Circuit City 1999 Annual Report Download - page 7

Private label products are manufactured either by the Company or by third parties to the Company's specifications. Many of these private label
products have been designed or developed by the Company's in- house research and development teams. See "Research and Development".
MANAGEMENT INFORMATION SYSTEMS
The Company operates information systems that allow centralized management of key functions. These include communication links between
distribution centers, inventory and accounts receivable management, purchasing, pricing, sales and distribution, and the preparation of daily
operating control reports which provide concise and timely information regarding key aspects of its business. These management information
systems enable the Company to enhance its flexibility by promptly shipping customer orders (usually on a same-
day basis), responding quickly
to order changes and providing a high level of customer service. The Company maintains a database of over 45 million customer and prospect
names and keeps records of historical purchasing patterns in order to prompt sales personnel with product suggestions to expand customer
order values. In addition, the Company has developed a customer prospecting function based upon geographic, economic and demographic
data which enables Systemax to utilize its information systems to maintain and expand its customer data files. These applications enable the
Company to achieve cost savings, deliver extensive customer service and centrally manage its operations.
RESEARCH AND DEVELOPMENT
The Company's research and development teams design and develop products for Systemax's private label programs. The individuals
responsible for research and development have backgrounds in engineering and industrial design.
This in-
house capability provides important support to the private label programs. Many of the Company's private label products were designed
or developed by an in-house research and development team. Examples of products designed in-house include PC's, furniture, ergonomic
monitor support arms, printer and monitor stands, wrist rests and other durable computer related products, storage racks and shelving systems,
various stock and storage carts, work benches, plastic bins and shop furniture. The Company owns the tooling for many of these products,
including plastic bins, computer accessories, furniture, and metal alloy monitor arms. See "Research and Development Costs" in Footnote 1 to
the Consolidated Financial Statements for further information.
COMPETITION
PCS AND NOTEBOOK COMPUTERS
The North American and European computer industries are highly competitive with many U.S., Asian and European companies vying for
market share. There are few barriers of entry to the PC market with PCs being sold through the direct market channel, directly from
manufacturers, computer superstores, mass merchants and over the Internet. Timely introduction of new products or product features are
critical elements to remaining competitive. Other competitive factors include product performance, quality and reliability, technical service and
customer support, marketing and distribution and price. There can be no assurance that the Company will be able to maintain or improve its
current competitive position with respect to any of these or other competitive factors. Some of the Company's competitors have stronger brand-
recognition, broader product lines and greater financial, marketing, manufacturing and technological resources than the Company.
Additionally, the Company's results could also be adversely affected should it be unable to implement effectively its technological and
marketing arrangements with other companies, such as Microsoft(R), Intel(R) and Advanced Micro Devices.
COMPUTER RELATED PRODUCTS
The North American computer related products market is highly fragmented and characterized by multiple channels of distribution, including
direct response (mail order) distributors, local and national retail computer stores that carry computer supplies, computer resellers, mass
merchants, computer "superstores" and the Internet. The tremendous growth in the computer related products market during the past ten years
has been accompanied by substantial changes in the nature of product distribution and sales. The decentralization of computers throughout
factory, business, engineering and office environments has made it increasingly difficult and expensive for many suppliers to use traditional
direct sales methods to locate users, initiate sales contacts and effectively provide service to customers. Average order values also tend to be
smaller than in the past, reflecting individual requirements rather than the greater needs traditionally associated with centralized data processing
departments. These changes in the structure of the computer related products market have placed traditional distributors with direct sales forces
at a competitive disadvantage due to their cost structures and established selling methods. As a result, direct marketers have been able to
increase sales to the larger businesses that have traditionally been served by contract stationers and value added resellers. They have also been
able to capture sales volume and market share from the numerous small retail computer stores.
In Europe, the Company's major competitors are regional or country-specific retail and direct-mail distribution companies. The Company's
presence in eight European countries provides Systemax with the flexibility to purchase large volumes centrally. In addition, the commonality
of certain core pages of the European catalogs provides for economies in catalog production. The Company believes that these factors allow it
to take advantage of cost savings not available to many of its competitors in Europe.
There can be no assurance that the Company will be able to maintain or improve its current competitive position with respect to any of these or
other competitive factors.
INDUSTRIAL PRODUCTS