Entre' Computer Centers Inc., has cut its Vienna, Va., headquarters staff by 20 percent (52 employes) as part of a cost-cutting program aimed at strengthening the company's personal computer stores during the current industry shake-out.
A chain of 250 personal computer retail stores in the United States, Canada, Europe and Australia operate under the Entre' name. The company owns nine of those stores; and the rest are franchised.
The local layoffs were accompanied by corporate staff cuts in Europe and a reduction of the stores' payments to the parent corporation.
The cost-cutting program was launched in recognition of the significant shakeout going on in the computer retailing world, Michael J. Rawl, director of marketing and communications said yesterday. He said that more than 1,000 microcomputer stores have closed in the past 12 months.
"What's hurting us is the number of discounters who are virtually giving away their inventory," he said.
Last week, the company reported a third-quarter net loss of $5.8 million, a stunning reversal, compared with profits of $1.9 million the year before. The results were attributed to a one-time loss related to the revaluation of certain assets and reductions in the European operations.
The new cost-cutting program is designed to channel more resources to the stores, and make up for higher than expected losses in Europe, Rawl said.
To strengthen the individual stores, Entre' will cut the fee that franchisees must pay to use the Entre' name. That fee will fall to 5.5 percent of gross sales, from 8 percent, with the reduction to be phased-in during the next three months. This will reduce royalty income by 31 percent. Entre' reported franchise fees of $26.4 million in the nine months ended May 31, up from $23.5 million the year before.
Entre' also announced a four-month moratorium in the stores' contributions to the parent company's advertising fund, to be followed by a reduction to 0.5 percent from 1 percent of gross sales. Entre' is switching ad agencies and plans to launch a new national ad campaign, Rawl said.
The reductions will last at least one year, and might be restored thereafter "if the profitability of the network permits," said Bert I. Helfinstein, who took over as president and chief executive last month. The royalty payments would not be allowed to rise above 7 percent, he added.
Together, the cuts "should increase our centers' profits and enable them to compete more effectively," Helfinstein said.
The company hopes to balance part of the lost income with cuts in corporate costs. In addition to the local layoffs, Entre' cut 26 employes or 30 percent of its European staff as of July 15.
Entre' also plans to charge the stores for some services that previously were provided at no cost, such as training and some aspects of distribution.
Additionally, the company has closed or sold six company-owned stores in recent weeks.
In restructuring the relationship between Entre' and its stores, the company said it will appoint two of its franchisees to its board of directors and will give stock options for 5,000 shares per store to all franchise holders. "This should give our franchisees, as a group, a substantial ownership position in Entre'," Helfinstein said.
Rawl said the program "may have an impact on earnings," but that it was devised in order to "assure a profit next quarter and fiscal year."
Helfinstein joined Entre' in June, replacing Steven B. Heller as chief executive after Heller and cofounder James E. Edgett resigned as officers of the company.