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NEC scales back direct sales effort

The retreat largely comes as a result of the expense and complexity involved of selling PCs directly, as well as lackluster response from customers.

Packard Bell NEC has discovered that the Dell Computer direct business model isn't for everyone.

NEC Computer Systems, the business PC division of Packard Bell NEC, has effectively shut down "NEC Now," a direct sales program started last year, and is going back to selling its servers, laptops, and desktops through distributors and dealers.

The retreat, according to analysts and company sources, largely comes as a result of the expense and complexity involved of selling PCs directly, as well as lackluster response from customers. NEC found that running a direct operation was more difficult than anticipated and discovered that many of its customers never fully warmed to the process.

"The 'be like Dell' model is not working for us," said a spokeswoman. "It did not do as well as we expected."

Interestingly, NEC's retreat comes just as companies, including Compaq Computer, are ramping up their direct sales efforts. NEC's experience, however, may prove to be the exception rather than the rule because of the way the program was implemented. While other companies are moving slowly into direct sales, NEC tried to shift nearly all at once.

"Their direct thing didn't take off the way others have," said Roger Kay, a computer analyst with International Data Corporation. "Apple's seems to be working. Compaq's is working. HP? The jury is still out?.Having more rather than fewer channels is the name of the game."

NEC Now, introduced at PC Expo in the summer of 1997, was designed to boost NEC's market share by cutting costs. Historically, NEC built computers according to its own internal demand forecasts and then sold them to distributors, which in turn sold them to computer resellers. These resellers then sold them to the public.

Under NEC Now, the company would sell computers directly to customers and build as orders came in. Theoretically, the program would cut overhead costs by reducing computer inventories.

In addition, costs would further go down because NEC would not have to rely on third party distributors and dealers to reach customers. Customers could still buy equipment through select dealers, but NEC terminated its agreements with distributors.

Not a direct hit
Unfortunately for the company, the program did not work as planned. Customers did not flock to the site. Approximately 70 percent of NEC customers continued to buy the company's equipment through computer dealers. As a result, NEC was selling computers directly to resellers, rather than customers.

But because NEC had terminated its distribution agreements, NEC found that it was handling the logistics for delivering PCs to resellers on its own. This turned out to be more expensive than handling this task through distribution, said the spokeswoman.

During this period of time, the company continued to lose market share as they worked out the operational kinks of the new program, said Kay. The slide in market share can't be completely attributed to the program, but it added to the company's difficulties, he said.

In the future, Tech Data will act as NEC's computer distributor. Resellers that were purchasing PCs through NEC Now will be transitioned to purchase from Tech Data. In addition, NEC will begin to offer the Direction line through dealers.

NEC said it will continue to allow customers to buy directly from the company, but it will not advertise prices.