Micro Warehouse, Inc.

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Micro Warehouse, Inc.

535 Connecticut Avenue
Norwalk, Connecticut 06854
U.S.A.
(203) 899-4000
Fax: (203) 899-4203

Public Company
Incorporated: 1992
Employees: 3,100
Sales: $1.31 billion (1995)
Stock Exchanges: NASDAQ
SICs: 5961 Catalog & Mail-Order Houses

Micro Warehouse, Inc. is a leading direct marketer of Macintosh and IBM-compatible personal computers, software, accessories, and peripheral equipment. The company markets its products primarily through a telemarketing sales force and color catalogs, which it was shipping to 15 countries in 1995. Micro Warehouse achieved rampant growth during the late 1980s and early 1990s by acquiring other companies and boosting its mail-order sales.

Focusing on the Apple Macintosh

Founded in 1987 as Mac Warehouse, Micro Warehouse grew from a small direct marketing company to one of the largest computer equipment retailers in the world in fewer than ten years. Driving that growth was an explosion in mail-order computer sales combined with a savvy business strategy employed by the company’s founders: Peter Godfrey, Robert Banner, and Felix Dennis. The three entrepreneurs had already achieved impressive success with another computer-related venture before starting the company that would become Micro Warehouse. In 1985 they had launched a magazine dubbed Mac User, which had quickly gained a wide readership among owners of the popular Apple Macintosh computer. Moreover, the publication became an important marketing medium for sellers of Macintosh products and related peripheral devices.

Godfrey, Bartner, and Dennis were among the first to realize the potential of the growth in computer-related publications and the burgeoning mail-order market for computer gear. Prices for PCs and peripherals (printers, monitors, disk drives, etc.) were rapidly falling in the mid-1980s as the cost of the technology dropped. As prices became increasingly attractive to individuals and small business owners, a massive market was rapidly building. It was at that segment of that rapidly growing computer crowd that Mac User was targeted. The magazine kept buyers abreast of new products and developments related to their Macintosh systems and gave computing hints and advice to loyal Macintosh users, a market segment largely ignored by publications aimed at owners of IBM-compatible PCs.

Mac User’s readership rapidly soared, and the magazine became an important advertising channel, particularly for companies trying to sell their goods by mail-order. The rapid success of the new magazine attracted the interest of publishing giant Ziff-Davis, which believed that it could use its deep pockets to grow the publication even faster. In 1987, just 16 months after they had launched the periodical, the three founders of Mac User sold their magazine to Ziff-Davis for $23 million. Mac User went on to become a dominant periodical in the Macintosh market, while Godfrey and his associates started looking for a new venture in which to invest their cash.

Shortly after they sold Mac User, Godfrey, Dennis, and Bartner launched another publication. Titled MacWarehouse, the new “magazine” was effectively a catalog of Macintosh software, supplies, and equipment. Rather than proffering value-added information to readers, MacWarehouse simply provided an inventory of available products. The concept was a corollary of the rapidly emerging market for mail-order equipment. Indeed, as computer users at home and at small and midsize businesses were becoming more comfortable with PC technology, they were increasingly willing to purchase software and equipment through the mail without the aid of a salesperson. By cutting out the middle man, mail-order buyers enjoyed much lower prices, as well as the ability to shop and compare prices from their desk or sofa.

Like Mac User, MacWarehouse was an instant success. The company generated $18.4 million in 1988, its first full year of operation, and was chalking up steady gains going into 1989. New products were added to the catalog, telephone operators were added to the company’s order-taking team, and the company’s warehouse was expanded to hold more inventory.

Diversification into the IBM-Compatible Market

Buoyed by the quick success of MacWarehouse, Godfrey and his associates decided to broaden their scope. Rather than targeting the relatively tiny niche of Macintosh buyers, they decided to chase the much larger pool of owners of IBM-compatible devices. Toward that end, they launched Micro Warehouse in 1989, which offered IBM-compatible machines along with a range of complementary peripheral devices and software.

The Micro Warehouse catalog was a big success. Sales through both catalogs rose to $52.56 million for 1989 before more than doubling to $123 million in 1990. The company posted its first net surplus in 1990, of $1.4 million. Godfrey and fellow executives scrambled to increase sales capacity to keep pace with surging order volume. The company opened a second distribution center, giving it warehouse facilities in New Jersey and Ohio. It also added new phone operators and aggressively increased distribution of its full-color catalogs. As a result, sales increased to $163.6 million in 1991 before climbing to $270 million in 1992. By that time, the organization’s net income was approaching $10 million annually. Despite those gains, growth during the next few years would dwarf the company’s early rise.

Phenomenal Growth in the 1990s

Micro Warehouse’s growth during the late 1980s and early 1990s was funded largely by the founders’ investment and by cashflow from operations. By 1992, however, those sources had become insufficient to finance the kind of expansion that the company’s leaders hoped to achieve during the remainder of the decade. In October 1992, therefore, Godfrey and fellow managers took the enterprise public with a NASDAQ stock offering that raised more than $50 million. The cash was used to pay back about $14.1 million that had been invested by the founders, reduce other debt obligations, and to fund various growth initiatives. It was at the time of the offering that the company was incorporated under the new name of Micro Warehouse, Inc.

The success of the stock offering—the stock price settled at about $23 within one month of the initial public offering— evidenced investors’ faith in Micro Warehouse’s operating strategy. By the time of the stock offering, in fact, Micro Warehouse was handling 10,000 phone calls per day and shipping its IBM-compatible and Macintosh products throughout North America. To accomplish that feat in so short a time period, management had adeptly built an efficient marketing and distribution network that was among the most respected in the industry. Indeed, despite rapid growth Micro Warehouse had managed to retain its reputation for prompt and reliable service. The efficiency of its operations had also made it known in both the commercial and consumer marketplaces as a price leader in the industry.

Micro Warehouse’s sales strategy was relatively simple. The company churned out thousands of eye-catching, full-color catalogs, which were delivered monthly to prospective customers. Because it purchased in bulk and ran low-cost operations, the company was able to offer the goods in its catalogs at cut-rate prices. Customers scanned the catalogs to find the products they wanted, called a toll-free number, and then ordered the item from one of Micro Warehouse’s hundreds of sales and customer representatives and support staff. Workers manned the phones 24 hours per day, seven days each week. And all customer orders were shipped for next-day delivery. The emphasis was on customer service, and the company’s loyal customer base was much of the reason that Micro Warehouse was able to so quickly increase its sales and profits during the mid-1990s. In 1993, in fact, Micro Warehouse boosted revenue nearly 70 percent to about $450 million, $ 15 million of which was netted as income. Furthermore, the company went into 1994 with virtually no long-term debt on its balance sheet.

Not satisfied with the company’s blistering growth rate, Godfrey (the company’s chairman, chief executive, and president) launched a number of new expansion initiatives in 1993 and 1994. In 1993 he started four new catalog publications: Data Comm Warehouse (for the network and data communications market); Micro Supplies Warehouse’, Paper Design Ware-house and CD-ROM Warehouse. Then, in 1994, the company started distributing Home Computer Warehouse and Micro Systems Warehouse. Paper Design Warehouse and CD-ROM Warehouse soon folded, but the other three publications became profitable additions to the organization’s marketing program. They helped push 1994 sales and profits to $776 million and $28 million, respectively. In 1994, in fact, Micro Warehouse fielded a whopping seven million telephone calls and was serving a customer base of more than 900,000 people.

Perhaps more important than Micro Warehouse’s new catalogs during the early and mid-1990s was its aggressive drive to expand overseas. Micro Warehouse first tested the waters in the United Kingdom, where it started a full-service catalog and mail-order operation in 1991. In 1992, the company began similar operations in France and Germany, and then moved into the rest of Europe, Japan, Canada, Mexico, and Australia, before entering into licensing agreements with international partners in several other countries. Micro Warehouse moved into many of those countries by purchasing existing businesses already operating in those markets. In 1993 the company purchased businesses in Denmark, Norway, and Sweden, and added eight more new enterprises to its fold in 1994 in Europe, Mexico, and Canada. It bought eight more foreign businesses in 1995, confirming the company’s intent to establish a global direct marketing network.

Micro Warehouse received a big boost in 1994 when several major manufacturers began authorizing direct marketers like Micro Warehouse to sell their goods. In the past, big computer and peripheral makers such as IBM and Apple had shunned such arrangements. By the mid-1990s, however, there was no denying the power of such direct marketers as Micro Warehouse to reach the swelling home and home business PC market. Micro Warehouse jumped on the opportunity and was soon selling brand name goods in its catalogs from such mass sellers as Compaq, IBM, Apple, and Hewlett Packard. The development was a boon for Micro Warehouse, which by 1994 had jumped to the top of the global PC direct marketing industry. Indeed, after boosting sales at a rampant pace for years, Micro Warehouse nearly doubled revenues to $1.31 billion in 1995 and increased net income to $45 million.

Going into 1996, Micro Warehouse was offering more than 20,000 products through several catalogs in 15 countries and employing more than 3,000 workers worldwide. Most of its sales were to small and mid-size businesses, and about 25 percent of shipments were to overseas buyers (up 150 percent from 1994 to 1995). Its core catalogs included Micro Warehouse, Mac Warehouse, and Data Comm Warehouse, but it also sold gear through Micro Systems Warehouse and Mac Systems Warehouse. All of the catalogs were full-color, ad-packed, and focused on cutting-edge technology and equipment.

In January 1996 Micro Warehouse made a substantial addition to its business with the purchase of Inmac, Inc., a leading international direct marketer of computer desktop and networking products. Inmac brought more than $350 million in revenues to Micro Warehouse’s sales base, while also adding operations in North America and five countries in Europe. In the long term, Micro Warehouse planned to sustain its rapid expansion by acquiring other companies and by growing its catalog and mail-order business with the addition of new computer-related and electronic information-related products.

Principal Subsidiaries

Inmac Corp.; Micro Warehouse, Inc.; Micro Warehouse, Inc.; Micro Warehouse Limited (United Kingdom); Micro warehouse France SARL; Micro Warehouse (Deutschland) GmbH (Germany); Micro Warehouse, Sweden AB; Micro Warehouse, Denmark APS; Micro Warehouse, Norway AS; Micro Warehouse, Finland OY; Micro Warehouse Holding B.V.; Micro Warehouse, Japan KK; Micro Warehouse Canada Limited; Micro Warehouse, S.A. (Mexico); Micro Warehouse (Australia) Pty Ltd.; Mac Warehouse (Belgium).