Computer Power Play

Catalogue retailer Argos is entering the PC market. Which is no mean challenge as it will be taking on established players of the stature of Dixons and PC World and direct sellers such as Time, Tiny and Gateway 2000.

It is believed Great Universal Stores (GUS), which bought Argos for 1.9bn in May last year, has been planning to move into the mass-market computer sector for some time. In its offer document, GUS stated that, because Argos faces increasing competition and a demand for improved services, it could “quickly and economically” provide the home shopping, call-centre and delivery infrastructure the retail chain said it needed to build.

The appointment of Terry Duddy, former managing director of Dixons Stores Group chain PC World , as Argos chief executive in September last year, was further evidence of GUS’ determination that Argos should move into PC sales.

Duddy, who filled the gap left by Stuart Rose after the acquisition, was offered a main board directorship as part of the package. He faces a major challenge at Argos. The group saw sales fall at all of its 418 UK stores last year. Some observers attributed this to its weakness in hi-tech products such as PCs.

By contrast, Dixons’ 344 stores generated computer sales worth 689m in 1997-98. Rival retailer Currys achieved 1.1bn through its 235 superstores.

It is understood GUS’ aim is to take Argos upmarket, while improving the sales system and reducing queuing times. It also hopes to reduce Argos’ traditional dependence on the Christmas sales period.

GUS is keen to use its expertise to build a profile of Argos customers so it can tailor other catalogues and products to their needs. Shoppers who buy gym equipment from Argos, for example, could be sent a GUS Sports Elite mail order catalogue.

A number of specialised Argos catalogues has been mooted and the idea is that a wide range of PCs may be sold through them.

Observers say Argos will have to offer competitively priced multi-media packages to undercut the major players. While the latest re-search reveals there is enormous potential in the home PC market, some industry figures are sceptical about using catalogues to sell computers because of frequent technological and price changes.

Argos has been test marketing a package which includes the Amitech 900 multimedia computer, costing 899, with free Internet access, installation and delivery and a Hewlett-Packard colour printer. It was launched on March 11 as part of an Easter “stop press” offer centred on catalogue leaflets and in-store posters.

It features the line “designed with families in mind” and targets a broad range of customers. The offer ends on April 21. The Argos catalogue features only a small range of computer games software, as well as the Nintendo Game Boy and Sony Play Station.

An Argos spokeswoman says: “We are re-establishing the range of PCs we offer. We are testing how the PC offer goes down, but it is very likely we will extend the range, depending on the success of this product.”

Sales volumes in the the UK PC sector have risen 67 per cent since 1994, while the market value has increased to 4.6bn in the same period, according to a report by market research company Mintel, Computer Retailing, published in March.

The small office/home office (SOHO) market has also continued to expand – to 2bn sales. Mintel forecasts a 51 per cent increase in sales volumes between 1998 and 2003, although value growth is expected to be marginal as the average price of PCs continues to fall.

The report says the first-time buyer market is buoyant, stimulated by the continuing fall in prices for basic machines. Richard Caines, a retail consultant who edited the report, comments: “There is a lot of potential for Argos to succeed with this. More than 37 per cent of households now have a PC.

“At the moment, the market is dominated by a few key players and the direct selling companies. But one drawback with Argos selling PCs is that it may not have the after-sales service that other companies provide.” He points out that a lot of people – more than half of the respondents to the Mintel survey – still do not have a PC.

“First-time buyers go for recognised retailers. Argos is a name they are familiar trust. They are certainly more familiar with Argos than the more specialist outfits such Tiny, Time and Gateway 2000. It could be quite an advantage.”

The report shows steadily rising consumer expenditure in the SOHO market – from 1.1bn in 1994 to 2.1bn this year .

John Van Duyne, general manager of consumer business products at H-P, says: “There will be a boom in mass-market PCs. Last Christmas 80 per cent of all PCs sold were in bundles (part of a package with a printer or scanner). By next Christmas that figure will be even higher.

“The UK market is reaching a critical point in terms of consumer demand. Packages nearing 999 could easily fall to 666 this year. The changes going on are phenomenal. It’s like standing on an ice pack – you don’t know how it will fall.”

Lesley Mason, consumer marketing manager at Compaq Computer, says: “Our view is that certain people will buy from a certain outlet, where they know they are getting value for money. “It’s a familiar channel for people – it’s not as obscure as direct selling. Anyone can sell a PC, the key thing is the back-up offered. If Argos has that infrastructure, then it should be OK.”

Mason adds that falling prices will enable Argos to offer good PC packages. But she says most PC manufacturers would be wary of a catalogue system. “It could be difficult. The two may be mis-matched. Argos will have to keep on its toes.”

One potential problem is that catalogue selling could have an impact on stockholding. If orders are mis-timed, stores could be left with old stock. In the aggressive computer market, it could be an expensive risk.

Mason says Compaq’s brands appeal to both first-time buyers and purchasers of replacement PCs. She does not perceive Argos as a threat. “Our ethos is choice. People can buy from a number of different places. I don’t think Argos will take over the market overnight. I always compare selling computers to selling fish. You can’t leave it on the shelf too long, otherwise it goes off.”

Such concerns are echoed by PC analyst Paulo Puppoli of IT research group Dataquest Europe: “It’s a fast-moving market where prices constantly change. With catalogues you have to forecast well in advance of publication.”

The Mintel report concludes: “The sector is likely to polarise between those who wish to make full use of the facilities a PC can provide, and those who use it for basic tasks. Therefore, the demand for machines with ‘all the bells and whistles’ will remain, but it will be accompanied by the demand for basic machines at a competitive price.”

However, if Argos can step in with computers priced at 799, it may well be able to make in-roads into a core market that has eluded it for a long time.v

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