There's been a lot of talk recently about the danger of Web sales to the channel and last week saw a flurry of activity regarding the decision by OnSale in the US to sell PCs at cost.
Two weeks on and we still don't see manic-depressive resellers out on ledges, moaning 'we just can't compete'. That's because there's no reason to - yet.
OnSale's initiative is not an effort to introduce a new sales model to benefit customers. It's a drastic attempt to boost flagging sales and shift unsold seasonal computers and those that are about to be superseded anyway. If it actually makes any real money or manages to completely sideswipe the existing reseller structure, it will be by accident, not design.
The whole idea of the incentive is to flog PCs at cost, but to charge between $5 and $10 per item sold - a transaction fee, if you will - which means a margin of about one to two per cent. Some resellers wouldn't get out of bed for less than five per cent and even OnSale admits it expects the ridiculously low prices to bite deeply into its existing auctioning business and erode its gross margins. So, here we have a company that's desperate to boost sluggish sales by selling PCs at cost which will decimate its overall margins and possibly destroy its existing auction business. Sounds like a winner to us.
The only upside of selling at cost is that it raises your profile, because you're shifting so much kit that you can no longer be ignored. The downside is that, because you started selling the kit at cost, there's nowhere to go and you're back at square one looking for some add-on service to boost your pathetic margins. If anyone sees similarities here between the old, nasty box-shifters and the move to adding value, stick your hand up now.
The real danger to resellers is not the online shopping companies, but the loyalty of the distributors that may or may not support them. Tech Data is not winning any brownie points at the moment with its existing reseller base by providing all the PCs for OnSale's site. Some see it as a shrewd business move and accept it, while others view it as a low-down, sneaky, treasonous, backstabbing betrayal. Whatever the feelings, resellers would be wise to ask their distributors if they have any plans to completely undercut all the kit they've just sold them by backing an at cost lookalike in the UK. Computer 2000 obviously supports Tech Data's actions, but what about those others? If one or two UK distributors advocate a similar Web operation that sells at cost, then resellers will lose another large chunk of business, just as they have already done to high street retailers.
It's reassuring to hear distributors such as CHS Electronics and Azlan claim that if they sold to dealers that wanted to sell at cost, it would break their existing supplier agreements. Not exactly an admission that they wouldn't do it if the right supplier contract came along, but as good as you're going to get in such a volatile market. And don't forget that a recession is on the way. Certain resellers will breathe a sigh of relief, but the writing could be on the wall for the old model if the European PC sales environment becomes as rabid as that over the pond. At the current rate of change, it could be that bad before you get home for tea this evening.
If you are worried, ask your local distributor about its loyalties. If you are really worried, say: 'Look, I have a cracking idea for a Web-based operation to sell PCs at cost - whadd'ya think?'
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