During a recent trip to San Francisco the hotel was giving out a book of discount coupons for the nearby Macy's stores. As one of these was for a 25 per cent discount on a single item, and I was thinking of buying a multi-disk audio CD player, I went to take a look. In past years I'd been impressed with the store's electronics department, selling everything from large screen TVs to computers to pocket gadgets. Imagine my surprise to find the entire department gone AWOL.
It didn't take much digging to find the reason. Department stores like Macy's basically sell products for one of two reasons. The first reason is that you genuinely need something, you need it in a hurry, and this is where you'll find it. The second reason is that you're taken in by the seemingly unending sales they have in US department stores. We all like a bargain, and when confronted with a rack of clothes marked 30 per cent off, and the sale that day gives you a further 40 per cent off that price, who can resist buying at least one item.
As the Macy's department manager explained to me: "The trouble with electronic goods is that everyone knows their worth, so that's what we have to charge. The advantage with clothes and most other things we sell here is that, in general, customers don't know what particular products should cost. They know they could pay between $10 and $500 for a sweater, depending on brand, style, materials and so on. Ask a dozen customers what they think the price of a given item would be and you'll get a dozen, widely varying guesses. But if they've come in looking for a video camera or a notebook computer they'll be clutching a folder full of ads and flyers showing the prices around town, so they'll know exactly what to pay."
Her point was that it was possible to build enormous margins into most department store lines, allowing the customer to think they could get unbelievably good discounts much of the time. Electronics goods, however, had long since moved out of this category.
Some industry observers say the Australian retail computer marketplace is no different. They say customers know far too much, and that's the problem. You only have to listen to the haggling at weekend computer markets to know just how closely many buyers track this week's price, trying to skim another dollar of the price of a graphics card or CD-ROM drive.
It's no wonder buyers know exactly how far they can push you on price when they're bombarded with the likes of Melbourne's Green Guide, the Trading Post and the handful of magazines aimed at the price-conscious computer buyer. ARN's publisher IDG is introducing its own entrant into this market this month, called PC Buyer.
What will be interesting to watch is the effect of the new sales tax laws for IT products. Some observers believe that as the dodgy, bottom-end resellers either move out of the game, or are forced to compete fairly with the rest of the marketplace, margins will increase across all sectors. Many of you are more sceptical and believe the cheats will find another way to prosper. To see what really happens, ARN will be tracking street prices on some key products. We'll keep you informed.