PC Proliferation Opens Channels

By Bainbridge, Jane

As the market matures, consumers are buying more computers from non-specialist retailers. THE BACKGROUND How, why and where consumers buy home computers is changing. As the level of ownership grows and computer use becomes second-nature for younger generations, more families expect to have one in the home, in the same way as they expect to own a TV: it is now viewed as an essential part of a home’s communications and entertainment equipment. And with greater penetration – 76% of the population now owns a computer – comes an increased confidence in buying them, so consumers are more comfortable purchasing online or direct from the manufacturer. Consumers’ growing confidence in purchasing computers from non-specialist sources means that retailers such as supermarkets are moving into this sector, putting an even greater squeeze on traditional specialist computer stores.

James Flower, analyst at Verdict says: ‘As computers become a more mainstream product and consumers know more, there is naturally less need to go to a specialist. Maybe for their first PC purchase they did, but over time consumers gain confidence and know more about the product. The same trend has been seen with digital cameras.’

The lowering of entry-level prices has had a similar effect. Until relatively recently, the purchase of a computer was a considerable investment. ‘When consumers had to spend Pounds 1000 for a machine, they went to specialists,’ agrees Flower. ‘Now they can get one for Pounds 300-Pounds 400, it is a less considered purchase.’

Not all consumer groups are as active in this sector as others. The lowest penetration is seen among the older and less affluent. But among others there is a growing likelihood of multiple PC or laptop ownership. Changes to employment practices mean more people are working from home, which has also boosted the market.

Despite the constant technical advancements and improving capabilities and speeds of computers, the single most important factor influencing purchase is price; shoppers will go to the retailer offering the best deal. As the market reacts to this and stokes it with heavy price deflation, this in turn is putting pressure on margins.

But there is some good news for retailers, as factors such as availability, reputation and good packages also influence where a machine is purchased.

The total market for information processing equipment stands at Pounds 5.4bn in 2007, an increase of 17% since 2003, according to Mintel. Growth has slowed in recent years as a result of price deflation, and laptop PC sales are growing at the expense of desktops. Laptop penetration is now 13% (up from just 3% in five years), so there is considerable room for growth, especially as wireless broadband connection becomes the norm.

As the specialist retailers have been put under pressure, many have fallen by the wayside. The market leader, DSGi-owned PC World, is the only specialist chain of any notable size, accounting for almost a third of all spending on computer equipment. Other specialists account for a further 5% of sales.

PC World has heavily advertised its multichannel approach with the tagline ‘Best of both worlds’. ‘Its Click and Collect service drives footfall into the store where the salespeople have more chance of selling accessories,’ says Flower. ‘Everyone is trying to sell more peripherals as there’s more margin there.’

Tesco entered the computer market in 2006 and now has Apple Zones with a permanent range of IT products in 12 stores. Similarly, Asda sells computers and peripherals online, and discount grocers including Lidl and Aldi run occasional PC offers.

It is, however, online sales that have really eaten into the specialists’ share. IT purchases are based on specifications above look and feel, so they are easy to make online. PC hardware and software is the third-biggest online spending category, behind travel and groceries.

Dell, with its direct sales model, has carved a good position, although it is expanding with more third-party distribution. It is particularly popular with 25- to 34-year-old buyers.

Apple has been expanding its Apple Store concept since it opened its flagship outlet on Regent Street, London, in 2004. This route allows the company to present environments with high levels of product knowledge and high-quality service to showcase its range. It now has nine standalone stores in the UK and is rolling out its store-within-a-store concept in PC World, Comet and Tesco.

Online electrical and IT specialists include dabs.com and empiredirect.co.uk. With price an important factor for computer purchasers, online retailers have the advantage of lower running costs and can pass these savings on.

The downside of the high level of penetration is that consumers are talcing longer to replace their old computers. As technology has advanced and memory and processor performance have increased, there is also less reason to upgrade regularly, although changes such as Microsoft’s roll-out of its Vista operating system can stimulate the market.

By 2012, the sector’s value is expected to reach almost Pounds 6.1 bn, up 12% on 2007, according to Mintel. Advances in technology will continue to sustain the market and computers are in a good position to take more consumer entertainment spend as they can assume the roles of TV, DVD and CD players and recorders.

PC World: retailer accounts for almost a third of UK consumer spend on computer items

trends insight sparking inventive ideas…

Comet: 6.6% share of spend in 2006

Currys: biggest non-specialist PC retailer

Copyright Haymarket Business Publications Ltd. Nov 21, 2007

(c) 2007 Marketing. Provided by ProQuest Information and Learning. All rights Reserved.