Up the Channel: Tough times ahead for independents

Many moons ago I studied micro and macro economics (an economist is a trained professional paid to make guesses about the economy). Micro was what happened in your backyard and macro was what happened up the road. The laws of each are totally different and often conflicting. At a macro level, for example, some local distributors reported record January sales. That measures up to what the economists are saying about the world's growth at four per cent but most of this is attributed to developing giants like China. There is no doubt also that the business is shifting from IT specialists to mass market IT/CE retailers. Harvey Norman sales increased about 18 per cent in Q3 compared to the same period a year earlier but that's not the whole story.

At the micro level, independent and smaller IT retailers are doing it tough. December and January were appalling and February is looking slow too. Not only is turnover down but net profit as well - it's harder to make a sale and low margin products like notebooks dominate the scene.

And we should not be surprised by the revelation by analysts (an analyst is someone unethical enough to be a lawyer, impractical enough to be a theologian, and pedantic enough to be an economist) that more than 80 per cent of the world's PCs and notebooks sold in 2006 were basic configurations.

You don't need to be an economist to understand the laws of supply and demand here - PCs are a totally commoditised product and the big brands have killed the whitebox market pretty effectively.

Also at the micro level, Joe Average is beginning to do it tougher. Interest rate rises, a slowing economy, falling levels of disposable income severely impacted by drought as well as increasing fuel and food prices, political instability, NSW state elections in a dilemma, water issues and skyrocketing rents. Need I go on?

SMBs are suffering too. The Sensis Business Index (Nov 2006) said increases were recorded in all performance indicators, with the exception of prices, which fell.

SMBs were expecting further cost increases in the short term but no sales increases. So there we have it - increasing costs and decreasing profit.

IT analysts who predicted boom conditions with the release of Microsoft Vista may soon regret that. Retailers are generally reporting that take-up is very slow and Joe Average is definitely holding out for another year or so before replacing their old metal with a shiny Vista box.

In a nutshell, IT retailers need to batten down the hatches and remove all vestiges of fat from their company. The economists may well revise their predictions about Australia's prosperity in 2007. A parting thought - when drawing up the guest list for a dinner party, inviting more than 25 per cent economists ruins the conversation.