According to some estimates, the UK retail market is worth about #4 technical? billion - probably more if you include off-the-page (OTP) business - mail-order and catalogues.
Herve Jodogen, retail analyst at Context, says the outlook is healthy and sees most emphasis going on bargain bundles. 'Low-end PCs are selling well, mainly for families.
People feel they need to get on the internet and email.' But the indications don't show a bumper year in 1998. It looks like this year will see steady growth in the retail sector, areas with peripherals and add-on vendors seeing good growth.
Gareth Jones, European retail sales director at Iomega, echoes this.
'I think the PC market will see moderate growth and low margins, but to play in this market you must have a PC to entice the customer into the store. There is a stronger focus on areas such as category management and merchandising.'
Retailers are getting more scientific with their store layouts and sales techniques, he says, and small item sales are becoming more important because making money from PCs is not easy. The retail sector is price competitive, especially since it has to compete with mail-order catalogues and off-the-page reselling.
But it's this price competition which is driving the sector forwards and, combined with the continuing rise in the number of people willing to buy products via mail or catalogues, is fuelling its healthy growth.
Some estimates put as much as 80 per cent of retail business into the home. Education, entertainment and the internet are the major applications that lure people into the aisles. But business is starting to increase its use of retail, as well as the already popular mail-order or the catalogue route. Taking all of these areas into account, the mix of business between the domestic and business customers is probably close to 50/50.
Hamish Haynes, manager of the consumer business unit at Compaq UK, says there is a mixture of traffic now in stores like PC World. 'We used to think it was either consumer or corporate but you find it is a blend of micro, small office and medium-sized businesses.'
Microsoft director of consumer and retail products Dale Borland says that a high proportion of its business through retail is going into the SME sector. He estimates the split between home and business is 60/40.
Iomega says 51 per cent of its users are in the home and 43 per cent in business.
The implication is that a lot of people are using PCs to work from home.
Computer 2000 (C2000) claims that in 1997, its networking sales through retail increased by 46 per cent. It is clearly becoming a more important sector for many vendors.
For other vendors like Hewlett Packard, retail also generates a considerable amount of business and it is growing. James Morgan, general manager of the retail business unit at C2000, comments: 'Our feeling is that the small and medium-sized business is looking at retail as an alternative to the local dealer. User awareness is increasing and they are more willing to buy from the shop over the road.
James Wickes, MD of Ideal Hardware, says: 'Users want to see what they are getting. They can do this in the retail store. However, many more know what they want and are prepared to buy direct from the home or the office. Resellers will have to respond to these changes. He continues: 'The quantity of knowledge in the user community is greater than it was a few years ago. Companies like Software Warehouse are responding to a particular type of demand. Their customers don't need the intermediate solution of looking in the Yellow Pages and going to find a dealer.'
At the same time, retail space is becoming crowded with more stores opening, more outlets taking on IT products and more mail-order or catalogue operations springing up. There may be as many as 2,500 resellers in the UK and the number of outlets for products is growing every week.
But one company dominates the scene. Dixons Stores Group (DSG), with PC World under its wing, has about 50 per cent of the market. As one distributor said: 'If you are in retail you've got to be in DSG.' Aside from Dixons and PC World, other big retailers are Byte, Tempo, Software Warehouse and Comet. These businesses take the lion's share of the retail business - perhaps as much as 90 per cent is shared by the multiples. Microsoft says 80 per cent of its retail business is done with the top 12.
Estimates vary, but there may be as many as 2,000 independent retailers and these companies are served by the distribution channel. There are also companies that are not purely selling IT products and a growing number of interlopers trying their hand at selling PCs and peripherals.
Tesco is piloting a scheme at some stores in a deal set up with C2000, and Sainsbury's is also experimenting with selected products in some of its stores. Asda is experimenting with Viglen PCs and even the cut-price German retailer Aldi put PC bundles on sale in some of its stores in the run-up to Christmas.
Much of the business is of a seasonal nature says Geoff Nightingale, manager of the consumer channel at Hewlett Packard. 'Timing is key in supermarkets. Get there too soon and you have products that are not selling, using up shelf space. You may see outlets stocking certain products at particular times of the year.'
Morgan says this is the way business is going. 'My counterpart in Germany does not do business with any independents - he deals with three types of multiples - department stores, electrical wholesalers and PC-specific stores. They are multiples and are afraid of the supermarkets.'
Jones sees supermarkets selling Zip and Jaz products quite soon. Although there are no projects underway in the UK, Carrefour already sells parallel port Zip and Ditto drives in France, and Jones says it does very well.
HP is also doing good business through hypermarkets in France, according to Nightingale, and he sees the consumables business, in particular, spreading to a much wider profile of outlets, even petrol stations. HP even has vending machines on trial in the US. All kinds of outlets are possible, he says. 'There is no reason why the pizza delivery service should not turn up with an inkjet cartridge one day.' Well, maybe.
Haynes comments: 'I don't believe people are in a mind to, or feel confident enough to buy a computer when they go to Sainsbury's. It is a psychology issue rather than saturation that will keep them away.'
Users are simply not ready to go into the supermarket to buy their computer products, says Jon Atherton, general manager at Enta Technologies. 'Yes the consumers' level of knowledge is increasing, but it takes a tremendous leap of faith to move from buying your IT products from a professional dealer to buying it from a shop in the high street.' There could even be room for retail or OTP type businesses, he adds. 'There is continuous and steady growth in this sector and without question, the confidence of the home user and the small business buyer is increasing. I can see more buying through retail and mail-order in the future.'
Overcrowding is not a deterrent to new entrants. But anyone who is going to enter the retail business in the UK had better do it soon, says Morgan.
'You can't really say the market is crowded because one player dominates.
But for independents you need to be in there now or you are going to miss out.' He says the number of brown and white goods retailers looking at the market and supermarkets are going to squeeze everyone else out. When users can buy peripherals and consumables at the supermarket, they are going turn to the specialist computer retailer less often.
But, he says, you can't say whether it is a good market to enter or not.
It depends on the business model. 'The retail business always finds its own level. There is never an artificial situation,' says Haynes. In other words, it does not matter how many people are in the market, it's the strength of your business that matters.
This view is shared by Borland. He feels that a new entrant could still make an impact because the levels of service provided by the retailers in the UK is still inadequate. 'I don't think we'll see any dramatic changes in the retail market but we will see some external parties coming in. That will shake things up and could be welcome in some respects. It will change the dynamics of the business and I think it needs more of a competitive edge. The business is not fulfilling its potential to the user customer.'
Levels of service and quality could be improved significantly, says Borland.
An arrival from the US market, with deep pockets, a proven track-record and experience from a mature market could have a significant impact. But perhaps not so much on the multiples. Arguably, it would put more pressure on the independent retailers as the multiples increase their marketing and special offers. On the other hand, it could help the independents by highlighting the importance of service.
This, says John Parker, director of Profile, a retail merchandising specialist, is what keeps them alive. 'Everyone is under pressure in retail because there is always someone trying to undercut you. The independents have to live off their service and the multiples can't offer the same levels as them.'
Borland also sees plenty of life in the independent sector. 'In the long-term, the independent has to evaluate what their role is, but our research shows there is still a proportion of users that want to deal with their independent retailer.'
Microsoft recently launched a scheme aimed at helping independents increase their skills. The Independent Retailer Initiative provides help with point-of-sale creation, two years free membership of the Microsoft Network, some free training and a number of other benefits. Microsoft is not asking for membership fees or commitments beyond a commitment to stock and sell products. Clearly it thinks the independent retailer has a long-term role to play.
Independents are better organised than in the past. Some have formed buying groups to try to match the purchasing power of the multiples. The National Association of Specialist Computer Resellers (NASCAR) is one of the biggest and has about 250 members. Out of NASCAR, a group of 24 independent retailers has formed the Network Buying Group (NBG).
This is now a powerful group, says Parker, and one that vendors are paying attention to. While they may focus on the multiple, they can't afford to ignore the independents. 'PC World and Byte are important, but you can't have all your eggs in one basket.'
But associations and buying clubs don't always work because they are not organised as a single entity. One distributor pointed out that to work with a buying club, it would have to run credit accounts and have relationships with all the members.
The cost of doing business would not decline significantly.
With DSG or other organisations with central volume purchasing, there is one customer. It is very cost effective for the distributor. The major retailers have most of the power. According to Morgan, there are about 40 multiple companies in the UK and these are the companies that distributors like C2000 have to focus on, even though vendors like Microsoft and Compaq tend to deal direct with Dixons and other major multiples.
According to Morgan, including off-the-page and catalogue type operations, retail constitutes about a quarter of C2000's UK business - about #10 million each month. It is growing fast, says Morgan, but mostly because C2000 is now targeting the multiples and working more closely with them.
Overall, the retail business does not seem as fast - other distributors report fairly flat sales to retail.
At Ideal, for example, Wickes estimates that retail accounts for 10 per cent of revenue. Enta Technologies gives a similar figure but says it is higher if the OTP companies are included. Many of these businesses selling OTP are traditional dealers that have moved on to the more direct route.
'It's a trend that has been growing for some time. Users are more comfortable buying off-the-page and they need to offer this kind of service to their customers.' This is why companies like Computapoint have started to emerge, giving resellers the opportunity to get into the catalogue or OTP business without making any massive investment or taking risks.
Catalogues are no replacement for traditional dealer business, nor do they provide a straight alternative to the retail option. Byte has its own Byte Direct catalogue and mail-order service and PC World's DNCS subsidiary runs a catalogue-selling operation for the giant retailer.
Nightingale sees this part of the market growing in parallel with pure retailing and getting more sophisticated. He says: 'Instead of everybody stocking an item they will just have a couple of representative products and it will be built to order and delivered. Look at a PC World store - it's big and they are expensive to run.'
The arrival of internet-based trading will add to the potential for direct ordering and shipping from wholesalers' warehouses. This is also a trend in the business-to-business market, so in some respects, the retail and the traditional sectors are colliding once more.
A NEW BREED
As well as independent buying groups, a new generation of service companies are forming to meet the needs of retailers and dealers that have to provide a retail-type or OTP service to their customer base.
Computapoint has latched on to the need for resellers to provide a mail-order type business. It has taken the concept of the catalogue reseller a stage further by giving resellers the opportunity to set up their own catalogue business, without having to make the investment in the stock-holding or the print costs. Four times a year, Computapoint sources products and prints catalogues detailing all the products, but with specific dealer names on the cover. This allows the dealer to offer a catalogue - branded with their name - to their customers. The customers can buy through the catalogue and place their order with the reseller. The reseller can then place the order with the relevant distributor/vendor or have the supplier ship the boxes direct to the customer.
Vendors have to pay Computapoint to get listed in the catalogue and provide special price deals for the members as part of the scheme. Computapoint uses the funds from the vendor to subsidise the production of the catalogue.
This means resellers get the catalogues about half price. 'The whole idea,' says general manager of the business Mike Poole 'is to give the dealer the biggest shop window it can have.'
Computapoint has been operating for over two years and has about 90 dealer members.
One-third of the members are retailers and two-thirds are ordinary business-to-business resellers. But Computapoint is now splitting the two and is starting to produce a special version for the consumer side of the business, leaving the existing catalogue to the business-to-business customers.
Vendors participating include AST, Olivetti, Trigem, Toshiba, TI, HP with the Brio range and its printers, Epson, Fujitsu, Tally, USR, Hayes and Creative Labs. Computapoint also has a range of consumables and paper in the catalogue.
Poole says resellers have different reasons for joining. 'Some of the independent retailers use it to fight against DSG, but some of the larger organisations use it as a customer retention tool as well as a way of getting new business.' Computapoint is now building on this concept and starting to produce flyers and other material for the reseller. 'It is a very cost-effective way of producing a catalogue.' He admits it is not for every dealer, but it can open new opportunities.
'Once you are in the group there is an element of compromise. There might be products the dealer does not sell and if someone comes on and wants to buy that product, the dealer might try to switch-sell to them. But if they can't, they can also take the business on the original product.' This highlights the advantages for the vendor members who pick up new dealers as a result of the scheme. For the reseller, the sale has been made easily and cheaply as a result of the catalogue.
Some dealers take only a few hundred pounds others take up to #5,000 says Poole. But there is still some work to do after the catalogue has gone out. 'They must put the resources into it to drive the sales and follow up the mailing and give the customer an incentive,' he says. Sending out letters with the catalogues and making follow-up telesales calls makes a difference.
ANOTHER NEW BREED
Run by former Frontline/Computer 2000 director Debbie Wheeler and John Parker, Profile is a specialist merchandising and promotions organisation.
Working with vendors, it puts together specific campaigns and takes them to a list of independent retailers. It visits retailers to talk about the promotions and to get them up and running on the vendor's behalf.
It also advises on the use of merchandising and displays in the outlets, which allows the vendors to focus on independents while still concentrating their efforts on multiples.
The 12-strong profile team goes to independents and sells the idea and concept. It's then up to the likes of Gem and Computer 2000 to get their telesales people to push the products. Profile has only 650 independents on its database and will visit 400 of them every month. It is funded by the vendors and is currently working with HP's hardware and supplies businesses and with Dorling Kindersley and Logitech.
Infrastructure provider says international sales now make up 51 per cent of its revenue
Suzanne Chappell of TMS plans sailing venture after selling Oxfordshire-based TMS to acquisitive Chess
Withdrawal of credit insurance by some providers a 'reflection' of current challenge facing IT sector, according to MD Steve Soper
SMART's UK managing director joins Lenovo to boost SMB business