Channel Wipe-Out

Trouble is growing between the Internet and other sales channels.

Compaq said this week it is suspending sales through Web-only retail channels (including Shopping.com, an online store which Compaq is in the process of buying), while it evaluates the reseller channel conflict.

The problem is that online retailers pass their inventory savings on to customers, essentially selling at wholesale prices. The retailers Compaq has traditionally served want to open their own online shops, and protect their turf. Compaq, meanwhile, has also begun selling directly to consumers.

This sort of thing is going to happen a lot in coming months. IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) face the same channel conflicts as Compaq, and their products remain on sale at sites like Value America. For companies like iDot.Com, which sell computers only through the Internet, this is an incredible opportunity to build market share by simply filling the market void. For Dell, which abandoned the retail channel a long time ago, this is yet another endorsement of its strategy.

The important point is that the channel conflicts now bedeviling the PC market are going to hit every other market -- from clothes to cameras -- over the next several months. Stores now know they're under siege from Internet retailing, and they're starting to fight back. Manufacturers are wondering why, if they're going to sell online anyway, they don't just do it themselves and cut out the middlemen entirely. Online stores are going to have to tread carefully if they're to maintain their access to product while at the same time justifying those margins they do capture to manufacturers.

Your secret weapon in this war, I think, is information. You know this channel, and you know your customers. Share that information strategically to maintain your access to product. But, don't share too much, or your supplier will soon become your competitor.

What do you think? Let's talk about it.