There's a certain irony to how, a few years ago, selling PCs via thel consumers buy off the page, on the Net, from supermarkets or from stores such as Dixons with their complementary Web portals? high street was regarded as a bit passe. Sure, it got you the passing punters who wanted to touch and feel the machines before they committed, but half the time they then went off and bought the same model from the cheaper, mail-order companies anyway.
In the meantime, stores were saddled with the costs that go with a town centre presence. Just leasing the premises and meeting business rates were sufficient to daunt all but the brave. And even then, high street outlets probably still had to advertise - usually working on thinner margins than off-the-page retailers such as Dell or Gateway.
Little wonder then, that the high street PC market was turned on its head. As consumers increased their knowledge of computers and joined the ranks of the digerati, so too, did the business models of how to meet their needs evolve - first with the creation of superstores such as PC World and later, the innovation of selling machines direct via the internet.
But could it be that the business wheel has now turned full circle and that a high street presence, instead of being seen as a costly anachronism, is now re-asserting itself as an indispensable mechanism for selling PCs to the public?
If Dixons is the model to go by, the answer has to be a most definite yes. Together with its PC World and Currys outlets, the group accounts for about a fifth of all PC sales to consumers in the UK, according to analysts Inteco.
Whatever it is that Dixons is doing, there's little doubt that it's on the right track when it comes to holding on to market share. As in the Japanese game of Go in which the object is to surround your opponent rather than topple them, the company's aim appears to be to attack its rivals on all fronts until they are hopelessly encircled.
It was Jan Murray, founder of PC World, that dreamt up the concept of selling PCs in superstores. But it was Dixons that bought up the operation and built it up to the accepted way of selling now. More recently, and in a move presumably aimed at countering the threat from mail-order rivals, Dixons also hinted that it was interested in buying an off-the-page retailer to expand its existing mail-order business.
Yet another venture, @Jakarta, is targeted at the software games market and already boasts five showrooms, despite the concept only being launched in October last year.
But arguably the most dangerous cannon in Dixons' armoury is its Freeserve facility, which in the space of less than a year has more than taken AOL as Britain's biggest internet service provider with over a million subscribers. More importantly, Freeserve provides Dixons with a serious Web portal to sell its wares to consumers, particularly PCs, given that any visitor to the site is, by definition, a computer user. The retail group announced last week that Freeserve will be floated on the Stock Exchange as a separate company. It is estimated to be worth up to #4 billion.
It is here that having such an established retail presence comes into its own for Dixons - without high street outlets, disseminating its Freeserve CD-Roms would have been problematic. But by being the first high street retailer to become a free ISP, it has not only stolen a march over rivals, but forced them to follow in its footsteps if they want to play in the same league.
Peter Day, principal analyst with Inteco, argues that while Dixons' venture into internet service provision has yet to be translated into higher PC market share, the potential is certainly there and high street shops are now an essential part of the equation. 'In the last quarter of 1998, three-quarters of new PC buyers who were using Freeserve bought their PCs from somewhere other than Dixons, PC World or Currys,' he points out.
'But that doesn't mean that they won't buy through Freeserve in the future once they're acclimatised to the internet with Dixons as their main gateway to the Web.'
Day also contends that the reason former mail order-only vendors such as Time and Tiny - which he rates as accounting for eight per cent and nine per cent of the consumer market respectively, compared to Dixons' 21 per cent - are fast opening up outlets in the high street is because they can see how the combination of a town centre store and cyber trading complement each other.
'Time and Tiny are the next two biggest players after Dixons,' Day says, 'but a lot of their market share still comes from magazine adverts. The problem there, however, is that as consumers become more computer literate, they no longer need to rely so much on PC magazines - which is why you need high street stores to reach them.'
The issue for all players, meanwhile, is how to support a network of shops when the margins on hardware are notoriously thin.
Last year, about two million PCs were sold to British consumers, generating #57 billion in home sales. But parallel with the commoditisation of computers has come the challenge from a diverse range of other high street outlets, ranging from Toys R Us to supermarket giant Tesco. The policy of non-traditional PC outlets is in-variably to pile their wares high and sell them cheap, selling them in barn-like environments where staff costs - compared to floor space and turnover - are relatively low.
But while Dixons might be able to ward off this emerging competition with its 67 PC World superstores, where does this leave smaller retailers which are similarly pursuing the home market but are handicapped by both limited floor space and correspondingly higher staff bills? 'The likes of Time and Tiny have come off the page and onto the high street,' says Day.
'But if they have to start operating on the margins that supermarkets work to, there could be a lot of blood on the carpet.'
Competing against Dixons alone isn't a very attractive prospect - ask Escom, Kingfisher or Thorn. But taking on the big supermarket chains as well could be even more of a nightmare - and one made potentially worse by the fact that Tesco, like Dixons, has also joined the ranks of free ISPs and could similarly compete for market share through the twin mechanisms of enormous sales caverns and cyber portals.
Day says: 'The supermarkets have only just started to get into the business and we haven't really seen the whites of their eyes yet. But in France, retailers have a much bigger share of the market than their counterparts in Britain and much of that is due to the hypermarkets keeping prices down. The danger now, however, is that even if mail-order firms do set up their stalls in the high street, they might still be tempted to keep under-cutting on price with the result that, like Escom, they overstretch themselves and find they can't keep going.'
One possible answer is to adopt the approach of Evesham, another PC retailer which previously operated only through mail order but which has now struck a deal with office supplier Staples - thus, at a stroke, getting a high street presence but without being saddled with the costs. Another tack, more applicable to PC manufacturers, is to climb into bed with the supermarkets.
Fujitsu, for instance, has just strengthened its relationship with Sainsbury's to sell 450MHz Pentium III boxes at what it describes as the 'bargain basement' price of #999. The Sainsbury's deal also includes a free visit from an engineer to configure the machine and plug it into the internet.
Frank O'Brien, UK sales director at Fujitsu, insists that supermarkets can more than hold their own against other business models, whether they are competing against off-the-page firms, specialist superstores or high street showrooms. 'We started the experiment last July with Tesco and what we're interested in is driving volume. In that respect, the supermarkets can't be beaten. Each week, Tesco gets about 12 million people through its doors, while Sainsbury's gets around 9.5 million. The beauty of the tie-up is that you don't have to pay a fortune on advertisements to get people to see your computers - they're going to go shopping in the supermarkets for food anyway,' he says
Moreover, O'Brien contends, the sheer size of supermarkets means that, in most cases, people can buy Fujitsu PCs direct on the spot - unlike Tiny or Time where PCs are generally for demonstration purposes only.
But will the high street reatilers and the supermarkets ultimately clash?
Not surprisingly, O'Brien is upbeat. 'I wouldn't like to be in the shoes of Tiny, Time or PC World when it comes to competing against the supermarkets,' he declares. 'Supermarkets are causing them serious problems because their pricing is very aggressive.
'Not only that, but Fujitsu can't be dismissed as a non-entity - it's a top, branded player,' he claims.
If pricing is aggressive now, it's likely to be nothing compared to a few months down the line when it is expected Intel will slash Pentium II prices to clear stocks. According to Jamie Snowdon, analyst at market research firm Input, high-end 400MHz versions could soon be up to 30 per cent cheaper than their Pentium III counterparts, with little discernible difference in performance. That could lead to further dumping of machines on an already saturated market, setting the scene for an all-out price war between rival contenders for the home PC sector. Whether supermarkets, with their pile 'em high, sell 'em cheap philosophy, will prove victorious remains to be seen.
Snowdon says: 'Computers might now be household products, but it's a joke to suggest that supermarkets could ever compete against the likes of PC World. Can anyone seriously argue that when people go to buy their cartons of milk they'll also buy a PC while they're at it? The supermarkets might sell a few, especially if the machines are of a good specification, but otherwise they're not going to shift in volume.'
Not so, counters O'Brien. 'Supermarket selling in the UK is still in its embryonic stage,' he claims. 'But in Germany, we can put 40,000 PCs into one of the chains and they'll be gone in three days. It's a very exciting time and anyone who ignores this competition will live to regret it.'
THE DIXONS JUGGERNAUT IN ACTION
Whatever the business models adopted by dealers and retailers, it's unlikely they'll be able slow down the momentum of the Dixons juggernaut. Inteco's Peter Day says: 'The fact Dixons has been able to hold on to its share of the home market is quite an achievement when you look at the ferocity of the market. Lots of others have thrown in the towel.'
Dixons has just undergone a corporate revamp after it rejoined the FTSE 100 index. John Clare, chief executive of Dixons, has split the company into three retail groups, covering its high street stores, the Currys electrical chain and the PC World outlets. It's a realignment which Clare has admitted has implications on buying, service, distribution and central group functions. As he told analysts: 'The driving force for the three groups is the creation of a management resource, with a dedicated focus to develop embryonic and existing businesses.'
But while the Dixons retail group will have under its auspices the new computer software chain @Jakarta and The Link mobile phone stores, it is the PC World Group - headed by David Hamed - that will have dealers most worried. Hamed has pledged to grow the number of out-of-town stores as well as PC World Business Direct mail order. More than 50 per cent of the group's PC sales, he reveals, already accrue from PC World stores, using selling techniques ranging from build-to-order to off-the-shelf sales.
It's thought that Dixons' strategy for repelling the threat from its two main rivals, Time and Tiny - tied to AMD and Intel architectures respectively - is to emphasise choice. Dixons takes CPUs from a variety of sources.
The retailer argues that this allows it to undercut the pair on price, especially when it comes to its own brand, built-to-order Advent range of PCs.
So why did the retailer get so much stick for allegedly over-pricing? Hamed shrugs: 'A cursory glance at the market place will prove the accusations are nonsense and we've come very clean with the Office of Fair Trading over this. The only thing I agree about the claims is that our margins are ridiculous.'
HIGH STREET, HIGH NOON
DIXONS: 343 high street outlets, 67 PC World superstores, nearly 400 branches of Currys and five @Jakarta software stores targeted at the games market. A million subscribers for its Freeserve internet portal
TIME: 132 high street showrooms in UK, free internet service provision rumoured to be in the pipeline
TINY: 97 showrooms. Own free internet portal
GATEWAY: six showrooms in strategic shopping malls, including Bluewater, Europe's biggest shopping complex
FUJITSU: selling through Tesco and Sainsbury supermarket chains.
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