number of suppliers that they have, or they just do not want to stock any inventory at all."

Although Compaq's Presario line will be the only Windows desktop Sears sells, the deal does not derail an existing sales pact between the retail store and Apple Computer for iMac sales. Sears will also continue to sell notebooks from various manufacturers.

PC Data analyst Steve Koeing said the shift is about spending less and making more. "It's just more cost-effective that way. If you have all that merchandising you have to support, it costs too much. The retailers want to streamline their business any way they can because the margins are so thin."

PC Data analyst Stephen Baker expects at best Compaq will tie with HP in the future because of HP's brand recognition with printers, CD-RW drives and other peripherals.

It's a big advance, Lesperance said. "People know the brand, but HP can bundle printers and other things, and the profits come from the supplies."