Circuit City 2000 Annual Report Download - page 9

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®, Intel® and Advanced Micro Devices.
Current weakness in the global economy has led to a market-wide slowdown in PC sales. This slowdown has
resulted in rising inventories among our competitors creating an aggressive pricing environment that has affected and
may continue to affect profitability over the short-term. Our long-term view of the PC market, however, remains
optimistic, although there can be no assurance that current economic conditions will soon improve.
Computer Related Product s
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.
The market for computer products is subject to intense price competition, which we anticipate will continue to
have a negative impact on gross margins. 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 Product s
The market for the sale of industrial products in the United States is highly fragmented and is characterized by
multiple distribution channels such as retail outlets, small dealerships, direct mail distribution and large warehouse
stores. Systemax also faces competition from manufacturers' own sales representatives who sell industrial equipment
directly to customers, and from regional or local distributors. Many high volume purchasers, however, utilize catalog
distributors as their first source of product specifications. In the industrial products market, customer purchasing
decisions are primarily based on price, product selection, product availability, level of service and convenience. The
Company believes that direct mail is an effective and convenient distribution method to reach mid-sized facilities
which place many small orders and require a wide selection of products. In addition, because the industrial products
market is highly fragmented and generally less brand oriented, it is well suited to private label products. The majority
of the Company's industrial products are high gross profit margin, private label products.