Thomas Armes loves his Mac, and for years he earned a tidy living as an authorized reseller of Apple computers. But this year, the founder of Elite Computers and Software, a three-time Inc. 500 company, was forced to close his flagship store, located just across the street from Apple's headquarters in Cupertino, Calif. Now, with three other resellers, Armes has filed suit against Apple, charging that the company engages in rotten business practices, from overbilling to ignoring orders for popular products, including the iPod.
The rift between Apple and its resellers began four years ago, when a list of the e-mail addresses of resellers was accidentally distributed to the group. The resellers began comparing notes, and some soon concluded that Apple was mistreating them. "For close to eight years, we've caught Apple overbilling us every day, at least $1,000," says another plaintiff, Tom Santos of MACadam Computer in San Francisco. "They kept telling us: 'You are the only one with this problem."
Relations deteriorated further after Apple debuted corporate-owned Apple stores in May 2001. The resellers claim that many of the sleek outlets popped up right around the corner from their businesses. Santos, for example, alleges that competition from a nearby Apple store forced him to lay off most of his 30 employees this year. Apple, citing the litigation, declined to comment.
Such channel conflict is increasingly common, says Stephen Baker, a technology industry analyst with NPD Group -- and we have only the Internet to blame. For companies that have discovered higher-margin direct-to-consumer sales online, retail is often a logical next step. "Of course, you don't want your supplier selling against you," Baker says, "but we're past the point where people should be taking that personally." For entrepreneurs who suddenly find themselves exposed to competition, however, that advice is hard to take. "We were the ones who built their business," says Armes, "but now, Apple wants to cut us out."