Former PC Direct trio looks set to rise again

By Chris Barton

David McKee Wright wants to put the record straight. Having just resigned as general manager of PC Direct, he's in a mood to talk about the changes he saw in his six-year stint with the company that was purchased late last year by US PC manufacturer Gateway.

The question he is frequently asked is: how did PC Direct, the leading local PC manufacturer and shining example of Kiwi success stories, slump from 8.8 per ent PC market share in 1997 to only 6.5 per cent in 1998?

Mr McKee Wright says a combination of market factors began to show their effects in the first quarter of 1998. Harvey Norman had come to town and other mass market retailers like Noel Leeming and Dick Smith were gathering momentum - helped mainly by Hewlett Packard, which had moved aggressively into the consumer market.

Suddenly HP PCs were matching PC Direct's best-selling $3000 price point machines in both price and configuration. For the first time there was little difference between retail and direct sales PCs.

IBM, after an absence of a year, had come back into the local market too. And Dell, also a direct seller, had become very active in the corporate market. Mr McKee Wright says the new impetus of the brand players was spurred by their need to expand sales beyond the US market - to keep growing and keep their share prices up. He believes most, and Hewlett Packard especially, were making very little profit from the consumer market.

PC Direct couldn't match the buying power of the big brands. The company's PC component supply lines in Taiwan were also being squeezed by the brand demands.

A PC Direct order for 500 motherboards looked paltry against a multinational order of 5000 per day. The new economies of scale hit hard and forced PC Direct to drop margins - at times to as low as 10 per cent. Once they had been 30-40 per cent.

Just before leaving PC Direct, McKee Wright was able to experience first hand the might of Gateway's buying power. "Gateway produces in eight hours what PC Direct did in a year. It makes you realise just how small New Zealand is."

PC Direct, at the time owned by US Office Products offshoot Blue Star, was having internal problems too. After a dream run in Australia, which saw sales soar from $10 million to $30 million in 1997 - largely due to a contract to supply Harvey Norman with its low-cost Signature brand PCs - McKee Wright was called back in 1998 to deal with sliding sales in New Zealand. The Harvey Norman deal ended and sales in Australia went back to the $10 million mark.

What went wrong? McKee Wright says the Australia sales relationships broke down and PC Direct simply didn't have enough people to cover the ground. In 1997 PC Direct was also in expansion mode, moving to new manufacturing premises in Albany. That year it hit an all-time high of $75 million in revenue. But at a cost. "When you spread your wings you dilute the focus."

Mr McKee Wright has now set up software company exo-net with PC Direct founder Maurice Bryham and the company's former IT manager Mark Loveys.

The company makes e-commerce accounting software that gathers data from a centralised database - enabling a "live data" view of the state of a company that can be used both internally and on Web sites. This time round however, there's no direct sales model involved.