NEWS

Q&A with CompUSA's Tony Weiss
By ChannelMedia Staff

Weiss is Executive Vice President of the $4 billion, 226+ store CompUSA chain. Weiss is also championing CompUSA into broader product categories, services and partnerships. Below is a recent interview with ChannelMedia Editor Keith Newman.

Q: Tony, last we spoke CompUSA was reviewing the holiday season with a gleam in its eye. Despite the softness in the economy we hear things are going well. Are they?

A: Overall our business continues to improve both in revenue and profits. While the economy has been soft, we continue to focus on the fundamentals of our business from revenue & gross margin improvements, to our product mix changes. We believe this will position us well over the coming months as the economy hopefully will improve.

Q: What are the pieces that you have turned which have led to the greatest improvement?

A: We've had a dramatic change in our product mix that we sell. We have expanded beyond the desktop marketplace and into more profitable categories like accessories, consumer electronics products, which are typically higher margins than traditional PC related products, as well as other categories like the imaging and handheld markets. Essentially, we aren't as dependent on PC's as we once were. We have also focused on driving the expansion of services.

Q: Clearly services is a big part of the turnaround. What are the key areas in services that CompUSA is trying to become known for?

A: I would say any area that a customer is looking for we would like to be able to provide them with. Areas that we view as core to our business are basic break / fix service both on-site and in-store, end user training, as well as both warranty and non-warranty repairs. We are also becoming known more and more for home network installations of wired and wireless LAN's. We are doing a lot of 2-5 node installations.

Q: What are some of the overall retail strategies that you can share? You were testing some SWIS plans and some mini store ideas. How are those proceeding?

A: We added the Digital Living Center, which demonstrates our home automation solutions - convergence solutions like how computers and electronics products fit into people's lifestyles. How to control lighting, heating and air conditioning, home security, as well as connecting PC's to audio systems, to manage streaming music and video.

Q: So despite the challenges and issues with our political and economic environment, you are quite bullish?

A: We have our concerns. There is not as much of a compelling reason for customers to upgrade their PC's today other than the prior compression that has happened. As an industry we have to find a reason to get customers to buy new technology. On the positive side we are seeing some exciting things in digital imaging, printing technology, PDA's, as well as the new tablet PC's coming to retail in the near future. Those should be some strong categories this Holiday season.

Thanks Tony, we appreciate the update. Continued success.

NewsWatch: WalMart and BestBuy

Watch this space for sales update: Wal-Mart's online store is offering eight different Microtel PCs with LindowsOS included. The computers start at $299 and point to a clear departure from standard Windows-based PC's. Now the retailer is advertising systems with the LindowsOS distribution pre-installed, no longer just moving away from Windows, but now directly competing with it: "These computers do not ship with Microsoft Windows. They ship with an exciting new UNIX based Operating System (OS) named Lindows. This exciting new OS delivers the stability of UNIX with the ease of Windows and the ability to run most Microsoft programs. These computer systems are a perfect low cost alternative to computers preloaded with Microsoft Windows." Wal-Mart says the PCs come with "mail, word processor, web browser, address book, calculator, CD player, MP3 player, Microsoft PowerPoint viewer, Word viewer, and Excel viewer," and buyers get to select three "free" Click-N-Run applications from the Lindows.com warehouse (of GPLed KDE-based software, we might add.) 'Sources we spoke to say the machines perform better than expected. Imagine if this trend picks up!

Latest from the Greatest? Best Buy had net earnings of $70 million for the quarter that ended June 1, up 27 percent from the year earlier quarter. "This earnings increase reflects comparable store sales gains and contributions from stores opened in the past 12 months, coupled with steady operating margins," said Best Buy Chairman & CEO Richard M. Schulze. "Our Best Buy stores attracted high levels of customer traffic, and our Musicland stores met our revised sales targets. Our domestic stores continued to expand their gross profit margins, as digital products continued to increase in the mix. Also, sales now include our Canadian Future Shop stores, which have performed slightly better than expected, due to growth in sales of digital products and video gaming." As reported on June 6, total sales for the first quarter of fiscal 2003 increased 24 percent to $4.59 billion from $3.70 billion a year ago. The sales increase reflected the addition of new stores in the past 12 months as well as the inclusion of sales from 97 Future Shop stores. The Company's comparable store sales (which will exclude Future Shop stores until the first full quarter following the first anniversary of the date of acquisition) rose 5.7 percent. "Our strong beginning for the year builds our confidence that we can continue to achieve top-quartile growth rates in sales and earnings," Schulze added. "We expect contributions from new store openings, comparable store sales gains and improved operating efficiency to drive our growth." The gross profit margin rate for the Company was 23.2 percent of sales in the first quarter, up by 0.3 percent of sales compared with the first quarter of fiscal 2002. The inclusion of Future Shop's results increased the Company's total gross profit margin by 0.1 percent of sales in the quarter. The balance of the gross profit margin improvement resulted from lower costs associated with consumer financing offers due to lower interest rates. The SG&A expense rate was 20.7 percent of sales for the quarter versus 20.4 percent of sales in the first quarter of fiscal 2002. The increase in the expense rate was driven by the addition of Future Shop. Compared with the pro forma SG&A rate from the first quarter of fiscal 2002, the SG&A rate was unchanged. Darren Jackson, Executive Vice President - Finance and CFO, said, "We currently expect comparable store sales to increase 4 to 5 percent in the second quarter, resulting in earnings per share of approximately $0.30 to $0.32 for the period. This initial EPS guidance for the quarter includes a 4-cent dilutive impact from investments we plan to make to launch Best Buy stores in Canada, improve our efficiency at Future Shop stores and remerchandise Sam Goody stores. In the second half, we still anticipate more leverage in our operating results. For the fiscal year, we continue to anticipate revenue growth of 17 to 20 percent, and earnings growth of 18 to 21 percent, which represents a diluted EPS of $2.10 to $2.17 per share."

NEWS

Another Look in the Mira
By ChannelMedia Staff

Care about incompatibility of Windows Home XP to Mira- mentioned it in earlier story but MS just confirmed it. The marketing machine at Intel, which has brought diverse programs from the very successful 'Intel Inside' to the curious Blue Men ads, is about to launch the company's most expensive and extensive campaign to date, and one that will focus on the business markets, both large and small.

The program will use the theme "Yes" and will focus on all levels of Intel products and answer a variety of posed questions such as "Can a microscopic piece of technology solve enterprise-sized problems?"

The program will initially focus on the underlying value proposition that Intel provides to its business customers with its products ranging from portable chips to desktops and finally with server and enterprise level products. The company plans to use print and television advertising as well as provide resellers and retailers with point of sale materials. There will also be events that will focus on the issue around the US and merchandising efforts.

Initially the program will target large businesses and then migrate down into the small and medium sized market, Intel executives said. The small and medium business push will have a focus on the channel and how it does business and will provide it with collateral and POS merchandise. This is intended to be a two to three year program, launched now in the US and in the rest of the world this Fall and will supersede the Macroprocessing effort it launched a year ago May, which focused only on its server efforts. Intel claims that it will be its most expensive effort ever.

NEWS

Retail Optimization: Making Cents of It All
By Hung LeHong, Gartner, G2

Viewpoint

Retailers have been able to increase sales up to 7% and gross margins by 1% to 19% in early retail optimization trials. Results are so promising that retailers are confused by the many claims of success and technologies.

Dynamics

Predictions

Recommendations

Viewpoint

Confusion in the retail optimization marketplace
Price and markdown optimization technology has received a lot of interest from retailers because of early successes in increasing sales and margins. The reason for the keen interest is clear: Technology and advanced mathematical algorithms are making sense of the huge amounts of point-of-sale data to better forecast the effects of price changes and promotions-a retailer's dream. The first retailers to pilot these optimization solutions have reported promising results:

Ironically, these early wins have created a cautious approach from retailers. The successes have pushed retail optimization technology vendors to move very quickly, and as a result, much confusion has been created in this nascent area:

Trying to compare all the current retail optimization solutions is like comparing apples to oranges. Retailers face a challenging environment when trying to figure out what retail optimization can do for their businesses.

But the confusion is worth it. According to a McKinsey study on pricing, a 1% improvement in price can lead to an 8% increase in operating profit-and some retailers are proving this in their optimization pilot tests today.

Dynamics

What is retail optimization?
Analytical tools can optimize sales results and margins by balancing the variables that affect sales, margins, inventory costs and market share. One example: Optimization tools help forecast demand to anticipate the effects of price changes on margins. These tools are driven by statistically based models that operate on data captured from the point of sale and other sources, such as promotional calendars and weather reports. They provide fast interpretation of data and rich "what if" modeling to test different alternatives and hypotheses.

Early-adopter retailers are using optimization technologies to:

How does retail optimization improve current practices?
Large retailers already have the tools to help them tackle pricing and planning processes. But a look at current practices will help us better understand how the new optimization tools deliver better results.

But what if retailers knew the effects of changing prices by 1%, or of delaying a product markdown by just one week? The current pricing and markdown optimization tools would tell them if sales would increase, and what effect the actions would have on gross margin over the life of a product.

The heart of optimization solutions lies in the ability to predict future sales and calculate highest margins in the context of all plausible pricing, volume and markdown scenarios. To do this, most optimization solutions apply proprietary algorithms to point-of-sales, promotion event and seasonal data to conduct literally millions of "what if" scenarios to determine the best pricing or markdown scenario.

Not long ago, the first applications of markdown and pricing optimization solutions focused on maximizing gross margins. Though the applications could calculate likely outcomes in straightforward situations, they did not account for the more complex dynamics of the retail environment, such as trade allowance practices or specific high-mid-low pricing schemes. What if certain SKUs must always be priced lower than competitor X's? What if maximized unit sales-not gross margin-is the objective of a category? Today, forward-thinking retailers and their technology vendors are tackling all of these areas.

The evolving state of retail optimization
Retail optimization is moving beyond pricing and markdowns and into the broader merchandising process. The trend is driven by a few retailers that have successfully implemented either pricing or markdown optimization and want to apply similar practices to other parts of their merchandising process. As a result, optimization development efforts are under way in almost all parts of the merchandising process.

This rapid expansion is creating a lot of confusion. Retailers have different merchandising and pricing needs, based on the type of merchandise they sell. Department stores, electronics specialty retailers and grocers usually plan and price differently. Apparel retailers and department stores, for instance, plan and execute seasonally, while grocers operate on more of a category management basis.

The reality, however, is that most retailers execute a combination of the two planning practices (see Figure 1).

Figure 1: The state of retail optimization today

Source: GartnerG2, May 2002

The future of retail optimization looks bright, but confusing
Perhaps the best way to understand retail optimization opportunities is to compare them to current merchandising practices. Table 1 highlights the overall merchandising practices and the corresponding optimization opportunities.

Table 1: Opportunities for retail optimization

Source: GartnerG2, May 2002

A number of retail optimization technology vendors, such as ProfitLogic, KhiMetrics, DemandTec, Spotlight, i2, Manugistics, KSS, MarketMax, Mercari, 4R Systems and Planalytics, are pursuing these development efforts.

Early lessons learned
The implementation efforts of early-adopter retailers have raised a number of "lessons learned" that other retailers should heed when considering retail optimization. Many of the optimization technology vendors and their retail clients are working through these issues.

Predictions

Recommendations

For more details visit www.gartnerg2.com

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NEWS

RetailVision Update

With the tremendous success of the One-on-One sessions at the last RetailVision, we have decided to do it again. Only this time with a 30-minute break following each 15-minute session to allow additional time for discussion or breaks. We are also allocating twice the amount of space in the One-on-One area and providing 4 chairs.

Just Added: A New Program called "Power Breakfast" where the featured guest will be James Damian, Best Buy's Senior VP, Visual Merchandising and Store Design. Damian's topic is "Complexity Simplified: Enhancing the Customer Experience in the Digital Age." It should be a great presentation. Put it down for 7:30-9:00am, Wed. September 11, 2002.

The next RetailVision is September 10-13 at the Century Plaza Hotel and Spa in Beverly Hills, Calif. To see the list of retailers as of 7.3.02 please see: http://www.visionevents.com/rv/Nextevent/rv-attendretailers.htm

SELLING AT RETAIL

Driving Sales While Building Brands
By Beverly Ham

Chapter 1 from "The BDS Guide to Point of Contact Marketing"

"Right now, I'm probably going to defer any new marketing programs that can't demonstrate a clear return on investment."

The speaker is John Arnos, Senior Vice President and General Manager of the Digital Home and Personal Systems Division of Canon U.S.A. Inc., and he's echoing a refrain we're hearing from sales and marketing executives coast to coast. While they've always been expected to allocate resources effectively and gain maximum return from every dollar invested, they now are under almost excruciating pressure to get the maximum "bang" out of their marketing bucks.

Often exacerbating an already difficult situation: internal conflicts. Marketing executives, typically concerned with establishing and bolstering long-term brand identity, frequently want to devote resources to advertising, public relations and other activities that raise visibility, influence perceptions and (ideally) stimulate demand. Sales executives, under pressure to increase unit sales immediately, often prefer sales promotions, coupons and other programs that can demonstrably spike sales in the short run.

"The trick is to balance long-term goals with urgent priorities," says Arnos. The ideal program will do both - while showing a favorable return on investment and clearly contributing to the bottom line"

Savvy companies in industries ranging from cosmetics and packaged goods to consumer electronics and cellular telephone service are employing an approach that balances the need to stimulate sales while supporting long-term brand strategy: "live marketing," or what BDS Marketing, a sales and marketing firm based in Irvine, Calif., refers to as "Point of Contact" Marketing™. Point of Contact (or POC) Marketing refers to activities that involve interacting, directly and in-person, with one or more consumers - often at the point of sale on the retail floor. (It also can involve interacting with retail sales associates, for example via training, who in turn deal directly with consumers.)

Core POC Marketing practices, such as sampling, have long proven their effectiveness in increasing sales of products such as colognes and processed foods. Today, innovative companies are experiencing exceptional results from a more sophisticated approach to POC Marketing. These companies are implementing multifaceted, integrated campaigns involving the skillful orchestration of a diverse array of tactics including demonstrations, sampling, point-of-sale communications, merchandising, retailer training, sales promotions and assisted selling.

Such programs typically avoid the inefficiency inherent in mass-market tactics such as advertising and direct response. With POC Marketing, the company need not devote substantial resources to grabbing people's attention, or waste money reaching people with little or no interest in the product. Consumers influenced by POC Marketing programs are essentially pre-qualified, since they already are in the store -- and often in the specific department within the store.

Benefits of POC Marketing

Well-conceived and executed POC Marketing programs can help a manufacturer control its destiny at retail while achieving a host of measurable objectives. Among the benefits of a well-run POC Marketing program:

It's easy to identify the factors that make a well-executed POC Marketing program so effective. For example, such programs are virtually unique in their ability to stimulate interactive communications between manufacturer and consumer. The sales representative can ask questions, assess consumer needs and tailor his or her presentation to the consumer's specific's interests. Consumers get to interact with a living, breathing human being, ask questions and really probe product features. Best of all, they are able to actually experience the product and compare its quality and value to competitive offerings.

Candidates for POC Marketing

Does a POC Marketing program make sense for every company that sells through the retail channel? Effective POC Marketing programs require a significant investment - though usually less than a comparable advertising campaign. Our experience has shown that POC Marketing is particularly suitable for companies with the following characteristics:

Companies considering a POC Marketing program have three major options to choose from: they can develop an internal POC Marketing capability; become part of a syndicated program; or outsource the program to a specialist firm, ideally one that has implemented successful POC Marketing campaigns on behalf of other companies. There are advantages and disadvantages to each approach; we will discuss these options in a subsequent article in this series.

A POC Marketing program, while relatively simple to conceptualize, is considerably more difficult to implement successfully. There are a host of issues - from establishing measurable goals to recruiting and training staff - that need to be carefully considered. But a well-run program can achieve remarkable, and easily measurable, results.

Manufacturers in a variety of industries have been reminded of the retail sales channel's power and influence. While acknowledging the essential role played by advertising to increase brand awareness and even stimulate store traffic, executives at many of these companies increasingly are realizing they also must consider how to "close to loop" and complete the transaction. Well-conceived and executed POC Marketing programs have clearly demonstrated their ability to do so.

Beverly Ham is chairman and CEO of BDS Marketing, one of the nation's leading sales and marketing service firms. Founded in 1984 as a field marketing agency, BDS has since helped pioneer the field of Point of Contact Marketing and today delivers measurable results for clients such as AT&T Broadband, Motorola, Philips Electronics, Xerox, Sharp Electronics and Canon.

Contact: (949) 472-6700, ext. 1231, or Beverly@bdsmarketing.com.

This article is the first in a series entitled "A Road Map to Sell-Through: The BDS Guide to Point of Contact Marketing."

ADVERTORIAL

"Straight Talk from the Retail Trenches"
Notes from Panel Discussion at Spring RetailVision

Another RetailVision has come and gone! We at Campaigners received very positive feedback from our first time ever "Straight Talk from the Trenches" panel session. We would like to share notes from the panel session with you as we believe they can provide pertinent information about what's working and what's not at the retail level. We hope these will prove useful when making key decisions about your retail sales and marketing efforts:

The panel consisted of the following participants:

In participants' opinions, the fastest growing product categories are:

What is the best way to train you on a vendor product line?

They work (and yes, the food is great!) but make the training interactive and interesting. If you want us to sell your product, you must come in and train. Follow up from the company rep after training is essential, and communicate to other departments. Don't come in once and never support the store again. (Note: The Creative Labs Representative gives out his home number and email address. Many store associates will call him with questions. He is always available!)

What is the most impactful marketing vehicle that a vendor can take advantage of with your chain?

What is the single most impactful thing an in-store vendor rep can do to increase sales in your stores?

What types of tools work to compare a product against the competition?

What can a rep do with an unknown product?

Do spiffs work?

Rep knows he makes more money long term than an instant spiff.
Suggestion: Task Force conference calls
Reps can pose questions to associates ahead of time. Company holds conference call with Reps to hear feedback from the store staff on products, promotions, incentives, and ideas. This is an excellent "litmus test" method of gaining feedback from the retail trenches.

Campaigners is a results-driven Sales and Marketing Agency that creates a dominant advantage for our clients in terms of Brand Awareness, Category Leadership and Market Share. Headquartered in Los Angeles, Campaigners integrates, executes, and manages marketing and sales campaigns that deliver quantifiable ROI and dramatic improvements in category leadership. Campaigners is comprised of highly experienced sales and marketing experts who excel in creating integrated marketing solutions.

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RETAIL DIGEST

Good Guys, Zones, Bluelight, PC Connection, Circuit City

First, Sony authorizes Amazom to sell a whole bunch of stuff….Then, to keep the Big Mo' Rolling Virgin Entertainment agrees to license Amazon's e-commerce platform. Amazon will be the seller of record, providing inventory, fulfillment, site content and customer service for the co-branded sites. Customers will benefit from access to Amazon's content, personalization and recommendation engines, 1-Click(R) ordering and other key site features. The agreement to power Virgin Megastore Web sites by Amazon.com and Amazon comes on the heels of other alliances with Toysrus.com, demonstrating the flexibility of Amazon.com's e-commerce platform to customize and meet the needs of other leading companies.

"The aim is to replicate the Virgin Megastore browsing experience online," Richard Branson, CEO and founder, Virgin Entertainment Group, said. "We will continue to provide music and entertainment consumers with the ultimate choice and convenience in purchasing."

"Amazon.com has worked hard to provide its customers with the best possible shopping experience with the widest selection, best prices and unbeatable convenience, and we're incredibly pleased to power and manage Virginmega.com and Virgin Entertainment Group, Japan's Web site," said Jeff Bezos, CEO and founder of Amazon.com.

Wal-Mart recently announced that it is in the process of attempting to buy Franklin Bank of California, a small financial bank. The purchase could save over millions of dollars for Wal-Mart in banking fees. The Orange County, California-based bank is on the market for $2.5 million, which, for Wal-Mart, is a drop in the bucket. For the transaction to go through, Wal-Mart must gain the approval of the State of California's Department of Financial Institutions and the Federal Deposit Insurance Corporation to regulate the bank. The ownership of Franklin Bank allows Wal-Mart to issue its own private label debit card system. This will save the retailer fractions of a penny on every debit card transaction that could add up to the number one retailer making $218 billion in revenue in 2002. Wal-Mart conducts more payment transactions than the next five largest companies combined. Wal-Mart previously found difficulty in acquiring a bank to purchase in order to relieve itself of fiscal overhead charges. Bank holding companies are banned from owning commercial businesses. As a result, Wal-Mart's two previous attempts to buy a bank were blocked. By purchasing an industrial bank, such as Franklin Bank of California, Wal-Mart is not required to metamorphasize into bank holding company. Wal-Mart must recapitalize Franklin Bank, which is under an order, the strongest regulatory sanction the FDIC can put on a financial institution. Wal-Mart's strategy is to utilize the charter for card transactions and then continue to operate Franklin as a community bank with its single location. Acquiring the bank is not part of Wal-Mart's retail strategy but falls in well with its strategy to put banking into Wal-Mart's 938 retail stores. An additional fiduciary strategy for Wal-Mart places TD Waterhouse as a partner with the mass merchant.

Maynard Webb has been named chief operating officer of eBay and will continue to lead eBay's technology, customer support, and product development divisions.

Kmart recently revamped its Web site and changed the site's name from bluelight.com to kmart.com. The change provides better brand image consistency. The name change is a signal that the retailer is moving away from BlueLight as a marketing tool. Kmart.com's sales will not pick up due to the Web site name change. The site has yet to show a profit. In Kmart's 2001 annual report, the BlueLight Always campaign was cited as "significantly" impacting the mass merchants fourth-quarter gross margin decline. The retooled e-commerce site features an expanded interface and inventory of Disney apparel, O'Sullivan furniture, Pentax cameras, and Vitrex kitchenware. The site also offers a special promotion from June 20 to June 30 in which customers can receive ten percent off any purchase of $99 or more, excluding certain products. The Web site conveys Kmart's recent marketing strategy, "Stuff of Life" and corporate brand positioning program.

Good Guys recently reported comparable store sales increased 2 percent and were positive for each of the three months. Net sales for the first quarter were $171.0 million compared to $171.5 million in the same period last year, reflecting the previously announced store closings. The growth in comparable store sales was driven by strong demand for digital products, which account for more than 60 percent of the company's total product sales, an increase in average transaction size and improving economic conditions in California. Sales of high-performance televisions, including digital, plasma and liquid crystal displays, continued their fast-paced growth, as did sales of other leading technology products such as DVD recorders, mobile video and digital cameras and camcorders. Good Guys also announced that Thomas F. Herman has been elected to its Board of Directors. Herman, 61, is the managing partner of Oak Harbor Partners, LLC, a boutique financial services firm that specializes in mergers, acquisitions and financed business expansion. His 35-year career includes numerous executive management positions with major national and regional publicly and privately held companies, including retailers Lucky Stores, Inc. and Grand Auto.

BarnesandNoble.com has introduced BookBrowser, a new browsing engine that allows customers to explore and discover books in more than 400,000 categories. The retailer engaged the software firm Endeca to incorporate Endeca InFront Guided Navigation solutions to power BookBrowser. It allows customers to search the site using a host of criteria -- subject, author, format, price range, award-winners, recommended books, bestsellers and more.

Despite Circuit City's recent struggles associated with overhauling its business and disbanding home appliance sales, the CESS retailer reported first-quarter net income of $27.9 million, up 65 percent from $16.9 million. Much like Best Buy, Circuit City's gains were made at the expense of margins as the retailer cut prices and aggressively promoted no-interest financing. The company heavily promoted video game titles, CDs, and DVDs that attract and retain repeat customers. Circuit City's revamping of approximately half of its 620 stores paired with aggressive promotions positions the company well for the second half. The company will remain focused on driving sales through "the box" instead of saving its way into the black. Circuit City stated that, excluding its 64 percent interest in CarMax Inc. the consumer electronics store business posted a loss of $1.3 million, versus $9.6 million in the year-ago quarter. The loss was narrower than forecasted as a result of higher sales gains and cost control. In related news, Circuit City Stores recently announced that W. Alan McCollough was elected chairman of the company's Board of Directors. McCollough succeeds Richard Sharp, who retired from the board this week. McCollough, a 15-year Circuit City veteran, was named president and COO of the company in 1997. McCollough added the title of CEO two years ago after Sharp relinquished the position and announced retirement plans.

PC Connection said the Company has received a commitment from an additional lending participant, increasing its line of credit capacity to $45 million. PC Connection currently has no borrowings outstanding under their credit facility, and expects to have cash balances of $15-20 million as of June 30, 2002. Additionally, PC Connection is reactivating its stock repurchase program that was authorized by the Board of Directors in March of 2001. Late in 2001, the Company purchased 205,000 shares for a total of $1.5 million. PC Connection is permitted to repurchase up to an additional $5 million of common stock under their repurchase plan and credit agreement. Similarly, Zones, Inc.'s Chairman and Chief Executive Officer, Firoz H. Lalji, has filed a Schedule 13D announcing that he has purchased an additional 1,651,000 shares of the Company's common stock in a private transaction and his acquisition of beneficial ownership of 92,800 shares of the Company's common stock in various open market transactions, bringing his total beneficial ownership to 6,799,000 shares of the Company's common stock.

Activision was the top-selling console video game publisher during the month of April, according to sales figures released on Monday by market research firm NPD Funworld. Santa Monica-based Activision, whose games include "Tony Hawk Pro Skater 3" and "Return to Castle Wolfenstein," was the only company to place games in the top 5 for every leading console for the month. The company increased its market share in the US console business to 15.3 percent for the month, as compared to 6.1 percent for the same period last year; dollar sales also increased 179 percent over last year's comparable period.

Consumer electronics firm Sonicblue announced on Monday the release of its ReplayTV 4500, the newest version in its line of personal video recorder devices. The new model adds modem support for standard phone line connections, a redesigned software package and a service-based pricing model. Consumers will be asked to pay a one-time activation fee of $250 per device; the actual price of the device ranges from $449 for 40 hours of TV recording capacity to $1749 for 320 hours capacity.

RESEARCH

Digital Camcorders Catch Fire
By Amber Shore, ARS Imaging Industry Research Analyst

Digital camcorders entered the consumer electronics arena with a bang. The market has grown with such intensity that companies such as Samsung have been forced to adjust and readjust growth forecasts. In the early months of 2000, the manufacturer had already recalculated digital camcorder penetration from 40 percent to 60 percent of the total camcorder market, and in Japan, digital penetration in the camcorder market hit the 90 percent mark by year's end. Furthermore, studies show that sales of digital camcorders increased over 65 percent in the United States from 2000 to 2001, and in the first quarter of 2002, sales reached over 210,000 units. Companies have reacted to this high demand and have flooded the market with over 50 digital camcorders for consumers to choose from. The future of digital camcorders promises even more incredible growth. Recent studies indicate that over 90 percent of analog owners have voiced their intent to switch to digital when making their next camcorder purchase. In fact, the Consumer Electronics Association (CEA) forecasts that by 2003, approximately 92 percent of all camcorder revenues will come directly from digital models, and by 2005, there will be over 25 million units sold. Digital camcorder manufacturers are desperately trying to produce smaller models equipped with more features and better performance at lower price points - the same as in other technology categories. While consumers are able to reap the benefits of lower prices and increasing technologies, it is the manufacturers who must not only keep up with, but also exceed user demands. JVC introduced the first camcorder, Sharp created the first LCD screen embedded in its Viewcam models, Canon was the proprietor of the DV format, but it was Sony who led the pack with its September 1995 introduction of the first digital camcorder. In fact, Sony's commitment to technology, different form factors, competitive pricing, advertising activity, and an impeccable brand name keeps the manufacturer a step ahead of the rest. Sony is the lone manufacturer to offer Bluetooth-enabled camcorders, and is the only company to feature models compatible with three different form factors, namely Digital8, MiniDV, and MicroMV. Sony also surpasses the others in market share.

In May 2002, ARS found that Sony offered 35 percent of all the camcorders available in US retail. It was also Sony comprising 40 percent of all digital camcorder advertisements, and the manufacturer is currently the exclusive manufacturer to offer a $100 mail-in rebate with the purchase of any Vaio PC through January 2003. However, Canon, JVC, Panasonic, and Sharp are by no means excluded from this success. Each has found its niche in the market, and each has customer loyalty on its side helping to spur sales. In fact, Canon representatives have been cited as saying that Canon's market share for DV camcorders has historically been lower in Japan than in overseas markets because of "homegrown brand loyalties."

Canon is a manufacturer privy to promotions and rebates for its imaging products. The company, with just 14 percent of the retail shelf share in May 2002, promoted its digital camcorders more than twice as much as Panasonic models, and three times as much as Sharp. Furthermore, Canon consistently offers mail-in rebates such as the current $250 rebate offered with the GL1, and free software with the purchase of select digital camcorders. While Sharp does not typically promote its digital camcorders with rebates, the manufacturer does offer a unique design for its models. With just a 4 percent camcorder shelf share and only a handful currently available in retail, this unique form helps consumers to immediately spot a digital Viewcam. Much like Sony, JVC and Panasonic each offer an array of different models varying in specifications and price. Earning retail shelf shares of 20 and 27 percent, respectively, JVC and Panasonic continue to help raise the bar by consistently offering new and robust designs.

With the major manufacturers' commitment to a tech savvy population, there is no doubt that the digital camcorder market will continue to explode to become one of the most popular consumer electronics. As consumers increasingly make the switch from analog to digital, manufacturers will strive to increase the performance of their cameras, at lower price points, and with more creative advertising. Though the digital camcorder market is seven years old, the market has only seen the tip of the iceberg in terms of industry growth and technology performance.

RESEARCH

NPD Provides New Data: PC, Notebooks, PDA's, CDR's, Printers, etc.
By NPD Techworld

Pre-PC Expo Information Technology (IT) Fact Sheet

Industry Overview
The gradual improvement in the retail IT market continued in April 2002. Annualized April sales reached $25.7 billion, down only 1.5 percent from the same period last year. Actual April sales of almost $1.8 billion were the lowest so far in 2002, reflecting the beginning of the mid-year seasonal sales slowdown.

Key Highlights

Desktop sales showed their second straight month of sequential improvement in April. While declines of over 20 percent still are not particularly positive, the fact that unit sales volume appears to have arrested its death spiral bodes well for the channel going into the peak 3rd and 4th quarter selling seasons. The revenue outlook remains optimistic as well since the chance for significant year-over-year selling price declines seems remote, leaving volume increases as the key determinant in improving sales revenue.

Notebook sales trended slightly lower in April after months of raised expectations. Corporate sales remained the weaker segment of the market as the consumer retail market stayed strong. ASP and revenue declines softened in April as the introduction of the new Pentium 4-M processor helped push prices higher for the month.

The PDA market showed some positive signs in April over previous months. Unit sales rose slightly as pricing stabilized at slightly less than $270. However, retail advertising has been heavily focused on rebating and price, indicating that the market is still softer than what the channel would like. Volumes through direct mail continue to rise for both Pocket PCs and Palms as handhelds grow into a key piece of business-oriented computing.

Laser printers continue to aggressively push the feature and price/value equations. Sales volume was up in double digits again in April, mostly as a result of a $200 decline in the selling price spurred by the continued popularity of entry-level black and white and color lasers.

Unit volume growth for MFDs saw a slight uptake in April after a couple of months of sequentially declining growth. While this month's increase is barely above last month, it is the first time in several months that the trend has been positive. The category should continue to see positive revenue growth as the most aggressive price declines that occurred in early 2001 have now receded, leaving the upcoming months facing 2001 price levels below $290. Unless pricing slips significantly in the coming months that should ensure revenue increases that mirror whatever unit volume growth the category can generate.

CD Media sales had their best month of the year in April 2002. Unit disk volume and revenues rose as well in the face of another large price decline per disk. Despite the apparent good news much of this volume increase appears to be bought with heavy promotional activity. While disks sold for 45 cents, rebating and promotions brought disk prices down to as low as 10 cents per disk in some instances.

LCD Monitors remain the sales growth story of the past 18 months. Prices declined by over $250 from April 2001 helping to spur a tripling in sales volume and a doubling of revenue. This category, like many others, is beginning to see the end of significant year-over-year price drops as selling price declines moderate sequentially. The next few months promise smaller price drops and that will test consumers appetite for LCD monitors which still average more than 2.5 times the price of an average CRT monitor.

The collapse of pricing in the rewritable market showed no sign of ending in April. Commodity pricing has taken hold in the category, spurred on by the entry of a number of overseas manufacturers and the withdrawal from the market by HP. Prices fell nearly $65 to $132 in April and even the introduction of 32X and 40X writable drives, as well as significantly faster external USB 2.0 drives have not been sufficient to overcome the influx of $49 and $79 promotional drives.

Source: NPDTechworldSM .. NPDTechworld provides essential market information to the IT and CE industries. For more information, please contact Jarad Smith at 703-376-6226, or jarad_smith@npd.

COMMUNITY

Tablet PC's are the real deal!
By Fred Brown

The technology sector has lacked velocity since staggering out of the dot.bomb deflationary spiral.

PC's, once the driving force in channel sales have limped along without glamour for too long. Finally we've been given new life, the Tablet PC.

Tablet PC's are not "tricked out" PDA's. A Tablet PC is not simply a "Pumped up Palm", but instead the real deal.

The new Tablet PC's provide everything you would get from a laptop and more. The user will get a fully configured PC with 30Gig+ hard drives, the latest released processors, all standard I/O and built in wireless capability. Users loose nothing in configuration between a laptop and a Tablet PC. What they do pick up is impressive. First and foremost they will get INK, as in Digital INK, one of the cornerstones of Microsoft's new Windows XP Tablet PC Edition. INK is not just another handwriting recognition attempt but the realization of the dream of the combination of analog methods of communications (note taking and handwriting) and the personal computer.

The old saying, "seeing is believing" has never been more appropriate when trying to describe the benefits of Microsoft's new Tablet PC operating system. Whether you are writing your notes on the screen, saving or searching on those words, responding to an email with a quick handwritten note or filling out a form in your own handwriting and seeing your scribbles turn into Times New Roman in the right box, this software is stunning. Microsoft's new Tablet PC version is not an upgrade to XP but rather an entirely new chapter in the personal computer industry evolution and will provide a much-needed boost to revenues in the channel for those who are ready and prepared to take advantage of this paradigm shift.

You cannot buy this new version of XP. It's only bundled with a Tablet PC. ISV's are creating new versions of their software to take advantages of the new powerful capabilities of the Tablets. All segments of the computer industry will be invigorated. All Tablets are not created equally. There will be plenty of room for innovation. Some Tablets will have 10.4-inch screens, some 12.1-inch screens. Most will come with a keyboard (Blue Tooth, IR or attached) but some will not. The form factors will vary, the operating system will not.

There has been a debate over the type of screen to be used, electro magnetic (pen), or resistive (touch). Microsoft ended that debate ... The winner is, electro magnetic. The elegance of the "pen" based INK far exceeded the result of "touch" in recognition, user acceptance and application potential. Any manufacturer that wants the Microsoft Tablet PC version of XP must be pen based. Any company foolish enough to go after this market with a touch screen will have their head handed to them on a real "tablet". There may well be a niche market for touch screen laptops but they are not Tablet PC's if they are not based upon Microsoft's Tablet PC Edition of XP. The market for Tablet PC's is both vertical and horizontal. The horizontal market is anyone using a laptop today. At a price point of around $2,000.00 it is inconceivable that anyone buying in the mid to upper price category for laptops would buy anything other than a Tablet PC. The vertical markets for the Tablet PC will be everything from hospitals, engineers, hospitality, real estate, legal and any number of other markets.

These vertical markets for the Tablet will spawn an array of new applications that will stimulate the ISV's and Vertical VAR's. Companies like Adobe, ScanSoft, Franklin Covey and others are already fast on the uptake in this market. There is a major challenge standing as an obstacle to the success of this breakthrough technology. That challenge is for Microsoft, the Tablet PC manufacturers and ISV's to provide sufficient education and awareness so the consumer will be able to make a clear distinction between the Tablet PC, traditional laptops and PDA's. There exists a subtle yet pervasive assumption in the user community that Tablets are not full PC's but souped up PDA's. This assumption or more accurately misassumption, must be met head on with focused marketing, education, awareness, demand creation and channel penetration. Clearly making the distinction between the contenders will assure the Tablet PC takes it place at the head of the table and show us all the beginning of something wonderful.

Tablet PC's are coming, are you ready to cash in on the boom?

Fred Brown of Brown & Associates is a marketing and sales consultant known for opening sales channels, closing deals and building brand awareness and demand. Fred's consulting business was built upon a track record of success with a variety of experience running sales and marketing for companies such as AT&T PC's, MetaCreations, Xtend, Viewpoint and as far back as Osborne Computer Corp. Brown & Associates is currently specializing in the Tablet PC market.

COMMUNITY

Changing Channels: Party Like it's 1999?!
By Steve Cross

Remember 1999? What a great year. IT departments were scared about Y2K, and everyone was spending like mad. Software and hardware were selling like there was no tomorrow. Money was ample, and interest rates were affordable, if not cheap. Those days are long-gone. Ancient history. What happened? Why are companies ailing? Stock prices in the toilet? Why the recent layoffs all over tech? Answer: because the industry's business model is flawed.

Briefly, an explanation of business design: the conscious design of a business model using analytical tools, and congruency with the business' goals and exit strategy. Most companies have a business model but no business design. They never sit down and take a global, long-term view. This problem is endemic to large and small companies. This is solvable, but each company's management must challenge their own way of doing business. Most companies have an accidental business model. Like the famous s-t, it just happens. And at some point in the future, the company has a problem. When the accidental business model hits a new reality, the splat is what you hear. Tech's splat is sounding pretty loud from where I sit.

Here's what's going on: this industry has an accidental business model that reflects annual upgrades of hardware and software. And here's the new reality: recently one of the leading sources of economic data re-stated the IT desktop upgrade cycle as 40 months. Folks, that is over three times longer than the tech industry's business model's expectation. That's a real problem, and it isn't going away anytime soon. If I had to guess, I would say that we have another 2 years of this nightmare. Whoever is left standing in two years will have a chance at industry domination for the decade following. This is a difficult, but extremely predictable stage of a declining business model (read Adrian Slywotsky's great books on Profit Patterns). Once a tipping point is reached there will be no hope of return to the former status quo. This is a terrific industry, one that can fix its business model and return to vibrant leadership of world commerce. But first we have to get outside that proverbial box, look seriously at business design, and fix the problem. We'd better move quick.

Steve Cross has been helping companies grow since before dirt was invented (seems like a long time). He is continuing his work at helping leading companies increase their profitability in the channel. He can be reached at: steve@crosschannel.com 702-492-7472.

COMMUNITY

A New Spin on Channel Partner Management
By Jim Hart

Tighten Your Sales Strategy By Enhancing Your Partner Relationships
It's a given that selling through channels is a highly effective way to go to market. Channels help reduce the overall cost of sales, allow penetration of previously untapped markets, can provide superior customer service, and reduce time to market.

Managing these channels to reach their true potential is the challenge.
In an evolving marketplace of shrinking margins, emerging technologies, and increasingly technology-savvy customers, channels become even more important as companies struggle to keep pace with change. Partnerships are created to add expertise and synergy that would be difficult, if not impossible, for a single company to maintain alone.

But when the objectives, or wins, of both sides are not considered, there is no alignment. The result is expectations are not clear and resources are often not allocated to the areas that would provide the greatest ROI.

Maximize the ROI of channel partnerships.
Miller Heiman's Channel Partner Management program (CPM) helps companies better manage and optimize partnerships and redirect these relationships toward mutual profitability. It gives participants a specific methodology and supporting tool set to help optimize the benefits of selling through channels:

There are a couple of great 'aha!' moments in this program when participants start to visualize the areas where they can build stronger partnerships.

One of those moments is when we examine the sales and support programs that organizations deliver for their partners and see how those overlay and facilitate the partner's sales process. Participants quickly realize where the holes in their tactics are and can then think about strategies to better deploy resources and make investments in the partnership that will generate the maximum return for both parties.

Achieve "must have" status with your partners.
A partnership is at its best when it becomes a necessity for success - one partner is providing the other with a key benefit not found anywhere else. Partnerships are even more valuable and profitable when both companies need the relationship to succeed.

Jim Hart is a 20 plus year veteran of the computer and consumer electronics industry. As a Miller Heiman sales consultant, he offers both small and large companies his expansive expertise in developing effective multi-channel sales and marketing plans that produce results. You can reach Jim with questions and comments at jim@hartsales.com or (650) 341-2139.

LISTS

NPD's Hit List of Top-Selling Software - Week of May 19 - May 25, 2002
Provided by NPD Techworld

List is based on units sold by twenty-three channel partners. For more information, please contact NPDTechworld at (703) 376-6200.