CDW nabs more PC sales

Consumer electronics and superstore retailers are expanding slowly, but mail-order and direct sales continue growing at a hot pace.

3 min read
CDW Computer Centers, a major catalog and online computer dealer, reported record earnings of $17.1 million on sales of $462.7 million for its just-completed quarter, another indication of the growing appeal of shopping from home.

While sales results at many consumer electronics and computer superstore retailers are expanding at a tepid rate, mail order and direct sales operations continue to garner the lion's share of growth in an increasingly cutthroat PC market.

CDW reported that net sales for the third quarter increased 43 percent to $462.7 million from $323.9 million during the same quarter in 1997. Net income for the quarter rose 32 percent to $17.1 million from $13.0 million in the year-ago third quarter. Third-quarter earnings per diluted share were $0.79, and increase of 32 percent over the same period a year ago.

Overall, unit sales growth at mail order and online dealers is outpacing computer superstores such as CompUSA, consumer electronics retailers such as Best Buy, and mass merchant retailers such as Sears, according to research from International Data Corporation.

CDW competes with other on-line resellers such as Insight Direct, NECX, and MicroWarehouse.

Through the first half of 1998, mail order resellers expanded PC unit sales at an average of 19 percent, compared to the same period a year ago. In comparison, computer superstores grew at 6.6 percent, consumer electronics stores gained 4.5 percent, and office products superstores advanced just 3.5 percent.

CompUSA, the nation's largest PC retailer, is in the process of digesting the Computer City acquisition, and at the same time they are suffering from falling average selling prices, according to analysts. T-Zone, a well-funded retail chain with tight connections to Asian manufacturers, closed its doors earlier this year.

CDW, meanwhile, has made moves to insulate itself from some of the trends affecting the rest of the industry.

"We were challenged during the quarter by limited product availability from certain vendors. The diversity of our vendors and product mix enabled us to overcome this issue," said Greg Zeman, CDW's president, in a statement. Analysts agree with the assessment.

"CDW has a broader range of products to offer, so they are not as exposed to declines in profit margins in hardware as some other competitors," explained Charles Smulders, an analyst with Dataquest.

The company's online sales are growing, too. Traffic to the company's Web site increased 21.3 percent from the previous quarter and generated net sales in excess of $28.0 million in the quarter, executives said.

But Smulders expects CDW will run into increased Web competition from online-only resellers such as BuyComp.com, which have lower overhead costs and therefore can offer lower prices. Where CDW will continue to remain competitive is in selling to larger settings such as government and education. where a dedicated telephone sales force is required.

The trend clearly continues toward serving consumers and businesses online, forcing some measure of consolidation in the retail industry. CompUSA has been closing Computer City stores in markets where it already has a presence. Just last week Inca Computer, a Michigan-based reseller with bold plans to open up 300 stores nationwide, reportedly closed six stores outside of its home state, citing a credit crunch resulting from recent stock market instability.