PC Connection, Inc.

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PC Connection, Inc.

730 Milford Road
Merrimack
New Hampshire 03054-4631
U.S.A.
Telephone: (603) 423-2000
Fax: (603) 423-5766
Toll Free: (800) 800-5555 (PC Connection);
(800) 800-2222 (Mac Connection)
Web site: http://www.pcconnection.com; http://www.macconnection.com

Public Company
Incorporated: 1982
Employees: 1,400
Sales: $1.06 billion (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: PCCC
NAIC: 454110 Electronic Shopping and Mail-Order Houses

PC Connection, Inc. was founded by Patricia Gallup and David Hall as a direct marketer of business computer solutions to small and medium sized businesses (SMBs), educational and government institutions, and individual consumers. Headquartered in Merrimack, New Hampshire, this rapid-response provider of information technology (IT) offers a broad selection of over 100,000 brand-name products (such as computer hardware, software, peripherals, and networking equipment) at competitive prices in conjunction with award-winning service and support. PCC has more than 730,000 active customers in its database. At its Wilmington, Ohio-based Distribution and Custom-Configuration Center, the company receives and ships inventory overnight, configures computer systems, and processes returned products. PCC consistently wins praise for customer service and recognition of its outstanding business acumen. For example, in the year 2000 Business Week magazine cited PCC as having “scored big by offering all the computer gear a small business might need,” and ranked the company as seventh on its list of the world’s leading IT companies. Likewise, Yahoo! Internet Life magazine named PCC “the best place to shop for computers,” and listed the company’s Web sites among the “100 Best Sites on the Internet.” PC Magazine included the company among its list of the “100 Technology Companies That Are Changing the World;” PC Computing magazine named the company “Best of the Best;” and for nine times over the past 11 years PCC won PC World magazine’s “World Class Award for Best Online Computer Store.” At the end of 1999, PCC’s five-year compound growth rate was 96 percent, a percentage that placed the company among an elite group of the fastest-growing companies in America; the company’s share price increased 96 percent during 1999.

1970–82: Applying Age-Old Wisdom to Marketing Computers

According to the Winter 1998 issue of Finance magazine, Patricia Gallup’s creativity was nurtured from her earliest years. “She grew up in a household where her father, a carpenter [union organizer and mediator] would present a situation at the dinner table and the family would engage in mini-debates on current events and other issues of the day,” wrote Anita Burroughs. Patricia paid her way through the University of Connecticut, where she majored in anthropology. She worked as a field archaeologist for the Public Archaeology Survey Team, “a for-profit business that surveyed lands to ensure their compliance with laws protecting cultural resources,” according to Ilan Mochari’s article in the October 1, 1999 issue of Inc. magazine.

From the study of tools our ancestors used some 30,000 years ago, Gallup and the Survey Team learned not only to determine the age and use of the tools, but also how and why they evolved. The work helped Gallup develop her creative problem solving skills, and she was later able to apply her understanding of the past and relationships between items to ideas such as cultural changes, business operations, and techno-logical innovations.

Still another experience prepared Patricia for her future business role. While hiking on the Appalachian Trail in 1976, she met David Hall; together, they served as a support crew to endurance hikers on the Trail. “Our function was to anticipate the arrival of the hikers at different points and to take care of whatever needs they might have,” Gallup explained in an article published in the May 15, 1998 issue of Inc. magazine. “From the beginning,” she wrote, “David and I shared a belief in trying to put ourselves in other peoples’ shoes. We learned how to work together to come up with solutions to get tasks accomplished.”

Then, in 1980, Hall recruited Gallup for Audio Accessories, Inc. (Audio), his father’s Marlow, New Hampshire-based company that operated in an abandoned woodworking mill in the small rural town. Audio made high quality broadcast and recording equipment, published a catalog, provided customers with over-the-phone service, and shipped products by UPS.

At about this time, IBM introduced and began to market its personal computer (PC). Eager to know how PCs could contribute to the efficiency of their company, Gallup and Hall studied business and technical magazines, called companies that were developing PC products, tried to make a purchasing decision … and discovered that the closest PC retailer was in Connecticut— more than two hours from Marlow. Realizing that their case was like that of many other Americans deprived of easy retail access, the two business partners decided to launch a direct-marketing company that “could create stronger customer-service support and provide more thorough information to consumers … than [could be offered by] in-store sales representatives with no technical training or PC experience,” according to an interview reported in the December 1998 issue of Chain Store Age magazine.

In July 1982, Gallup and Hall pooled their entire savings of $8,000 and launched PC Connection, Inc. (PCC). They placed a small ad in the back cover of Byte magazine, installed two phones, and waited for Byte’s on-sale date. There were no bites for two days after the magazine’s release, but on the third day, the phones began to ring and the fledgling company was off to a flying start. PCC’s business requirements for phone lines and power increased so rapidly, actually, that additional wires and telephone poles had to be installed over the 15 miles separating Marlow (population 600) from Keene, the nearest “urban” center. Initially, PCC carried only 12 products designed to run on the IBM PC, including an AST multi-function board, Peachtree business software, and several highly publicized computer games.

1983–97: The Evolution of the Computer and a Focus on Customer Needs

First-year net sales reached $233,000. Initially, Gallup and Hall made up the entire staff: during the day, they answered the phones, and at night they shipped orders and stocked inventory. To recruit help willing to drive to Marlow (known as the Icebox of Cheshire County in New Hampshire), the young entrepreneurs enticed future employees by giving them studded snow tires and ice-breaker windshield wipers. As orders and sales multiplied, Gallup developed the company’s marketing approach while Hall—an audio engineer—took care of technical matters and kept an eye on developments in the computer industry.

In 1982, PCC was the first direct-marketing company to offer toll-free technical support to callers before, during, and after a sale—even if they requested help for computers and products that had been bought elsewhere. Thus, from its earliest days, PCC differentiated itself from other direct-marketers by offering its customers superior support and value: a combination of product knowledge, consistent and reliable service, and leading products at competitive prices. In 1988, when David Hall suggested overnight delivery, PCC’s in-house professionals said that it was an unheard of idea. Prior to that, mail-order products were typically shipped to customers in four to six weeks. Undeterred, Hall presented some schemes for cost reduction to five next-day carriers, and managed to turn their laughter into a consideration of his proposal. None came up to match his initial wish of overnight shipping at “A buck a pound the world around,” but Airborne won the contract, which introduced the “Everything Overnight” program.

From that point on, except as noted, any order placed by 8:00 p.m. was received the following day. In Inc. magazine’s May 1989 issue, Robert Mamis gave the following example of the new program’s efficiency: at 7:54 p.m. one evening, a medical-equipment distributor in Pennsylvania sent PCC an urgent request for a fax device for his Macintosh. “The plug-in board was packed and ready to be picked up at 9:07 p.m.” and the distributor received the component at 9:00 the next morning. The total freight was $3—“exactly what Sears, Roe-buck would have charged for express freight to Pennsylvania in 1902,” Mamis noted.

Soon, the deadline for ordering was extended to 2:00 a.m., making it possible for customers in the continental United States to receive same-day delivery. Also, custom-configured systems loaded with the requested software and peripherals, if ordered by midnight, were usually delivered by noon the next day. Even before the introduction of Caller ID, PCC worked with Telecom and IBM to develop applications for Caller ID technology. This resulted in a 1991 application—named “One Minute Mail Order”—that enabled customer account information to appear instantaneously on a PCC salesperson’s screen when a call came in, thereby expediting sales.

PCC received and shipped inventory, configured computer systems, and processed returned products at its approximately 102,000 square-foot distribution and fulfillment center (expanded to 205,000 square feet by the end of 1999) in Wilmington, Ohio. The company also maintained a related 25,700 square-foot warehouse for inventory in nearby Xenia, Ohio. After credit approval, orders were transmitted electronically from the company’s New Hampshire sales facilities to the Wilmington distribution center, where packing documentation was printed automatically and order fulfillment took place.

Company Perspectives:

PC Connection will be a high-growth, profitable, world-class leader in providing the best solutions, products, communications, and services to our customers.

In November 1996, PCC launched an Internet web site that included a complete product catalog, and in July 1997 began to accept electronic orders placed through this site. At a customer’s request, the company customized management information systems (principally software running on IBM AS/400, RS6000 computers, and Microsoft NT-based servers). PCC also integrated key elements of its advanced telecommunications equipment with its computer systems in order to support its sales and customer-service operations, ship orders to customer on a same-day basis, and adjust quickly to changes in the industry. The company configured almost half of the computer systems it sold. Typically, configuration consisted of installing memory, accessories, and/or software. In 1996 PCC relocated its headquarters to Milford, New Hampshire.

The company recorded rapid growth in sales, profitability, number of orders, and size of average orders. By year-end 1997, PCC was a leading direct-marketer of brand-name computers and related peripherals, software, and networking products. Some of the 15,000 competitively priced items targeted for business use included products from Compaq, Hewlett-Packard, Toshiba, IBM, Microsoft, Sony, Hitachi, and Apple. PCC sold products through two direct mail catalogs: PC Connection focused on personal computers and compatible products, and MacConnection focused on Macs and compatible products. In 1994, PCC had distributed 16.9 million catalogs and entered 803,000 orders—each having an average price of $282. In 1996, those numbers rose to 18.6 million catalogs distributed, and 910,000 orders averaging $453. By 1997, PCC distributed 33.8 million catalogs and entered 1,252,000 orders having an average price of $524.

Outbound telemarketing, the PCC Web site, and advertisements on the Internet and selected computer magazines also stimulated increases in sales. For fiscal years 1994, 1996, and 1997, the company posted net sales of $196.7 million, $333.3 million, and $550.6 million, respectively. The effectiveness of PCC’s growth strategy was described in many industry publications and highlighted by multiple awards. For example, in 1997—for the seventh time in eight years—PC World magazine gave PCC the “World Class Award for Best Mail-Order Company,” and in July 1997, PC Magazine awarded PCC the highest ranking of only two direct resellers included in the first-ever ranking of the “100 Most Influential Companies in the Computer Industry.”

PCC was soon the largest private employer in New Hamp-shire, but relinquished that distinction in November 1997 when it filed with the Securities and Exchange Commission for a proposed initial public offering of its common stock. Then, in December of that year, PCC decided to move to Merrimack, New Hampshire “in order to be closer to a larger pool of skilled workers,” that were needed to continue the company’s rapid growth, according to Gallup’s interview with Eileen Kennedy in the July 31, 1998 issue of The Telegraph.

1998–99: Explosion of Internet-Related Business

Without having recourse to venture capital funds, in early 1998 PCC completed its initial public offering—thereby obtaining the financial flexibility necessary for future growth, and the funds needed to institute an employee stock-purchase plan. In March 1998, PCC went public and was traded on NASDAQ under the ticker symbol PCCC. From its earliest days, the company “kept a low profile and lived frugally,” wrote re-porter Tim McLaughlin in his July 1998 article for the Concord Monitor. “PCC grew from within as Patricia Gallup and David Hall paid themselves $100-a-week salaries for several years. The $57.3 million raised in the initial public offering allowed the company to reward shareholders in a big way…. ‘Creating wealth is not what drove us,’ Gallup said. ‘What drives entrepreneurs is changing the way people think. We wanted to change the way people buy computer products. That was the kick, changing the buying environment.’”

Furthermore, PCC changed its entire business environment by saving and/or revitalizing the buildings and locations where it located its headquarters. “In the past,” wrote The Telegraph’s Eileen Kennedy, “PCC redid a Victorian inn, a former Moose lodge, an old wood-working mill, a former produce warehouse, a distribution center and an old house trailer. The trailer served as construction headquarters for PCC’s new Merrimack headquarters in an old strip mall—Post Road Plaza (locally known as Ghost Road Plaza after the 1990 recession).” Kennedy went on to quote New Hampshire’s Governor Shaheen as saying that “PC Connection has invested in its people and in the community everywhere that it has been.” PCC moved to its completed Merrimack facility in November 1998.

Key Dates:

1982:: Business partners Patricia Gallup and David Hall found PC Connection, Inc. (PCC), the first computer direct-marketing company to offer toll-free technical support.
1988:: PCC pioneers “Everything Overnight” delivery program.
1989:: PCC introduces Money-Back Guarantees.
1996:: PCC launches Internet web site that includes a complete product catalog.
1997:: PCC introduces online ordering from its web site.
1998:: Company goes public and is traded on NASDAQ; moves headquarters to Merrimack, New Hampshire.
1999:: PCC acquires its first subsidiary: ComTeq Federal, Inc.; introduces its Epiq line of desktop business personal computers; net sales pass $1 billion mark.
2000:: PCC restructures into a holding company; announces a three-for-two common stock split.

One of PCC’s innovative 1998 programs was a two-pronged, Internet-based service called “Smart Selectors,” consisting of “System Selector” and “Memory Selector.” On the company’s Web site, customers used System Selector in a simple three-step process to compare up to five computer systems and over 20 corresponding peripheral features; they then could customize their choices to their special specifications. With Memory Selector, customers followed the same three steps to take the guesswork out of upgrading computer-system memory. PCC continued to focus on synergistic growth of its three marketing channels: catalogs, telemarketing, and e-commerce. By year-end 1998, PCC reported a 33 percent increase in net revenues of $732.4 million, net income of $18.6 million, and earnings of $.98 per share.

During 1999, the SMB market—as well as government and educational organizations—invested aggressively in Information Technology (IT). PCC’s high-quality customer service and technical support, its efficient and innovative delivery programs (especially the continuous Everything Overnight program), and its competitive prices and reasonable return policies established the company as the middle market’s premier rapid-response supplier of IT products and solutions. Increased earnings served as a platform for the execution of PCC’s core business and growth strategies: focus on acceleration of the Outbound Sales Managed Account Program; expansion of products and services; leveraging of IT power; and pursuit of acquisitions and alliances. Result: for the first time in the company’s history, net sales crossed the $1 billion mark, with an increase of 44 percent over the preceding year.

In May 1999, PCC launched its Epiq (pronounced epic) line of business desktop PCs; by September they had expanded this business, and the Epiq line was among the company’s top-selling lines. Epiq PCs were manufactured by a third party ISO 9002-certified manufacturer, and built according to PCC’s direct experience in serving the needs of SMBs. Additionally, PCC built relationships with potential high-volume customers by assigning them to individual account managers. Introduction of the Internet Business Accounts program for corporate customers brought the number of Outbound Account Sales Managers to 345, compared to the 1998 team of 200 Account Managers. This service gave customers access to special pricing and allowed them to view their purchasing history and online purchase orders. By year-end 1999, PCC had mailed approximately 47 million catalogs to over 2,800,000 current and potential customers on its mailing list, of which 732,000 had purchased products from the company within the last year. Internet-sourced sales increased 85 percent in 1999.

The company’s fastest growing customer segments included businesses that invested aggressively in early-stage web-based marketing programs in order to compete more effectively with the so-called “dot com” companies and other high-growth organizations increasingly dependent on distributed-data and communication networks. The virtual explosion of Internet-related business gave rise to a significant demand for networking infrastructure services and products, such as PC servers, routers and switches. PCC’s sales of these products increased more than 150 percent in the fourth quarter of 1999, compared to 1998 fourth quarter sales.

In June 1999, PCC strengthened its government-sales platform by acquiring its first subsidiary—Maryland-based ComTeq Federal, Inc. Founded in 1993 as a private company, ComTeq had been successfully serving the expansive and growing needs of computer equipment and services to key government agencies.

The last year of the 20th century capped all records for PCC. Net sales surged 44 percent to $1.06 billion, compared to $732.37 million for the preceding year. Net income peaked at $22.73 million, or $1.41 per share, compared to 1998 net income $15.27 million, or $.98 per share. In her 1999 Annual Report, Chairman and CEO Patricia Gallup commented that “our five-year compound growth rate in operating earnings was 96 percent, ranking PC Connection among an elite group of the fastest-growing companies in America.”

2000 and Beyond: Into a New Millennium

On January 3, 2000, PCC formed and became a holding company—named PC Connection, Inc.—consisting of PC Connection Sales Corp., Merrimack Services Corp., and ComTeq Federal, Inc. The next day, PCC negotiated the acquisition of a call-center facility from Marlborough, Massachusetts-based Merisel Inc., a leading full-line distributor of technology products. In January, PCC also launched its proprietary Networking Sales Specialist Program, and in February the company won IBM’s “Personal Systems Group Business Partner Award for the Top North American Computer Reseller to SMBs.” This award program acknowledged sales performance on behalf of IBM Business Partners worldwide.

In March 2000, PCC expanded its Smart Selector service by adding computer monitors, printers, and digital cameras. Two months later, in May, the company announced a three-for-two common stock split. In a news release dated July 24, 2000, PCC reported that “According to Forrester Research, by 2003, the average company will be storing 150 terabytes of data, a ten-fold increase over today’s storage needs. Because of the increased data storage demands, International Data Corporation predicts the storage area network (SAN) market will grow from $1 billion in 1999 to more than 11 billion in 2003.” Remaining in the forefront of this industry trend, PCC in July 2000 formed an alliance with EMC Corporation to sell the EMC CLARiiON midrange storage systems and was the first in its sector to sell these storage products. The CLARiiON Fibre Channel storage systems, capable of storing up to 3.6 terabytes of data, provided information consolidation for highly distributed, critical stand-alone server environments and could store up to 3.6 terabytes of data.

Computer dealers serving large corporations were once “the kingpins of the corporate PC market,” and paid little attention to smaller markets, wrote Gary Me Williams in the July 13,2000 edition of the Wall Street Journal. “The mail-order houses were the also-rans,” he said. PC Connection was the first company to tap the neglected market by developing a sales model that was “right for the times. Small and medium companies … [were] the least penetrated, the most rapidly growing and the least price-sensitive,” said Robert P. Anastasi, director of research at James & Associates, as quoted in the Wall Street Journal article. The PCC founders’ insight into the needs and growth possibilities of SMBs and the potential of the Internet did change the buying environment for computers, realizing the hope expressed above when the company went public.

PC Connection’s outstanding record also supported Chairman/CEO Patricia Gallup’s forecast for the future: ‘ Tn the new millennium, we’ll see rapidly changing technology that will shape the way we work. Computers with speeds of 1 gigahertz and beyond are in the pipeline…. Whatever the new millennium brings, PC Connection will be at the forefront of direct marketers, delivering to our customers the technology they need, backed up with the best service in the industry.”

Principal Subsidiaries

ComTeq Federal, Inc.; Merrimack Services Corp.; PC Connection Sales Corp.

Principal Competitors

CDW Computer Centers, Inc.; Compaq Computer Corp.; CompUSA, Inc.; Dell Computer Corporation; Gateway, Inc.; Insight Enterprises, Inc.; Micro Warehouse, Inc.