When Australia's largest retailer dumped the world's largest computer-maker, it may have been the dummy-spit of the year.
The divorce of Compaq and Harvey Norman has sent two very strong messages to the industry: retailers will do anything to maintain the channel, and, vendors are under extreme pressure to consider alternatives.
And while vendors such as Hewlett-Packard have pursued Internet sales to a degree, Compaq's error from Harvey Norman's view was to employ a three-pronged direct sales plan - Net sales, call centre sales and a national chain of Compaq-branded stores.
The move upset Harvey Norman so much that, despite weeks of secret negotiations, the retailer chose to sever ties with the brand that currently represents millions of dollars of its business.
"The decision has not been made lightly. There's been a lot of soul-searching, but Compaq's decision to sell direct through the Internet, stores and its call centre now means they are a competitor," said Harvey Norman's John Slacksmith.
"Compaq is not our largest supplier, HP is our largest account. But Compaq was one of the biggest," Slacksmith said. The split now represents "a wonderful opportunity for our other business partners, IBM, HP and Packard Bell to fill the "$97-million gap," he said.
"We're very disappointed," said Compaq spokesperson Anne Eckert. "They (Harvey Norman) are out there making a big noise about it today," Eckert said, the day after the split. "It's a scare tactic for IBM and HP, should anyone else decide to do what the customer wants," she said.
That Compaq would be a competitor to the giant retailer is an issue that is also under some dispute.
Compaq's retail stores are planned to attract "experienced computer buyers", whereas Harvey Norman stores are for "first time computer buyers," Eckert said. Industry analyst Graham Penn, who is general manager of research for IDC Australia, also made the distinction.
"I think there is a lot of posturing in this," Penn said of the ruckus. "There was a danger that the tail was beginning to wag the dog. Harvey Norman was the tail," he said.
"Over a period of time, vendors have had varying relationships with retailers. They help ship the volume of products, but they also make more demands. When dealing with the market power of Harvey Norman, demands may include special payments for ads and other subsidies."
The split will undoubtedly cause other vendors to reassess their business models, if they are not doing so already.
"The vendor has to ask 'is it good for my business?' Compaq and the other vendors have to decide if it still makes sense. Given the changes in the market, lower prices, lower dollar margins, support costs, there's little profit left for anyone," Penn said.
Compaq declined to speculate on the effect the split will have on its sales figures between now and the launch of its retail stores, planned for sometime this year. "We're working with our other partners and doing all that we can to ensure strong sales," Eckert said.
The split "will probably reduce what Compaq sells in the short term, but they are building a new strategy and new ways of getting products to customers. I'm sure they are looking at the bottom line," Penn said.
"In the short term alternative brands may get an advantage but undoubtedly they too will look at their own business plans," he said.
Harvey Norman said second tier Australian PC assemblers, who "historically have been less than 10 percent" of Harvey Norman stock, would benefit from the retailer's newly vacated shelf space.
"Our house brand will (also) become more prevalent, "Slacksmith said. He said customers were unlikely to miss the Compaq branded products, as they "come to Harvey Norman for Harvey Norman".
"In promoting the brand we hope our customers get the feeling they have a choice," he said.
