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Where's the future in retail?

Where's the future in retail?

There would be few resellers that would shed a tear knowing that Harvey Norman and its big retail chums are a little concerned about the future, as shown in our exclusive front page report this week.

While the big retailers have gone through something of a golden era, with companies like Harvey Norman making record profits on the back of its booming computer business, the general reseller channel has faced significant challenges in recent times.

Margins have of course fallen dramatically, aided in part by aggressive pricing from large retailers who are suited by the high volume, low margin model. As a result, many resellers have had to face up to the fact that there is little future in the product reselling game and have had to reinvent their businesses as service organisations.

That's been a painful process, and for many it still is. The good news is of course that these resellers are now well positioned for the future.

Can the same be said about the big retailers? I don't think so. The immediate future still looks bright. The gold mine that retailers have so successfully plundered has been the first-time computer buyer. There are still mammoth opportunities in this space as more and more Australian families make the plunge to buy their first PC. But exactly how profitable is this segment going to be in the future?

It's very interesting to note that July PC sales, according to Inform's Channel Monitoring Service (page 32), recorded a huge spike in clone sales driven by aggressive PC/Internet bundles pitched by companies like Eisa. This doesn't surprise at all.

With PC infiltration into the more affluent segment of society nearing saturation point, increasing penetration is going to be almost wholly dependent on take-up by those families with far less disposable income available to spend on their first PC. This market isn't going to be the high margin game it was in the past.

Meanwhile, home users are becoming surprisingly sophisticated. According to figures expounded by Microsoft at the launch of its new Christmas products (page 28) last week, in almost half of Australian households that owned a PC, the computer was used for at least an hour per day.

Other reports show that more than a quarter of users are connected to the Internet and that Australia leads the world in the percentage of users who have made purchases over the Internet.

Everything points to the sophisticated home user being the next big profitable niche in home computer sales. The PC has become an integral part of their life, so it stands to reason they will be prepared to pay that little bit extra to get the best possible computing experience.

But how are they going to buy? They'll understand enough to know that they need the most bang for their buck and they'll want to be able to configure machines to their own exact specifications. Who's best at delivering that type of service at the moment? I'd suggest it's Dell, whose Internet sales are now driving its mammoth profits.

Of course, there will always be those who want to buy from a person and not a machine, but that person wants true customer service, much more the domain of the small independent dealer than the mass merchant. Is the golden age of computer retailing nearing an end?

Philip Sim is editor-in-chief of Australian Reseller News. Reach him at philip_sim@idg.com.au


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