Retailers gamble on switch into PC sector

Tight margins and plunging prices would put many retailers off selling a new product. And that is what lies in store for the computer market. Yet retailers are queuing up to sell PCs.

The latest recruit is furniture retailer Ikea, which is in exploratory talks with a computer manufacturer over devoting space in stores to sell computers. Ikea refuses to say which manufacturer it is talking to, but it says it has no intention of keeping stocks on its shelves. Display models will be available for customers to touch and feel and then order direct from the manufacturer over the telephone.

This could be the way forward for retailers as it avoids the need for stock control, and puts the onus on the manufacturer to sell the products.

Some retailers have already become victims of the growing market for home computers, forecast to increase from 2.1bn to 3.4bn by the year 2000 according to Mintel Marketing Intelligence.

The German-owned computer retailer Escom went bust shortly after acquiring a number of Rumbelows high street stores. Specialist Computer Holdings’ superstore operation Byte was sold to the Dixons Group in April. And WH Smith pulled out of computers in 1996 to concentrate on its core news and stationery products.

Neil Mason, retail analyst at Mintel, says: “There’s a lot more price pressure in the market and we will see many more casualties. Compared with other retail sectors the computer market is fragmented.”

According to Mintel, about 30 per cent of home computers are sold direct, 20 per cent by general outlets and the more specialist outlets, such as Dixons’ PC World, account for the other 40 per cent of sales. But Mason adds: “I think we are likely to see a broader business of distribution channels.”

A recent recruit is furniture chain Courts, which started stocking computers, as well as consumer electrical goods, last year. Other non- electrical retailers selling computers include Toys R Us and department store John Lewis, which has an exclusive deal with Apple.

Jon Van Duyne, general manager for consumer business products organisation for Hewlett Packard, says: “These people have been used to selling durables which only change every few years. Moving into PCs is like going into high fashion.”

In order to attract customers, retail chains must provide three things says Mason – staff knowledge, after-sales service and competitive pricing. But Van Duyne warns against retailers selling computers through too many outlets because of the risk of disappointing consumers with old models on the shelves.

Retailers also face computer prices falling from the 1,000 mark to as low as 300 over the next few years, squeezing margins even tighter. Convergence of technology also spells an unsettled period for the computer industry, with the possibility of computers and TVs being combined into one unit.

There is increasing competition with sales through the Internet by computer manufacturers such as Dell and Gateway. Apple is the latest manufacturer to start selling off the page in the UK in an attempt to supplement its traditional channels. Even retailers are getting in on the act, with Dixons selling computers through its Website.

This method of selling can be particularly attractive to second-time buyers who are more sophisticated and prepared to shop around. Other computer manufacturers are also on the look-out for new channels.

But retailers are not only interested in selling hardware. Computer accessories can be profitable and they don’t require the same levels of specialist knowledge. For instance Dixons last week announced an assault on the computer games market in an attempt to become the dominant retailer in the sector. And Hewlett Packard is test-selling cartridges for inkjet printers in Tesco.

Van Duyne thinks that in five years, when every home that wants a PC printer has one, cartridges may even be on sale in petrol stations just like camera film. Tesco says it has no plans to sell computers in its UK stores at the moment.

Given that supermarkets are used to selling goods with a short shelf-life, and have efficient supply chains able to adapt quickly to consumer demand, they appear well-placed to at least try out computer sales.

Compaq Consumer business unit manager in the UK Hamish Haynes says: “I don’t think it is the right time to sell computers in a supermarket because there is still a little bit of mystique about the product. I can see it happening in possibly five years. First-time purchasers know a computer is not the sort of purchase you make at Tesco or Asda.”

But problems associated with stocking computers could be on the way out for retailers with the introduction of “build to order”.

In the US, Compaq is already conducting trials where shoppers can look at the products in stores and work out what specifications they require, and pay for the computer and peripherals there and then. Once the order is placed, it will be delivered by the manufacturer which will, in turn, invoice the retailer.

Yet the basic problems remain – the technology is virtually out of date as soon as it hits the shelves. Build to order could change all that.

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