Chris Barton: Blame lies with those at top of PC Company

COMMENT

While Colin Brown blames a falling market and the inability to do a deal with The Warehouse as reasons for the demise of his once thriving empire, The PC Company, he should really be looking in the mirror.

In the past two weeks, as Brown has ducked, dived and dithered over calling in the receivers, a different picture has emerged about why the company went bust.

Information from former employees and disgruntled customers, who have contacted the Herald, indicates The PC Company had serious quality-control problems that had been going on for some time.

Customers tell of having to wait months to get PCs fixed, of new machines showing up dead on arrival, and of disputes over refunds.

Employees tell of a stressful working environment, of far too much time spent trying to resolve customer disputes, and of management ignoring compatibility and quality concerns from technical staff.

The firm was caught in a vicious cycle of faulty machines and trying to fix them. Too may PCs were coming back for repair so technical staff normally assigned to test new machines for quality before they were shipped out were assigned to fix the broken ones.

That in turn left gaps in the testing, so more machines were sent out faulty. Which led to even more broken returns and more unhappy customers as decreased staffing levels struggled to stem the tide of disrepair.

It got out of control around November last year - when the first round of redundancies came and some staff began to see the writing on the wall.

Staff who took their concerns to Colin Brown or marketing manager Kerry Mancer were ignored . "Just deal with it," was a common reply.

Many left before the second round of redundancies in May, by which time chief executive Rob Sweet had also departed. By now the word had got around the market: "Don't buy from The PC Company, its machines are rubbish and its after-sales support is a joke."

Internally staff were watching with some amusement the dying days of the Colin and Kerry show, known to some as Beavis and Butthead and Fawlty Towers.

But it wasn't always like this. In 2001 The PC Company was riding high, selling 23,000 computers and it was still selling at record levels in early 2002 - at one stage taking 7 per cent of the PC market and ranking number two in desktop PCs.

In its heyday, it employed 150 people, turned over $60 million a year and made a profit.

Besides the quality-control problems, Brown could never make up his mind if it was a direct-sales company or a wholesaler. He began in the PC business in 1982 as Pegasus - wholesaling locally assembled PCs to other retailers. It was the role he was most comfortable with, but he received a nasty shock in July 1997 when a major retailer he was supplying, Best Buy, went bust leaving him $450,000 out of pocket.

The setback spurred him to set up his own retailing operation - a chain of stores throughout the country supplied by his Hamilton-based factory.

It was a nice idea, although many of the stores weren't in the best locations or the best type of buildings. Sales staff in his Hamilton showroom, a converted warehouse, complained it didn't have air-conditioning and got unbearably hot in summer. Not a good look to be sweating when trying to sell a PC.

Some suggested these store fronts would be best managed - as they were in a couple of places - as franchised operations. Or that they weren't necessary at all. Direct sales by phone and the internet could be managed from a single office and call centre in Hamilton or Auckland - saving on overheads.

The direct sales model was well proven internationally by Dell and locally by PC Direct, which was bought by Blue Star in 1996 and then Gateway in 1998. But Brown and his management never really understood the mechanics of making the model work, and they lacked the crucial customer facing expertise.

In late 2001 the company started to lose sight of its basic strength - selling good quality, great value PC desktops - and began diversifying into too many areas. These included a foray into clunky-looking notebook computers, a less than fruitful wholesaling deal with Farmers, setting up as an internet provider and a separate "PC Essentials" business.

Perhaps the biggest blunder was in mid-2002 when the company failed to have a sub-$2000 PC in the market that was better than that offered by Hewlett-Packard at the time.

All "white box" manufacturers - a large group that make up about 30 per cent of local sales - know that to beat the big brands you need to be nimble and must always have packages available that offer "more bang for your buck".

The PC Company had been successful in this respect with the better margin $3000-$4000 buyer, but never recognised the sub-$2000 trend.

It turned out to be Brown's downfall - with Hewlett-Packard cleaning up in the second quarter, followed by an overall 9.4 per cent drop off in sales in the third quarter.

Brown recognised the threat. In August 2002 he told the Herald: "We have to make sure we never do a PC Direct."

He explained that meant getting "to the stage where we can't put a [competitive] offer on the market because our overheads are too high."

To which he added prophetically: "Our biggest enemy is ourselves."

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