A New Revolution in Selling Computers : Retailing: PC manufacturers are seeking and trying alternatives to the traditional dealer network.
The wave of change sweeping computer retailing over the past two years has reached new heights, promising to leave the personal computer industry awash in turbulence for some time.
Within the next several weeks, Apple Computer is expected to launch a distribution strategy featuring computer superstores and other mass-merchandising outlets, becoming the first of the Big Three PC vendors to follow such a course. That will deal another blow to traditional computer retailers such as Businessland that are already gasping for air.
Apple’s move comes amid a ferocious PC price war and provides another indication that vendors are grudgingly coming to grips with the idea that PCs are commodity products that must be marketed accordingly.
It also adds new urgency to efforts by traditional computer store chains to survive either through expansion, or by finding specialized niches in a business where it’s no longer possible to be all things to all people. Three major mergers of computer retail chains have been announced over the past several months, and companies including Businessland are frantically trying to re-orient themselves toward the high end of the PC business.
“The traditional way of selling computers does not seem to fly for the customers anymore,” says Seymour Merrin, a computer retailing specialist based in Palo Alto. Even brand-name manufacturers who have spent years building the loyalty of traditional dealers, Merrin says, will soon “have to go where the customers are.”
Specialty computer dealers have traditionally lured customers with service and support capabilities that mail-order houses and mass merchandisers were hard pressed to match. But as buyers have become more knowledgeable, they have become less and less willing to pay a premium for support that critics say was lackluster.
That has hurt both the computer stores and the mainline manufacturers, with customers moving to low-priced vendors like AST Research, Dell Computer and Packard Bell that are available in a variety of outlets.
Since it introduced a line of low-cost Macintosh computers last October, Apple has been focusing on boosting sales volume and market share. Though Apple says the strategy is working, it has hurt profitability and forced the company to undertake a work force reduction of 10%, announced Monday.
As part of the high-volume strategy, Apple has said it is looking at new distribution channels. Industry sources say the company was close to a deal last year with the leading computer superstore chain--Comp USA, formerly known as Soft Warehouse--but scotched it in the face of vehement opposition from traditional dealers.
But according to the head of a major national computer chain and other industry sources, the Apple-Comp USA deal is now back on track. In addition, Apple is expected to open up other new distribution channels, possibly including office supply centers and consumer electronics stores.
Nathan Morton, president of Comp USA, would not confirm or deny that a deal with Apple was imminent. The 20-store chain, which expects to open an additional 17 stores next year, now carries only off-brand PCs. Morton said that of the big three PC vendors--Apple, International Business Machines and Compaq Computer--Comp USA would be most eager to sign Apple.
An Apple spokeswoman says Apple is “still evaluating” its distribution situation and noted that some moves had been made to get the machines into superstores or other mass-merchandising outlets affiliated with existing computer chains. Such a strategy would help Apple assuage its current dealers.
One likely candidate in this scenario would be Bizmart, a Dallas-based office products retailer that recently agreed to be acquired by Intelligent Electronics, parent company of Entre Computer stores and several other chains.
The Apple spokeswoman declined to comment on Comp USA or other possible new distribution channels. Sources say, however, that Apple would implement the new strategy around the beginning of June.
Doug Johns, vice president for corporate marketing at Compaq, says the company already had a proposal from Intelligent Electronics regarding possible distribution in Bizmart outlets but had made no decision on it. He emphasizes, however, that the superstores and mass merchandisers had not yet become a major factor in the market from a volume standpoint.
“We absolutely are not opposed to the superstore concept,” he says. “If it is a significant channel, we plan to participate in it.” But Johns says sales of PCs--as opposed to accessories--through superstores only account for about $250 million to $300 million worth of sales in a $30-billion to $35-billion market. “The best you can say is that it’s an emerging market,” he says.
Analysts also caution that it would be premature to declare total victory for the superstores.
Still, when computer superstores, office supply stores, consumer electronics stores and even mass merchandisers such as Sears, Roebuck and Price Club are all taken together, they add up to a significant new force. IBM has begun selling its low-end home computer through Sears and Price Club, and Packard Bell has become the nation’s No. 4 PC vendor by selling primarily through consumer electronics stores.
For traditional retailers, the motto has thus become “specialize or die.” Businessland, for example, which is teetering on the brink of a Chapter 11 bankruptcy filing, has pulled out of storefront retailing altogether, focusing instead on high-end systems for the business market.
Many analysts, indeed, talk of “segmentation” in PC retailing, with companies abandoning the middle ground in favor of high volume and low prices, or high levels of service and higher prices.
Some independent computer dealers, meanwhile, are succeeding with highly targeted niche strategies. A Tarzana store called Mac Universe, for example, focuses strictly on software and accessories for Macintosh computers. Despite its name, the store is not even an authorized Macintosh dealer, says owner Michael Spivak, because there’s no money to be made in straight hardware sales.
“We are, in effect, a superstore for Mac peripherals,” says Spivak. “It’s the boutique concept: everything for the Mac.”
His biggest competitor is mail order, and he even looks forward to the entry of superstores and mass merchandisers into the Macintosh business. “I can’t wait until Apple starts selling through Kmart,” he says. “Every time a dealer around here sells a Mac, we get business.”
Shifting Computer Retailing Computer superstores and mass merchandisers are gaining on traditional specialty computer dealers for PC retail sales to businesses and homes. Here are breakdowns on where businesses and home users purchased PC hardware and where trends indicate they will shop down the road:
Businesses Home Users
Category 1990 1995* 1990 1995* Traditional computer dealers 47% 33% 51% 25% Direct sales 16 5 ** ** Mail order 13 8 19 16 Value-added resellers 13 15 3 1 Mass merchants 6 15 16 28 Superstores 2 20 4 19 Consumer electronics stores 1 3 2 8 Other 2 1 5 3
*Projected **Does Not Apply
Source: Dataquest
