When sales are down, you have to get strategic before you get tactical and operational, which is not what most people do. Most people react first. Cutting costs to keep profits up is a natural reaction to a difficult business environment, particularly for public companies. Unfortunately, it is rarely the right thing to do. The best step to take first is to dig deep and find out the problems and then start to work on the solution. For example: Is there a share shift and who are you losing it to and why? What are the best strategies to employ for each of my key channel partners, Vendors? Am I spending too much or too little with my partners? Am I spending in the right areas and properly measuring the results? For that type of information you need timely, quality data (EDI/XML) systems and software services (NPD, Nielsen, etc.) to examine the root causes and its normally more than one thing so you need business intelligence to help you correlate data and develop conclusions. Then you can architect the solutions. In leaner times, it’s easy to put the “strategic stuff” on the back burner and just think about making this month’s number. I would argue that it’s the worst thing you could do. The time to be strategic is now!

Let me know what you are doing to increase sales and share in the channel and how you measure your results - kanewman@sbcglobal.net. And make sure your top channel personnel are all subscribing to ChannelMedia.

ADVERTISEMENT

NEWS ChannelMedia Top 10@Retail ChannelMedia Editor Keith Newman

1. Speaking of Strategic! Best Buy tapped Kal Patel to Vice President of Strategic Planning. Patel has an integral role in driving Best Buy's initiatives that support the creation of a sustainable, powerful growth platform. Reporting to Phil Schoonover, Executive Vice President of New Business Development and current strategy lead, Patel is in charge of managing the ongoing formulation and execution of the Company's overall strategy and growth agenda. This includes building on the Company's four strategic pillars: customer centricity, the efficient enterprise, win the home with service and win in entertainment. Patel also is responsible for keeping the Company's current strategy relevant to business goals, engaging leadership to build the Company's strategic aptitude and connecting the strategy with Company plans, including investments, human capital and partnerships.

2. Worldwide PC shipments will reach 30.7 million units during the second quarter 2003, up 6.4 percent year-over-year, according to projections by Gartner Dataquest. Worldwide revenue is expected to reach approximately $38.3 billion, an increase of 2.6 percent over the previous year. However, these projections depend on global economics. The mobile PC segment appears to be a growth opportunity, particularly with the release of the Centrino line of chips. Since Centrino notebooks are mainly targeted to large-scale enterprises, a significant increase in sales may not be seen in the short term, but rather take over six months before being reflected. For the full-year, Gartner lowered its expected worldwide PC shipment projection to 136.9 million units, a 6.6 percent increase over 2002. In February, Gartner’s estimate was for PC shipments to increase by 7.9 percent to 138.7 million units.

3. OfficeMax, the No. 3 U.S. office products Retailer, reported lower first-quarter net profit as the absence of a year-ago tax refund offset gains from increased marketing and the opening of additional smaller stores. The Cleveland-based Retailer said quarterly net income on a generally accepted accounting principles (GAAP) basis was $9.8 million, or 8 cents a share, versus $63.5 million, or 51 cents a share. The year earlier results had benefited from a $57.5 million tax refund. But assuming an approximate 40 percent tax rate provision, which the company says is how Wall Street analysts measure its performance, earnings per share for the latest quarter were 5 cents, up from 3 cents a year ago.

4. At its analyst meeting in San Diego on Thursday May 8, Gateway announced it would introduce several products outside the personal computer business arena, in an attempt to regain profitability and change its image as a personal computer company to more of a “branded integrator.” The new consumer products will span seven different product lines. Gateway indicated plans to unveil new plasma TVs and LCD televisions, continuing to increase its breadth of product in the plasma market since its entrance at the end of 2002. Additionally, Gateway stated it would introduce new mobile electronics products in three market categories, and would debut three systems and networking products including a server with four microprocessors in each box. Other possibilities in expanding its consumer electronics offerings include digital cameras and camcorders. Specific pricing was not discussed. In addition to new products, Gateway stated that it would significantly remodel about 100 stores by the end of the year, and freshen the look of approximately 80 others. Gateway did not disclose its costs associated with store remodeling.

5. XM Satellite Radio announced the introduction of the first satellite radio receiver for PCs. The XM PC Receiver offers XM’s 101 digital music, entertainment, and news channels without the need for an Internet connection. The product is available exclusively from PC Connection for $69.

6. Fry’s Electronics opened a new retail store in Irving, Texas. Fry’s #22 has an upscale, contemporary design and includes a coffee bar that also offers sandwiches, salads, and other lunch items. Large, backlit, black and white photos of Irving--past and present--hang on the walls and line the front and rear walls above the shelving. The shelving is low so that other parts of the store are visible. All works for yours truly, except I’m not a big Cowboys fan so some of that could go but I guess in Irving it plays well. The retail powerhouse is also opening a second store in the San Diego market.

7. Acxiom Corp. said that it had entered a multi-year agreement to provide its market-leading InfoBase(R) data to one of America's top Retailers. J. C. Penney Company, Inc., based in Plano, Texas, will use Acxiom's InfoBase and related data products. Axiom’s data and experience in the retail sector offers a deep understanding of how accurate and current data is at the heart of merchandising, marketing and customer service decisions. "Acxiom is delighted about this opportunity to contribute to the continued success of such a well-known Retailer. We appreciate the confidence they have in us, and are looking forward to a great relationship for many years to come," said Acxiom Retail Client Executive, Andrea Haldeman.

8. RadioShack recently held its annual shareholder meeting in Fort Worth where Chairman and Chief Executive Officer, Len Roberts outlined how the company is differentiating itself from other consumer electronics Retailers as well as detailed the company's leadership role in the area of corporate governance. "Only RadioShack is uniquely poised to dominate cost-effective solutions to meet everyone's routine electronics needs and families' distinct electronics wants," Roberts said. "Our consumer research shows that solutions means more than just having an answer to a consumer's particular product or service need or want. It also means extensive product selection and quality at a reasonable price. Combine these needs with our knowledgeable sales associates and it is clear that we have a definitive competitive edge that will differentiate RadioShack in the minds of consumers and ensure our relevance both now and in the future. Roberts continued, "Our solutions strategy is the thread that connects RadioShack's mission of demystifying technology in every neighborhood in America to its vision of becoming the most powerful one-stop shop to connect people -- through products and services -- to the wonders of modern technology. The physical manifestation of this strategy is our new concept store design we're testing in Tucson, AZ and Jacksonville, FL.” These new concept stores showcase the company's distinct and innovative products while maintaining its convenient neighborhood locations for accessories and routine needs. The company plans to expand the test to 300 stores nationwide that are slated for renovation this year.

9. U.S. online retail sales are expected to increase 26 percent to about $96 billion for 2003 and represent 4.5 percent of total U.S. retail sales, according to a survey by Shop.org and of over 130 Retailers. In 2002 online retail sales increased 48 percent to $76 billion and represented about 3.6 percent of total U.S. retail sales. As a whole, online Retailers broke even last year, compared with a decrease of 6 percent in 2001.

10. Ross Rubin, Senior Analyst for eMarketer, reports that the U.S. has become a leading country in terms of both mobile phone subscribers and penetration. This high installed base is somewhat sabotaged by competing network standards, but overall the U.S. represents a rich base for mobile commerce (m-commerce). Rubin says that two trends are starting to materialize which should improve the cellphone as a platform for e-commerce. First, the wireless networks are getting faster. Second, the devices themselves are getting more sophisticated with text-entry options, larger, color screens, and built-in browsers that can better represent the design of a Web page. According to eBrain, it appears that significant progress, either in functionality or education, will need to take place before consumers are interested in wireless shopping. Only 19% of consumers surveyed expressed interest in shopping on handheld devices, while the majority were either indifferent or not interested. However, 7% indicated they were very interested in such an ability, which bodes well for generating an early adopter base. One recurring theme in surveys on Internet commerce is convenience. In theory, extending this convenience to wireless and mobile devices should enable consumers to make electronic purchases anytime and anywhere.

NEWS

Latest Data on Worldwide Server Shipments, Gartner, Inc.

Worldwide server shipments totaled 1.2 million units in the first quarter of 2003, a 10.4 percent increase from the same period last year, according to preliminary statistics from Gartner, Inc. "The worldwide server market performed better than expected in the first quarter of 2003, but the threat of a lingering war with Iraq, combined with a weak economy, still had an effect on IT spending during the quarter," said Shahin Naftchi, principal analyst covering servers for Gartner's servers worldwide group. "As a result, the life cycle for existing large systems was extended and corporate buyers delayed purchases of high-end equipment, preferring the quick returns from short-term investments instead."

Hewlett-Packard retained the top spot in the worldwide rankings with 29.1 percent of server shipments. Dell Computer remained in the No. 2 spot with 20.2 percent of the market, followed by IBM with market share of 14.8 percent. Sun Microsystems was the only top-tier Vendor to experience a decline in worldwide server shipments in the first quarter of 2003. The top three Vendors continued to dominate the market and accounted for more than half of all units shipped during the quarter (see Table 1).

Table 1

Preliminary Worldwide Server Unit Shipment Estimates for 1Q03 (Units)

Note: Hewlett-Packard and Compaq are reported as one company.

Source: Gartner Dataquest (April 2003)

The U.S. server market experienced an increase of 13.2 percent in the first quarter of 2003, with shipments of 499,609 units, up from 441,540 units in the first quarter of 2002 (see Table 2). This is the fifth consecutive quarter in which the United States posted a year-over-year growth rate greater than 10 percent. Dell moved into the No. 1 spot in the U.S. server market with 27 percent of the market.

"Dell led the top-tier U.S. Vendors in shipment growth with an increase of 24 percent compared to the same quarter a year ago, and that is in part due to the strengths of its partnerships, ranging from database offerings with Oracle to its storage solutions with EMC," said Jeffrey Hewitt, principal analyst for Gartner's servers worldwide group. "HP's performance in the first quarter of 2003 could have been impacted in part by server seasonality, which is normally weaker in the first quarter of the year following a strong fourth quarter."

Table 2

Preliminary U.S. Server Unit Shipment Estimates for 1Q03 (Units)

Note: Hewlett-Packard and Compaq are reported as one company.

NEWS

Channel Digest

MUSICMATCH announced it has signed a non-exclusive license with Sony Music Entertainment (SME) to offer the extensive SME recording catalog to subscribers of MUSICMATCH MX, featuring Artist On Demand. Customers of the number-one selling online music service can now enjoy music from more than 10,500 artists from all five major music labels and many independent publishers. The new content is incorporated into the MUSICMATCH MX service and allows customers to enjoy instant playlists of music from their favorite artists. "Adding Sony Music Entertainment's extensive catalog to the Artist On Demand service is a huge milestone for both MUSICMATCH and music fans in North America," said Bob Ohlweiler, Senior Vice President of Business Development at MUSICMATCH. "Our service offers one of the deepest and broadest music catalogs available and delivers it in unique and easy ways for consumers to enjoy."

Apple today announced that this week marks the second anniversary of opening its first retail store in May 2001, noting that it has since opened 57 retail stores in 26 states, hosted over 15 million visitors and sold over $650 million of products through its retail stores. More than 1,100 Apple employees work in Apple's retail stores and there is an Apple store location within 15 miles of 90 million people in the U.S. Apple also announced that during the next 12 months it plans to open 20 new Apple retail stores, including its first store in downtown Chicago, on North Michigan Avenue; its first store in San Francisco, in Union Square; and its first retail store outside of the U.S., in Tokyo's Ginza shopping district. These three locations will be high profile store formats, like Apple's popular "SoHo" retail store in New York City. "In just two years Apple has changed the face of computer retailing for over 15 million people that have visited our 57 stores throughout the U.S.," said Steve Jobs, Apple's CEO. "During the next 12 months, we will extend our reach even further by opening 20 more stores, including three new high profile stores in Chicago, San Francisco and Tokyo.” The Apple retail store on North Michigan Avenue in downtown Chicago will open on Friday, June 27, 2003, the Tokyo store will open in early 2004, and the San Francisco store will open in Spring 2004. Apple recently opened its first retail stores in Honolulu, Seattle and Sacramento, California.

ScreenPlay digital projectors optimized for home theater will become as common as plasma or big screen TVs, only with sharper and significantly larger images at a fraction of the cost. InFocus announced today the launch of the ScreenPlay 4800, the third in its line of home theater projectors, and the first to break the $1,500 price barrier. With access to an affordable home theater projector, more consumers can now experience cinema-quality images at home. Perfect for projecting larger-than-life images from DDS, home movies from digital cameras or camcorders, televised events such as football and video games, the screenplay 4800 can project images up to 12 feet with crisper, higher-resolution images than plasma, big screen TVs and many other projectors. "If you want the true theater experience in your home, front projection is the only way to get amazing image quality in sizes more than twice that of other display devices, and infects' screenplay Series is designed to offer a superior home theater experience," said Scott Hix, Vice President and General Manager of InFocus Business Development. "With the ScreenPlay 4800, InFocus has extended the ScreenPlay Series to make truly impressive home theater available to customers looking for great value and performance."

Powered, Inc. today announced that Micro Warehouse, one of the world's largest providers of technology products and services, is using Powered's Channel PowerCenter solution to increase sales and customer loyalty. In partnership with HP, Micro Warehouse uses Powered's solution to provide customers with free, interactive courses on utilizing technology products for their home or business. Micro Warehouse expects to increase revenues through the use of Powered's unique platform, which has proven its effectiveness in improving brand loyalty, increasing customer retention and driving product sales. The new joint marketing program is an extension of a very successful small and medium business marketing strategy HP has been delivering through Powered's technology for the last two years at www.hplearningcenter.com. Customer response to the program has been very strong, with manufacturers like HP realizing higher conversion, satisfaction and return rates. The Powered solution will help Micro Warehouse and HP build upon this success through the use of integrated tools that contextually promote products and services to customers opting into the online resource. Powered's Channel PowerCenter also creates a closed-loop dialogue around a customer's interests, giving both manufacturers and Retailers improved visibility into customer preferences, ultimately improving quality and service. "This initiative represents an innovative way for us to work with business partners like HP for the benefit of our mutual customers," said Brian Burch, Executive Vice President of Marketing at Micro Warehouse. "The MW Learning Center is the latest evidence of Micro Warehouse's strategy to provide a deeper level of advice and assistance to our millions of customers. It's what makes us unique and makes our customers among the most satisfied in the industry. "We're innovative because we focus directly on value to the end customer," said Tony Reed, CEO and President of Powered. "To date, most partner software applications have focused heavily on automating and creating efficiencies in the processes between a company and its channels, not on creating joint marketing and selling initiatives. Our technology delivers programs that have a measurable impact on sales volumes through channels to improve the profitability of all partners."

Wal-Mart and J.C. Penney Monday said last week's sales put them on track to meet May forecasts, as warmer weather Wal-Mart, the world's biggest Retailer, said top-selling categories in the week ended May 16 included pet supplies, hardware, paint and live plants. The Retailer had said earlier this month that its inventory levels were higher than normal for the second straight quarter. Clothing and lawn and garden merchandise were the main culprits as below-normal temperatures crimped demand. The U.S. Midwest and Northeast, which had been hurt by the cool weather, were Wal-Mart's strongest performing regions in the latest week. The Retailer has said it expects May sales at U.S. stores open at least a year -- or same-store sales -- to rise in the range of 1 percent to 3 percent. Last year, Wal-Mart posted a 6.2 percent jump in May same-store sales. J.C. Penney said it still expects May sales at its department stores open at least a year to rise by 2 percent to 3 percent. The strongest categories last week included women's and children's clothing, fine jewelry and shoes. Last year, J.C. Penney posted a 5.1 percent decline in May same-store sales at its department stores. Wal-Mart and other top U.S. Retailers have kept expectations muted for the current quarter as a stalled economy and weak job market hurt demand. Stores saw little evidence of a post-Iraq war sales pickup, and Wal-Mart said Mother's Day demand was softer than expected. In a sign of how tight consumer budgets remain, Wal-Mart said it noticed an increase in demand after May 15, when many people received mid-month paychecks.

Veo, a leading provider of high-quality digital imaging products, said that its new Veo Wireless Observer network camera will be widely available to consumers in retail and distribution channels throughout the United States in May at a suggested retail price of $299.99. The latest addition to Veo's Observer network camera line, introduced last November, maximizes users' options of where to place the WiFi-ready (802.11b) camera for remote monitoring because it requires no Ethernet cabling and can be placed up to 300 feet from any WiFi access point. The camera also does not need to be tethered to a PC because of its built-in Web server. Veo Observer network cameras enhance home and corporate security by allowing users to hear and see what is happening in their homes and businesses remotely over the Internet using Microsoft Internet Explorer. The cameras capture audio and video clips and digital snapshots. Live audio can be captured via internal or external microphones. The feature-rich cameras allow for built-in tilt and pan control from remote locations and can be set to automatically send e-mail alerts with attached snapshots when motion is detected. CCD sensors ensure good quality images, even in low-light conditions. "Our customers are using the Observer network cameras for a wide variety of applications, such as viewing vacation homes, checking up on employees and business operations, or joining remotely for special family events from the road," said Tim Martin, Veo Vice President. "With the new wireless Observer, it's now easier than ever to provide an added sense of security and peace of mind at a very affordable price."

Sharper Image said for the month ended April 30, 2003, total Company sales increased 17 percent to $39.8 million from last year's $34.1 million. Total store sales increased 23 percent to $22.0 million from $17.9 million in the prior April; comparable store sales increased 11 percent. Total catalog sales decreased four percent to $11.6 million from the last April's $12.1 million. Catalog sales, excluding television infomercial sales that were affected by television coverage of the Iraq war, increased 20 percent. Internet sales increased 50 percent to $6.2 million from last April's $4.2 million. For the three months ended April 30, 2003, total Company sales increased 28 percent to $117.0 million from last year's $91.6 million. Total store sales increased 32 percent to $65.8 million from $50.0 million in the prior year; comparable store sales increased 19 percent. Catalog sales increased 16 percent to $34.3 million from the last year's $29.6 million. Catalog sales, excluding television infomercial sales, increased 35 percent. Internet sales increased 42 percent to $16.9 million from last year's $11.9 million. "We are pleased with the excellent sales increases in April and our first quarter," said Richard Thalheimer, Founder, Chairman and Chief Executive Officer. "The first quarter's comparable store sales increase of 19 percent was achieved on top of 2002's first quarter excellent same-store sales gain of 12 percent -- a very strong performance. "During the month of April, the infomercial component of our catalog sales was unfavorably affected by television coverage of the Iraq war. This preempted our infomercial time slots while viewership on other non-news stations was down because of the public's focus on the war. As war coverage has decreased, we are seeing the availability of television media gradually returning to previous levels. Excluding infomercial sales, catalog and other direct sales increased 20 percent," explained Mr. Thalheimer. "All three retail channels -- stores, mail order and the Internet -- enjoyed excellent sales during all three months of the quarter. Our customers continued to respond to our multimedia advertising program that has been successful in highlighting our proprietary Sharper Image Design products and Sharper Image branded merchandise. During the first quarter, we opened one store, The Shoppes at Grand Prairie in Peoria, Illinois, and we are on track to reach our goal of opening 15 to 20 percent new stores this year," Mr. Thalheimer stated.

ScanSoft announced the immediate availability of Dragon NaturallySpeaking(R) 7 Legal, the world's best-selling speech recognition solution designed specifically for law firms and legal professionals. Proven by thousands of legal professionals and law firms worldwide, Dragon NaturallySpeaking Legal converts speech into text at up to 160 words per minute, reducing or eliminating the costs associated with manually creating documents and transcripts. The Microsoft Windows application is used to create contracts, citations, letters and transcripts by voice, and also enables hands-free interaction with practice management, legal research, e-mail and Web applications. "ScanSoft leads the market because it continually delivers 6+productivity solutions that have the highest accuracy and most innovative features," said Glenn Garnes, Attorney and Publisher of The ESQlawtech Weekly, an online publication dedicated to law office technology. "Dragon NaturallySpeaking is a product that will transform the way documents are created in firms of all sizes, giving a competitive edge to legal professionals who bring it into their practice." Dragon NaturallySpeaking 7 Legal is a significant new release, delivering unrivaled levels of accuracy and speed, the benchmarks most widely associated with speech recognition applications. The new version achieves up to 99 percent accuracy, and is 50 percent faster than the previous release. It also expands its support for mobile dictation, a mainstay of the legal industry, allowing users to record speech using Microsoft Pocket PC devices and have documents automatically created the next time they sync to their PCs.

TDK Corporation has successfully developed the industry's first color-filter 4096 multicolor organic EL display that uses a passive matrix system. Volume production is scheduled to begin by the end of the year. The organic EL display is a self-emissive display that uses organic materials formed into thin films and that are driven by electric current to generate light. The display features high brightness levels, wide viewing angles, and quick response. The high picture quality of organic EL displays is attracting attention to these products as potential next-generation flat displays. TDK is the first in the industry to start on development of an organic EL display. By developing white luminous organic EL elements and combining them with color filters, TDK was able to create an original, practical multi-color display that produces light in the three primary colors--red, green, and blue (RGB). TDK began sample shipments of an RGB 4-gray scale, 64-color display for use in car audio in March of this year. TDK then went on, in the pursuit of higher picture quality, to develop the industry's first color-filter type RGB 16-gray scale, 4096-color display that adopts a passive matrix system. The development of white luminous organic EL elements that feature high brightness levels and long product life, optimization of the color filters, and the use of specialized driver ICs make 4096 colors possible. Compared to earlier displays, not only is a greater number of colors supported, the picture element pitch is also finer, leading to detailed and more natural images and enhanced color reproduction capabilities and expressive ability. Shunji Itakura, General Manager of Display Business Department, made the following comments concerning development of the new organic EL display: "The market is making strong calls for the introduction of color organic EL displays, and our development of white luminous organic EL elements combined with color filters contributes greatly to the development of color organic EL displays and their volume production, and I am confident that they will satisfy many customers."

THQ announced that it has entered into a two-property, multi-year publishing agreement with world-renowned PC development studio Relic Entertainment, Inc. Creators of critically acclaimed real-time strategy (RTS) titles Homeworld and Impossible Creatures, Relic is regarded as a leader in the RTS genre. Homeworld won PC Gamer magazine's "Game of the Year" honor in 1999 and has franchise sales of more than 1.3 million units worldwide since its release. The first of the two projects included in the agreement is currently in development at Relic and scheduled to release in the second half of 2004. More details on this project will be released later this year. "We've identified the RTS category as a strategic imperative for THQ as we begin to compete more aggressively in the high-end PC market," said Jack Sorensen, Executive Vice President of Worldwide Studios, THQ. "A two-property agreement with Relic, a developer widely regarded as a leader in the RTS genre, is the perfect entrance into that category.

Digital River signed an e-commerce agreement with Palm Europe Limited, the leading provider of handheld computers. Under the agreement, Digital River built nine new e-commerce sites to support Palm's online consumer business in Europe, the Middle East and Africa (EMEA). In addition to launching and hosting the Palm sites, Digital River is providing order management, fraud prevention, site merchandising, reporting, product fulfillment, e-marketing, multi-lingual customer service and value-added tax (VAT) management.

Fujitsu PC introduced the newest LifeBook S Series notebook--the LifeBook(R) S6000 notebook. Featuring Intel(R) Centrino(TM) mobile technology, the LifeBook S6000 notebook delivers groundbreaking performance, yet retains the same impressive design and dimensions users have come to expect from this award-winning series. The company will begin shipping the notebook today with a starting price of $1,549(1). The LifeBook S6000 notebook is powered by the Intel(R) Pentium(R) M Processor 1.40GHz and features the Intel(R) PRO/Wireless Network Connection 802.11b and Intel(R) 855GM chipset. This combination of technologies was designed specifically for mobile applications and works in concert to deliver the best mobile experience.

Electronic Arts and LEGO Interactive today announced that BIONICLE, a fast-paced action adventure platform title based on one of the LEGO Company's most successful play materials of recent years, is under development. The game is slated to ship in fall 2003 for the PlayStation(R)2 computer entertainment system, PC-CD, Xbox(TM) video game system and Nintendo GameCube(TM) game console. In BIONICLE, players enter the world of Mata Nui, a paradise island where a shadow has been cast and the six heroes of destiny, called "Toa," have been chosen for the greatest challenge of all. Players will have the opportunity to live out the BIONICLE legend by playing the Toa, helping them evolve into the super Toa, or "Toa Nuva," and eventually find the seventh Toa. With the magical elemental powers that the Toa possess, players must defeat the shadow of darkness brought by a sinister villain, Makuta, and return Mata Nui to light.

Staples reported first quarter profits fell 74 percent to $25 million, or 5 cents per share, from $94 million, or 20 cents per share, last year. That included a one-time tax benefit, due to an accounting change. During the quarter ended May 3, Staples recorded a one-time, non-cash adjustment of $62 million. Excluding the change in Vendor accounting, Staples earned 18 cents per share, compared with 14 cents per share last year, exceeding analysts’ estimates of 17 cents per share. Total sales increased 15 percent to $3.15 billion versus $2.74 billion the previous year, with same-store sales in North America increasing two percent. For the second quarter, Staples estimates earnings per share to be in-line with analysts’ forecasts of 16 cents per share, with an increase in revenue in the low double-digit percentages. For the full year, Staples forecasts an earnings increase of 20 percent, excluding items.

Triversity, Inc., a leader in customer-centric software and services for the retail industry, today announced the addition of ExpressReturns to their product offering. ExpressReturns is the industry's only Web-based refund management solution and can easily be integrated with a Retailer's point-of-sale (POS) system. ExpressReturns improves customer service and customer satisfaction by speeding up the returns process, while protecting Retailers from shrinkage due to fraudulent, unauthorized returns. A key addition to a Retailer's Loss Prevention strategy, ExpressReturns is the ideal complement to Triversity's FraudWatch solution for Loss Prevention. While FraudWatch identifies overall patterns of POS-related activity that may indicate employee theft or non-compliance, ExpressReturns is specifically designed to prevent fraudulent merchandise returns -- one of the major sources of shrinkage. With ExpressReturns, customers can buy in one store and return in another, and returns may be made with or without receipts. The speed, flexibility and convenience of the returns process greatly improves the customer's shopping experience and builds customer loyalty. At the same time, the Retailer can be assured that returns are legitimate and not fraudulent, since refunds can be tracked by store, cashier, credit card number and tender type. The browser interface allows quick drill-down without having to access cumbersome reporting systems, and the system quickly makes a recommendation to approve or deny a refund -- cutting refund processing time by more than half.

ADVERTISEMENT

Looking to reach the top Decision Makers in the Retail Channel? There is only one place you can stay top of mind: ChannelMedia.

See the opportunities at www.channel-media.com/mediakit.

RESEARCH

Flash – The Next Generation
By: Dwain Smith Research Analyst, Scanners and Flash Memory

From digital cameras and MP3 players to PDAs and USB flash drives, flash memory technology continues to permeate its way into more and more consumer electronic devices. The next big high-volume market poised to lead removable flash card sales in the near future is the cell phone market. An emerging feature these next generation multimedia phones will have is a memory expansion slot, and, as a result of strict design parameters flash Vendors have introduced, a new generation of mobile flash storage formats. These formats include Memory Stick Duo, miniSD and Reduced-Sized MultiMediaCard (RS-MMC). Mobile media is becoming a necessity and the companies that don’t take the business seriously risk losing market share.

While the digital camera market has proven to be very profitable for flash memory Vendors, the opportunities that lie in the cell phone market pose some very interesting and lucrative business opportunities of their own. The handset has quickly become a consumer electronics product that can not only make calls but surf the Web, play music, function as a voice recorder, send e-mail, take and send pictures and perform other organizational functions. Last year, cell phone makers chalked up sales of over 400 million units worldwide, and that number is expected to top 700 million units in the very near future.

In response to the many different functions of handsets, the design of a memory expansion slot in the handset itself has emerged. These new phones that can accommodate memory cards give additional capacity to the phone making it possible to back-up files as well as transfer documents, pictures and music between the handset and a PC. And now, since removable flash memory cards are featured in smaller and smaller devices, a new generation of reduced-sized removable flash memory formats has emerged. These new flash cards offer significant savings in card area and in the area required to support the memory card in the host device, two critical design parameters for ultra-portable devices, such as handsets.

The first entry into this market was Sony’s long awaited Memory Stick Duo. About half the size of a regular Memory Stick, the new Memory Stick Duo measures approximately 0.79 inches x 1.22 inches x 0.06 inches (20mm x 31mm x 1.6 mm) and weighs .07 ounces. This compares to the 2.0 x .85 x .11 inches and the .14 ounces that a regular Memory Stick packs. The size of the new Memory Stick Duo makes it just about equivalent to that of a Secure Digital card (or MultiMediaCard).

The Memory Stick Duo isn’t a replacement for the original Memory Stick, which accounts for nearly a quarter of all flash memory card sales in the United States. Rather, the new Memory Stick Duo is an extension of the Memory Stick, enabling Sony to further reduce the size of its devices. Sony has also made available a full size adapter for the Duo that allows the card to fit in existing Memory Stick slots. Given Sony’s tradition of style and design, the MS Duo could likely end up in some ultra small music players and some unusual wearable applications such as wristwatches, cameras, PDAs, etc.

One of the first devices to feature a Memory Stick Duo slot was the Sony Ericsson P800 mobile phone. The P800 has all the standard features of a typical cell phone but can also play the part of PDA, digital camera, music player, voice recorder, speaker-phone and Internet access device. The P800 is able to download games, screensavers, ring tones, and MPEG-4 movie trailers, available from Sony. As noted, the P800 has a built-in 300,000-pixel camera that provides for mediocre image quality at best. The 640x480, VGA resolution digital camera can take pictures in three different resolutions (640x480, 320x240, and 160x120) and store as many images as your Memory Stick Duo permits. Sony supplies a 16MB card for additional capacity to the phone so users can move files between the memory card and the phone.

Another recent entry into the mobile removable flash memory card market is SanDisk’s miniSD. MiniSD cards are targeted at the cell phone market, and in particular, the newest generation of 2.5G and 3G phones that are featuring camera functionality. The new format was developed by Toshiba, Matsushita and SanDisk, the three original developers of the SD card. The miniSD format was recently adopted by the SD Association as an ultra-small form factor extension to the SD card standard. The miniSD card measures, 21.5mm x 20mm x 1.4mm (0.85 inches x 0.79 inches x 0.06 inches).

Another key benefit of the miniSD card is its compatibility with the existing SD format. Since it’s an extension of the SD card standard, it uses the same interface. This allows mobile phone and consumer electronics manufacturers to leverage their current SD-based product designs without changing software or hardware specifications. SanDisk branded miniSD cards will be packaged with an SD adapter that converts the miniSD card into a full-sized SD card, enabling the miniSD card to fit into the existing SD card slot trail.

Several Japanese Vendors will bundle the new miniSD card, including NTT DoCoMo, Japan’s leading mobile communication company. NTT DoCoMo, with more than 45 million subscribers, will bundle a 16MB SanDisk miniSD card with 4 different models of its recently announced DoCoMo i505 series phones. The new phones feature advanced multimedia capabilities and memory card support for data storage and exchange. The phones also deliver other high performance features such as a 1.3-megapixel digital camera, video capability, MP3 playback, Internet messaging, video gaming, e-mail, personal information management (PIM) and an infrared port for remote controller applications.

In November of 2002, the members of the MultiMediaCard Association finally approved a new reduced-sized standard for the MultiMediaCard called the Reduced-Size MultiMediaCard (RS-MMC). Like the Memory Stick Duo and miniSD card, the new RS-MMC is clearly designed for the mobile phone and PDA markets. The format can also serve as a platform for digital camera manufacturers to build even smaller cameras. The new storage form factor is about the same width as an existing MMCard, but measures almost one-half the size in length, reducing the total volume by more than 40 percent. RS-MMCards measure 0.9 inches x 0.7 inches x 0.06 inches (24mm x 18mm x 1.4mm) compared to the 0.9 inches x 1.26 inches x 0.055 inches (24mm x 32mm x 1.4mm) measurements of the existing MMC. The cards can be used in existing MMC host platforms with the use of an adapter that helps the RS-MMC fit in a full size MMC slot.

The RS-MMCs will be manufactured and marketed by the various members of the MMCA, including Hitachi and Samsung who recently announced their entry into the market.

There’s clearly an evident trend among removable flash card Vendors toward smaller flash memory cards. This trend is being sparked by a shifting dynamic in the handset market which is creating opportunities for new suppliers, particularly flash memory Vendors. Because the latest generation data-centric phones enable users to communicate richer (audio and visual) information, these phones are requiring additional storage capacity to support digital camera functionality, advanced multimedia applications, and other information services. As a result, flash Vendors have introduced a new generation of reduced-size mobile flash memory formats including the Memory Stick Duo, miniSD and the RS-MMC to meet these growing needs. As the new cutting edge cell phones break out of the early adopter stage and into the mass market, within the price / performance metrics of mainstream devices, the flash Vendors who are positioned to take advantage of this mega-market can look forward to some real explosive volume growth opportunities.

RESEARCH

Ink Promotions, A Necessary Evil In Retail?
By: Jana Sellers Business Unit Manager, Printer Supplies Group

Promotions are inevitable in retail: to attract new customers, move product, and build brand loyalty, a manufacturer must promote. But are promotions necessary for inkjet supplies? Inkjet supplies are a competitive business and it seems that every Retailer is looking for a piece of the pie in terms of margin revenue. Because of the high margins inkjet supplies provide, promotions have become a necessary evil for those Retailers in hopes of increasing their ink sales.

Currently, the top inkjet promotion runners are mass merchants and drug stores, with office product superstores commanding a very close second. Mass merchants and drug stores have a huge convenience advantage. Mass merchants and drug stores offer a variety of products and customers can easily pick up basic household necessities along with their inkjet cartridge. This shopping experience is very convenient to the customer. Other Retailers like office product superstores and computer superstores are specialized in their product selections and customers must have a clear purpose when shopping at those Retailers.

The most popular type of promotion from the mass merchants or drug store is the special price promotion. This promotion normally discounts inks a certain percentage point off the regular selling price. The chart below shows that special price promotions rank second in terms of the most frequently ran promotion while free product with purchase ranked number one. The free product with purchase promotion has become very popular among the office product superstores. This type of promotion normally offers some type of paper product with the purchase of an inkjet cartridge.

Special price promotions work well for the mass merchants and drug stores because little effort needs to be applied on the customer’s part to enjoy the discounts. Over the past year, special price promotions have more than doubled in efforts while free product offerings have decreased by 8 percent.

If a Retailer is looking to increase revenue for inkjet supplies then it is imperative to offer promotions. Once a decision is made to promote inkjet supplies the question is “What type of promotions work?” The purchase of an inkjet cartridge is a necessity and not a want. Therefore, customers are willing to purchase ink cartridges more willingly when they receive a savings at the time of purchase. Mass merchants and drug stores are moving in the right direction in terms of their promotional efforts. Therefore, if other Retailers want to reap the benefits of the inkjet supplies margin pie, then more promotional efforts need to be placed on offering special price promotions.

RESEARCH

Value Proposition Gains Momentum In Today’s PC Market
By: Toni Duboise, Desktop PC Analyst

In an industry plagued by market saturation and uncontrollable economic woes, PC manufacturers are now faced with the daunting task of locating an ever more elusive “sweet spot” in today’s consumer PC market.

Unlike the PC golden age, when hardware or software enhancements could stir a frenzy in replacement cycle and spawn a flurry of new PC buyers waiting to jump at the “right” time like selective stock market investors, today’s latest and greatest technological advancements are too often met with utter complacency. Granted, U.S. household penetration has stalled at 60 percent and increased performance is often deemed superfluous, but the fact remains that consumers are simply not as reactive to the barrage of the newer technologies infiltrating the personal computer market. This delayed gratification syndrome has caused U.S. PC makers to turn elsewhere in order to entice buyers to market.

Beyond the continuous development of the digital PC age, which has had its share of falderal, one of the most compelling reasons to buy a PC today can be found in the value proposition. The premise of a value proposition is to obtain more performance for less investment – or more simply – get more, pay less. Thanks to a steady stream of technology regeneration, the value proposition offered by PCs today has increased significantly over the past few years, which is why it has become a key driver in today’s market.

Nature of the Beast

There are not many industries that can maximize on value like the PC industry and the consumer electronics sector in general. Unlike the automobile industry and related fields, where increased material and labor costs reflect a continual increase in product pricing, the electronics industry in general is known for its ability to produce components better, faster, and ultimately, cheaper. Even the reduction of a chip die size serves a dual purpose of boosting potential performance while simultaneously reducing building costs. These types of advancements coupled with the rapid succession of cutting-edge technology, which allows top-end components to trickle down to the mid and entry level markets, gives PC and CE manufacturers the advantage when it comes to presenting an improved value proposition.

Current Value Proposition

In order to analyze the most recent value trends represented by the current desktop PC marketplace, let’s take a look at how much a $499, $799 and $1,299 investment will buy today compared with two years worth of six-month historical windows. The selected $499, $799 and $1,299 price points represent the “sweet spot” of the respective entry-level, mainstream and performance market segments for the desktop product category. Each prospective market segment will be addressed individually.

[The comparative configurations used in the tables below are not intended to characterize a standard configuration, but instead reflect the most commonplace component when more than one system was offered at that price point or a ‘best of’ option when there was a single system offered at that price point at any given time. Only Intel-based processors were utilized in this comparison to facilitate trend analysis.]

As budget PC shoppers can attest, you can get a whole lot more for your money in the entry-level market of today. At $499, the entry-level desktop PC category exhibits some of the most remarkable gains with correlating entry-level Celeron processors rising from 800MHz to as much as 2200MHz in two short years (from April 2001 to April 2003). In the most recent six months dating from October 2002 to April 2003, the $499 price band not only presented a 29% Celeron performance boost, from 1700MHz to 2200MHz, but in some cases doubled the main memory option from 128MB to 256MB. The third and final major change can be found in the dual CD-RW and DVD optical drive combination, which just recently made its initial debut in the entry-level market. Most of the entry-level systems still symbolize an enhanced value proposition with the singular CD-RW optical, but with recent component price reductions and newer technologies being offered within the optical world, ARS expects the dual optical drive will become more prevalent in this space.

Entry-Level Desktop Configurations: $499

Almost equally impressive is the increased value proposition offered within the mainstream market, as typified by the $799 price band. With mainstream PC buyers demanding more performance from their systems, which already come standard with 256MB of system memory and dual optical drives, there are fewer component upgrades to be made before bumping up against the performance category. However, the most recent six-month window (from October 2002 and April 2003) has generated one of the most inspired component moves. The $799 price category not only showed clock speed gains of 18% (from 1700 to 2000MHz), but actually experienced an atypical processor platform advancement from Celeron to P4. This is not to say that all $799-priced machines carry the P4 processor, but there have been at least three such machines to do so in the consumer market within the past four months. This trend is a perfect example of higher-end components making their way down the product chain because of the incessant technological advancements. With the performance market’s current Intel P4 running at just over 3000MHz, the legacy P4 chips will continue to become more prevalent within the mainstream market.

Mainstream Desktop Configurations: $799

As for the $1,299 performance segment, there are four pertinent areas of improved value performance in the past six-month window. All are of particular interest to this high-end user category, including enhanced processor, memory, graphics and optical drive options. First is an eleven percent gain in P4 clock speed (from 2400MHz in October 2002 to 2660MHz in April 2003). This is bolstered by a 40GB jump in hard drive capacity (from 80GB in October 2002 to 120GB in April 2003) and a 100% increase for AGP video or VRAM (from 64MB in October 2002 to 128MB in April 2003). Lastly, is a performance boost in the optical drive component from a DVD and CD-RW combo in October 2002 to a CD-ROM and rewritable DVD combo drive option in April 2003?

Performance Desktop Configurations: $1,299

Buyer’s Market

As shown in the entry-level, mainstream and performance categories, the value proposition has improved tremendously over the past two years with an intensified increase in the past six months. While there is still a healthy sized early adopter audience that pines for the newer technologies that yield PC makers higher margins, ARS feels that the improved value proposition is a good match for today’s anemic economy. This approach plays well in the current marketplace and will continue to do so until discretionary spending returns in force.

RESEARCH

ChannelMedia Q&A with Ingineo LLC
Laurent Hercz - Business Development Manager - Consumer

Q. Ingineo is getting a lot of buzz out in the marketplace. Can you summarize for us what the excitement is all about?

A. Ingineo is betting on the fact that the market is ready to make the jump to wearable computing, specially in the field of multimedia. In the field of portable entertainment, Ingineo is creating a total revolution. Until now, real portability of videos/image was only a dream, and it has become a reality with the Eyetop. What we mean by real portability is to have a tool that is not designed to replace your everyday screen, but rather giving everyone the convenience of mobility. Ingineo is today the leading company in the world in this precise field which probably explains the attention we are getting from the media, the consumers and the retail channel, which as you probably know, we are not the first ones to talk about such a product, but we are the first to actually commercialize one and get the category going. We seem to have given the go ahead for a fun and challenging area of development.

Q. From a product standpoint how do you expect to keep it going?

A. As I was saying, we have decided to launch in June 2003 a piece of eyewear integrating a LCD screen. It is called Eyetop. We have developed a Web site giving all the necessary details on the product, www.eyetop.net. Since its opening on May 6th, we have had about 3,000 visits per day, which shows a very strong interest from the consumers, and we have not started our communication campaign yet. Eyetop.net, official Web site is the perfect reflection of the Eyetop brand name value and product quality. We foresee many areas of development within this product category.

Q. And how do you use the channel to help you achieve your goals?

A. The channel is the essential ultimate presentation media that we need to educate the consumers and to show them the possibilities of Eyetop. We are expecting the retail channel to seize the opportunity of this emerging market. Our Web site is showing the way and the channel should use it as much as possible to create a new environment; it has been designed with the consumers and retail channels in mind.

Q. It is not everyday that you can bring something completely new to the consumer.

A. Eyetop brings a completely new vision of the way images can be seen and where and when they can be seen. Therefore, it brings to the retail environment a new approach to portable multimedia. Image is at the center of the multimedia experience and this new solution will allow new animation in the store.

• Use Eyetop to entertain your customers and show them something unique and different.
• Be the first to create a wearable techno department.
• Bring more loyalty to your high-end customers with a breakthrough offer.
• Use Eyetop as a new attraction, the future of the digital world available today.

Q. Are you looking to expand your number of alliances?

A. For Ingineo, alliances are the way to go. What we offer is merely a screen. Alliances with image source manufacturers and distributors will bring both parties a new way to promote and present their products. I am talking about digital cameras, portable multimedia hard drives, portable DVD players and multimedia laptops for example.

Q. Any last thoughts or comments?

A. Eyetop is new and a chance for the industry to create an entirely new area of development. We hope that everyone will take the chance with us. If you have any comments or questions you can contact me at lhercz@ingineo.net.

Thanks for your time.

ADVERTISEMENT

Grab the attention of the top CHANNEL Decision Makers NOW! Put a contextual ad message in ChannelMedia where you know it will get read and for a fraction of the price of an ad in a trade publication!

See the opportunities at www.channel-media.com/mediakit.

COMMUNITY Changing Channels: By ChannelMedia Columnist Steve Cross

Are We Becoming Japan?

Man, it’s tough for a small company these days to enter retail distribution. A friend is consulting for a two-SKU software company and has a real chicken-and-egg problem. The Retailers don’t want to pick it up directly because they buy new products from distribution. The distributors don’t want to pick it up because they want a run-rate with some Retailers first.

It makes sense, as everybody in the channel is trying to defer (or avoid) risk, which certainly makes sense in this economy. However, what’s my friend supposed to do? The company still needs to eat. People’s paychecks are on the line. And it’s his job to help them achieve that. Well, he’s looking at a third-party arrangement. There are a few outfits that look like a cross between a rep and an intake committee for a distributor. With distribution agreements in place of their own with the major houses, these hybrid companies are becoming the main ingress to U.S. distribution.

This is a relatively new development in the U.S., but it’s been a reality of Japanese distribution for decades. In Japanese software distribution to retail, a Vendor company must cultivate a relationship with a “front-end” distributor. The front-end distributor does the translations, re-packaging, positioning, PR and marketing for the Japanese market, and potentially customer service and support. The front-end distributor then sells to a “box-mover” distributor, who breaks pallets into boxes, moves stuff to retail, and bills and collects. That’s what the box-mover does in this model, maintains a sales and operations relationship with the Retailers.

Not much different than the core competencies of the U.S. big distributors, is it? The odd thing is that in the Japanese market, the Vendor seldom, if ever, talks with the box-mover. It just isn’t necessary. The front-end distributor is the “face” of the U.S. (or European) Vendor to the Japanese market.

As an observer of changes in the channels (hey, it’s the name of the column, and my book), this intrigues me. We could easily move into a three-tier system like the Japanese, at least for smaller companies and new market entrants. The channel/market evolution might look a little like this: the people making the highest margin would be at the front-end, instead of the back-end. The model would change to one built on risk/reward, instead of soft dollars. Retail players would downscale costs even farther. Vendors would exist on a smaller slice of the pie. Could this happen in the U.S.? Could we end up looking like the Japanese retail market? Hey, check this space for updates. Sayonara, baby.

Steve Cross is Director of Channel Sales for iVAST, the world leader in MPEG-4 solutions. Contact him at scross@ivast.com, 702-492-7472.