IBM Corp. yesterday announced that it was quitting the personal-computer retail business and selling all its IBM Product Centers to Nynex, the New York-based Bell regional operating company, for a sum believed to be between $80 million and $100 million.
The sale is the latest in a wave of mergers and acquisitions that has swept through the computer retail industry and underscores how difficult it is for many companies -- including IBM -- to find profits in this ultracompetitive business.
Nynex will acquire the 81 IBM stores, located in 33 states and the District, along with permission to open three more stores authorized to carry IBM products. The acquisition, scheduled for completion in July, would give Nynex Business Information Systems roughly 100 stores nationwide and make the telecommunications firm one of the largest computer chains in the country.
"This acquisition represents a tremendous opportunity for Nynex to establish a national presence quickly and efficiently," said Nynex Business Information Systems President Douglas J. Mello in a statement. "As a leading provider of voice and data systems, we'll bring to our new markets the kind of integrated solutions we know customers want or need."
Although neither IBM nor Nynex would disclose financial details about the transaction, knowledgeable observers contend that the stores were being run at a loss.
"According to IBM, the stores were selling comparably to other major computer stores -- about $4 million per store" annually, said Seymour Merrin, a former computer-store owner who is a computer retail analyst for the Gartner Group. "Walking into those stores and understanding IBM's salary structure, it's impossible for them to have been profitable."
" Those stores sold less than $300 million in 1985 and about 20 percent of those sales were typewriters," asserts Avner Parnes, chairman of MBI Business Centers, a Rockville-based computer-chain competitor of the IBM stores. "A big portion of the balance came from IBM employes -- who can buy the equipment at a discount."
Parnes and other industry sources point out that IBM stores only sold IBM products and lacked the pricing flexibility to compete with independent computer stores that often could offer significant discounts.
IBM, while not disclosing revenue or profit information, insisted the stores were "successful" in their mission to establish IBM as a quality computer retailer and "sell lots of IBM products."
IBM launched the centers in 1980 as the company's first foray into retailing. The centers grew in importance the next year when IBM introduced its new personal computer. The company now has a retail network of roughly 2,400 authorized IBM PC dealers nationwide -- a number that is shrinking in the wake of bankruptcies, consolidations and restructuring within the industry.
"What you're seeing emerge is a few strong players," says Ed Schreiner, who oversees Nynex's computer stores, "and that should ultimately lead to better profit margins."
Schreiner predicts the stores will be a base for the company's efforts to market complete computer and telecommunications systems for businesses.