Gateway-Avon deal highlights changes in computer retailing

International cosmetics company Avon this week called on the direct PC seller to provide as many as 500,000 U.S. sales representatives with free PCs. The deal could expand to offer PCs to more than 2.5 million employees worldwide, the companies said.

Although the deal is not the first of its kind, it could be one of the largest. More importantly, Gateway's partnership and others like it could reshape the way personal computers are sold.

In the future, analysts and computer industry insiders say, the majority of consumers may turn to their employers for PCs instead of to their local PC retailers.

"You have to stop and think--some of these people would be buying PCs at retail or from a direct vendor," Technology Business Research analyst Lindy Lesperance said. "If you have a chance to get a PC free--or an almost free PC--why would you go somewhere else?"

Companies such as Ford, Delta Airlines, Intel and American Airlines offer similar PC programs for their employees. Most programs offer a PC and Internet access for free or for a nominal charge.

PC makers also are looking at different ways to push their wares as pricing pressures cut into companies' bottom lines. Fierce competition from online retailers and the growing influence of such "free PC" programs could force traditional retailers to rethink their strategies, analysts say.

For example, OfficeMax recently opted to cut its own PC inventory in favor of hosting Gateway's Country Stores within its retail outlets.

Though it's a growing trend, International Data Corp. analyst Roger Kay doesn't expect retail sales to suddenly vanish. Still, he said PC deals "represent an important alternative sales channel for PC vendors. And it will take share in some ways from other distribution points over time."

Gateway, Dell Computer, Hewlett-Packard and IBM see the new programs as important alternative distribution channels and as a way of boosting sales in an increasingly saturated consumer PC market. All of these leading hardware makers have been involved in free PC programs in the past few months.

"Gateway has a very strong commitment to being multichannel," said Lisa Foote, vice president of Gateway's employer plans program. "We had our original phones channel, then we opened the Country Stores, and we also have the Web. This is yet another channel, and it proves the wisdom of giving consumers a lot of choices."

The Avon deal, which also covers its own 18,000 corporate employees, gives workers a Gateway Astro personal computer and Internet access for $19.95 a month. Employees can order their own customized machines for an additional cost, the companies said.

San Diego-based Gateway also offers its own PC program, called Gateway4All, to employees. All 20,000 Gateway employees are eligible for the program and are required to pay only sales and income taxes on their PCs.

In similar deals, IBM has agreed to provide PCs to services providers such as Fidelity Investments, which in turn can give the systems to their clients. This is one reason the computer maker is designing personal computers for use in both the home and the office, said Greg Ross, IBM's worldwide product manager for PC 300.

"These types of deals from the companies' perspectives are nice perks for employees, but there are lots of advantages in terms of cost savings," Technology Business Research's Lesperance said. "They can put human resources online and can help get portions of the computer work force that aren't literate, literate."

The programs also can make expensive systems, such as notebooks, available to employees who might not otherwise buy them at retail costs. Of Delta's 70,000 employees, about one-third are expected to choose IBM portables.

"We decided to make notebooks available because we are a very mobile company," Delta spokesman Kip Smith said. "A lot of our employees do quite a bit of traveling, and we wanted to give them the option and opportunity to tie back into the company wherever they might be."

Some analysts wonder whether there truly will be any long-term benefits for PC manufacturers. "I certainly think they're going to drive unit growth, but I don't know where they'll gain additional revenue," said Gartner Group analyst Kevin Knox. "With a lot of low-cost PCs, they have to make it up somewhere else in the deal."