Apple: taking stock

The iMac has become one of the most successful design icons of the decade.

Newcomers are flocking to the Mac, while existing users still worship it. And after seven successive profitable quarters, even Wall Street has now forgiven the vendor its miserable performance in the mid-90s.

The controversial return of co-founder Steve Jobs to the helm seems to have paid off. And after the August launch of the PowerMac G4, the manufacturer is finally back and once again setting the pace for the PC industry.

All this is good for Apple, until someone actually wants to buy or sell a Mac. The vendor boasts that it has fulfilled its promise to provide a complete range of products, including PowerMac desktops and PowerBook portables for business, and iMac desktops and iBook portables for consumers/education. But last month, resellers were reporting that they had little stock.

Nigel Lomas marketing manager at Trams, the UK?s top-selling Apple Centre, had no stock at all but 250 machines on order; while Sidwell Technology in Solihull had no stock and had not seen an iMac for over a month. Proprietor Colin Sidwell, said: ?Central TV has placed a big order for iMacs, but we can?t meet the supply and this is embarrassing.?

Short supply

So resellers are starved of stock. ?It?s not that people don?t want the goods, but Apple isn?t producing enough,? says David Nicholson-Cole, managing director of reseller Ex-Micro. ?We?ve had one iMac in the past month, and it?s supposed to be a high-volume machine, but there?s nothing available now and university terms start soon.?

Even Computer 2000, Apple?s main distributor and, effectively, its largest customer, had no G4s, iMacs or iBooks, and only a few PowerBooks.

Dave Kelly, channel sales director at Apple, admits, ?Availability isn?t what it should be. We haven?t had a good supply of iMacs and the changeover from the G3 to the G4 hasn?t worked well, but Apple is acutely aware of the situation.?

It seems that the main problem is Apple?s unwillingness to carry much stock. After its third quarter results ended 26 June, Apple boasted that it had less than a day?s inventory. This may impress a Wall Street analyst, but?s a blow to its customers. And Apple aims to have a minimum overlap of a week when introducing a line of fresh.

For resellers, instead of a week?s overlap, the changeover from the PowerMac G3 to the G4 resulted in several weeks going by without either machine.

To make matters worse, the vendor?s policy of secrecy on product launches - there was no advance warning of the G4 release - meant Apple could not explain that the G3 was being phased out. Instead, it blamed production, and this frustrates the channel.

Other products were also affected. The PowerBook range, launched in April, did not reach some resellers until July. And the iMac itself was in short supply when launched last year.

Air of secrecy

Observers suspect that the present drought means Apple is planning to launch another iMac this autumn. But resellers find this air of secrecy irritating. ?We know nothing of what it is up to, even though we are its frontline troops,? Sidwell complains. The vendor is also accused of favouring those resellers that it sells direct to over its indirect channel.

Eliott Shepherd, general manager of Apple systems business unit at Computer 2000, alleges: ?There is definitely a preference to fulfil direct partners before distribution, although Computer 2000 is Apple?s biggest customer.?But Kelly refutes this, saying, ?I want to ensure there is a level playing field.?

Yet the impression remains with resellers that they are not being treated equally by Apple. This is true of prices as well as supply, with indirect resellers complaining that directly supplied competitors are undercutting them.

?Some of them are advertising products at a lower price than we can buy them for at distribution. The first thing to do is level the playing field. I don?t mind what price we all pay, as long as it?s the same,? says Sidwell.

Apple is aware of the problem, and after the launch of the G4, it introduced the minimum advertised price (MAP) scheme, asking resellers not to publicise the cost of Macs below a specified price. This effectively created a recommended selling price, after the model of some PC vendors. Whether the resellers sell at the advertised price or offer discounts is up to them.

Resellers have given MAP a cautious welcome. ?Most of the established resellers will comply with the MAP price. In the absence of a recommended price, it?s a good thing,? says Lomas.

But for legal reasons, Apple is unable to put any teeth into MAP. ?There is nothing that Apple can enforce,?admits Kelly. It comes down to everyone playing the game.?

So far, most resellers seem to be sticking to MAP, but already one or two, especially in the mail-order sector, have broken ranks. And there is still the issue of direct supplied resellers versus those that buy product from Apple?s two distributors, Computer 2000 and Ingram Micro.

Shepherd complains that Apple has cut its discount to distributors, forcing them to increase prices to resellers. They in turn pay more than the rivals that buy direct. Even when not eroded by resellers, the margin is so thin, some resellers feel they are doing customers a favour by selling them a Mac.

Keith Cox, managing director of authorised reseller Kinetsys, said, ?We regard Mac sales as a service to clients. Hardware is mostly sold only to the long-term and contract clients. It?s just not possible to retail Apple kit these days. Margin is down to 7.5 per cent. The iMac is practically sold under duress because by the time administrative costs are taken into account,? he adds.

Facing up to the competition in the PC market can be quite a shock for established Apple dealers. But Apple claims that its margin is in line with the rest of the industry and that most resellers tend to agree. ?It?s easy to beef about prices, but Apple is only following suit with international trends,? says Cox.

Like most vendors, Apple?s message to resellers is to make money by selling peripherals, add-ons and services. But the vendor is adamant about its commitment to the channel. ?The channel is still Apple?s main route to market, and the company expects it to remain so,? says Kelly.

There is, however, some good news for Apple and its partners. Ask virtually any reseller about the products, and their mood changes almost instantly. ?It?s good to be back in the position of having a world-beating product to sell,? says Cox. ?The products can?t be knocked. They are superb quality and well-received.?

Roger Whittle, managing director of direct supplied mail-order vendor Jigsaw, says: ?With the G4, Apple is giving people what they want ? fast and attractive machines.?

Apple has indeed toned down the whacky design aspect, opting for subtle greys for the G4 rather than the vivid, iMac-influenced design of the blue G3 range. The latest model is something of a relief. ?The G4 is a lot more sensible than its predecessor. I can see it selling more easily to corporates than the G3,? says Whittle.

The iMac has had more success in breaking the mould and recruiting converts.?Half our iMac customers are first-time buyers,? claims Sidwell. Many others are converts from the PC.

According to Apple, US figures show that almost a third of iMac buyers between April and June were Windows users jumping ship. Overall, the iMac has done well.

But as Andy Brown, analyst at research company IDC, says: ?The iMac was the computer a lot of users were waiting for, but Apple has seen little change in market share. With the prices of Intel machines so low, it probably didn?t gain as many sales as it might.?

The same may happen to the portable iBook. It shares the iMac?s design, and its AirPort wireless networking features have been well received. But at £1100, it might prove too expensive for its target market of Mac users and students.

If its logistics and distribution sometimes appear disorganised, Apple?s product strategy is at least clear. Jobs had promised four ranges - a portable and a desktop each for business and consumer/education - but with the iBook, he has delivered on that pledge even if Apple cannot always deliver the kit in sufficient quantity.

The limited range of specifications available to resellers causes problems for some people. But others prefer the simplicity. ?Apple is much more supportive and easier to deal with than PC vendors, partly because it only has four product lines,? says Whittle.

Room for improvement

Apple?s future looks promising, with the G4, iBook and, potentially, a revamped iMac making a strong product line for the next few years. Although PC manufacturers are starting to latch on to the importance of design, there is enough recent technology in the Apple line-up to ensure its position is not immediately threatened.

But a strong product catalogue is of no use if there?s nothing on dealers? shelves, and Apple knows it must improve the stock situation. ?It?s no good that a company?s stock price goes up, if there are no products and its dealers are suffering,?concludes Nicholson-Cole.