Lenovo: Best Buy Deal Will Not Impact ThinkPad Margins For Solution Providers

A Lenovo executive Wednesday said the company's deal to distribute its full product line -- including its premium ThinkPad brand -- through 135 Best Buy For Business locations will not drive down solution provider margins. But some solution providers are not so sure.

Stephen Mungall, vice president Route and Transaction Sales Strategy for Lenovo Americas, said Best Buy For Business will not have a pricing advantage over Lenovo VARs. In fact, he said, Best Buy for Business will source products from distributors just as solution providers do, rather than purchasing directly from Lenovo. "The pricing is no different," Mungall told CRN. "There is nothing that disadvantages a VAR versus Best Buy."

Mungall said that Lenovo has minimum advertised pricing restrictions that will apply to Best Buy for Business. Furthermore, he said, Lenovo will be watching closely to make sure solution provider margins are not impacted by the deal.

Under the pact, unveiled Tuesday, Best Buy will sell ThinkPad notebooks, ThinkCentre desktops and the newly announced Lenovo-branded 3000 PCs online, by phone and at 135 Best Buy For Business locations. The outlet provides a 2 percent to 5 percent rebate on each order, along with what the company calls free on site consultations, according to in store information. Among the services the outlet provides are installation, maintenance and backup services.

Mungall stressed that Lenovo is not going into retail or pursuing consumers with the Best Buy For Business deal. He said Lenovo believes it can capture incremental small business sales particularly with small businesses with 20 or fewer employees. "Small business customers are going there today and we are not getting an opportunity to win that business," he said.

Solution providers are split on the impact of the deal. A number of them said they do not see the agreement impacting their margins, while others fear the increased competition.

Todd Barrett, manager of security and networking sales at CPU Sales and Service, a Waltham, Mass.-based solution provider that sells ThinkPads, said that he stopped caring about whether a hardware vendor moved into the retail and e-tail space years ago when CompUSA came onto the scene.

"Some folks will always buy according to cost," Barrett said. "They'll surf the internet, whether its Best Buy or Dell.com or pricewhore.com. Best Buy is just one more in the saturated retail market selling stuff. Just one more fish in a large pond whoring the price."

NEXT: VARs 'Infuriated, Disappointed;' ASCII Group Steps In

VARs 'Infuriated, Disappointed'

John Marks, president of JDM Infrastructure, a Chicago solution provider, said he is more infuriated by competition with Lenovo and other vendor's direct sales reps than the thought of losing revenue to Best Buy. He insisted Lenovo has a number of IBM direct reps who are not channel friendly. "If you have such a bad relationship with an account that they are going to go to Best Buy for Lenovo laptops you never that relationship in the first place," said Marks. "The bigger threat are Lenovo and other manufacturer direct field reps who don't work with the channel."

But other solution providers said they were disappointed that Best Buy For Business is getting the full Lenovo product line -- including the high end premium ThinkPad products. Clients systems from IBM historically have been sold primarily through solution providers -- and they liked the exclusivity.

Steve Hanes, vice president of Vintage IT, a solution provider in Austin, Texas, that is working on expanding its small business managed services, said he's still waiting to see how this will play out before making a final decision, but he's watching closely.

"Lenovo has made a verbal commitment to the channel," he said. "I don’t know how this will play out. I'm not sure if Lenovo is saying one thing and doing another or if there is a set of products we can sell that won't be in conflict with Best Buy."

Jay Tipton, vice president of business solutions for Technology Specialists, a Fort Wayne, Ind., solution provider, said he was disappointed by Lenovo's strategic shift. "Before they were just totally channel and now they are not," he said.

Tipton said, in the end, his opinion about the deal will be greatly impacted by the kind of pricing Levono is offering Best Buy. "I want it to be a fair playing field. As long as they won't go out there discounting machines 5-10 percent, I could care less," he said. "But if Lenovo gives one company a big discount and then that company starts undercutting everyone else, then Lenovo needs to look at what they are doing and who their partners are."

Another Lenovo partner, who did not want to be identified, said solution providers will be watching Best Buy pricing closely. "Do you think Lenovo is not giving Best Buy a better price?" he said. "Come on."

Alan Weinberger, chairman of the ASCII Group, meanwhile, is taking steps to help protect the group's membership of 2,000 small business solution providers.

The ASCII Group is currently in discussions with Lenovo regarding the Best Buy pact. "I think Best Buy is a competitor to small and medium business VARs," Weinberger said. "We want to make sure it is a fair playing field for these VARs. Everyone should be able to compete. We don’t begrudge Best Buy its competitive advantage. We just want to make sure everybody wins."

Additional reporting by Joseph Kovar