Onsale flogs new PCs at zero margin
How low can you go?
Onsale is to sell new PCs at zero margin over the Web. The loss-making Internet auctioneer will sell PCs and accessories for the same prices at it pays Tech Data, its wholesaler. The company reckons its can carve out an operating margin from banner ads on its Web site, flogging service contracts and leases and by charging small handling fees for each order, according to the Wall Street Journal. We can also assume operating cash flow benefits for Onsale, achieved by playing off credit card payments properly against supplier credit. This is really setting the cat among the pigeons. Here are most PC builders struggling by on early teen margins, and along comes a company that says it will do it for free. Or to be more precise -- at cost. Onsale appears to have the run of Tech Data's warehouse -- the company says it can supply 35,000 SKUs. Channel conflict rears its ugly head once again. Trade-only distie Tech Data is effectively selling PCs direct to the general public -- with Onsale providing the retail veneer for 35,000 SKUs sold at cost. It is a given that Tech Data handles all the pre-sales logistics -- configure to order, courier services, delivery and so on. It does this for any number of resellers. But what are the financial terms of the deal struck between the two companies? We suspect that Onsale is acting more as a rep, or sales agent, as opposed to reseller. Sensibly, Onsale should account for only the agent element--the bit that generates the operating income -- of each PC sales transaction as turnover. But with Internet stocks trading on heady multiples of turnover, it will be very tempting for company to record each PC sale in its entirety as revenue. ®