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Will Santa save you?

Will Santa save you?

As the first Business Activity Statement (BAS) deadline for the SME sector draws near, the channel is experiencing a PC sales hiatus. The scurry to get linked and computer literate in the run up to the GST ended fairly abruptly on July 1, and the predicted post-new tax system boom has yet to eventuate.

One major concern is that the IT channel may bear the hidden cost of the changes to the new system, as overall buoyant retail figures mask slow PC channel sales.

Ian Clark, executive director of the Australian Centre for Retail Studies in Melbourne, said the drop in discretional spending, expected in the wake of the introduction of the GST, never eventuated.

"For the period between June and August there was an overall growth rate of 5.32 per cent, but there was a lot of variation between sectors and a couple of them did quite badly," Clark said.

Confirming that the figures pertaining to retail PC sales were hidden in the centre's research, PCs were counted as part of the domestic hardware market, which includes furniture.

"There could have been changes to the PC market that go unnoticed because of growth in other areas," he conceded.

Clark believes the impact of the GST has not lived up to people's expectations, though he is quick to point out it is early days and the full effects of the changes to the tax system are yet to be fully realised.

The lower-than-expected consumer price index (CPI) announced in late October is another indication that the full effects of the new tax system have yet to be felt, with analysts concerned that the corporate sector is inadvertently absorbing some of the price increases.

The most recent figures set the latest price increases at 3.7 per cent, significantly less than the widely expected 4.2 per cent increase.

The concern is that, rather than passing on the price increases, the retail sector is maintaining pre-GST prices in an attempt to stimulate sales. If so, they are setting themselves up to be hit with an unexpected bill come BAS time.

According to channel research company Inform, PC sales fell to their lowest levels this year in the post-GST period. This fall was generally expected by the channel community, given buoyant sales in the run up to the introduction of the changes to the tax system.

According to the most recent Inform report: "The drop in August sales was only slight (less than half a percentage point), but analysts and resellers alike agree that the market does not intend to wake from this temporary slumber until well after Olympic fever has died.

"A further decrease of 3 per cent in average PC prices had little effect on stimulating demand and served only to lower the value of the market by 4 per cent, again to the lowest levels seen this year."

Although Inform describes the fall as slight, it was particularly felt in what the analyst describes as the traditional dealer and independent retailer channels. Sales in these channels are reported to have fallen by as much as 14 per cent. Inform is attributing the slump to a number of issues including chip shortages, which have hit the OEM channel fairly hard.

However, major Australian assembler ASI Solutions is reporting that the post-Olympics period has seen sales take off. ASI national marketing manager Graham Orford said October brought a bevy of orders for both short and long-term fulfilment contracts.

"Everyone was slow out of the box after the Olympics, but we have taken off like a rocket. Orders have been coming from around the spectrum," Orford said. "Defence purse strings appear to be loosening, the tertiary sector is buying and corporate markets are good."

According to John Slack-Smith, Harvey Norman's general manager for computers and communications, major retailers at this stage are not suffering the grief felt by other members of the IT retail community.

"Business is up over the July, August and September sales period, though September was a challenge because of the Olympics - we experienced a fall in our traffic through all our Sydney stores."

Slack-Smith added that the market is really picking up in the run up to the first BAS, as small businesses increasingly realise the necessity of computer-based accountancy packages.

"The drop in sales earlier on in the quarter had nothing to do with the GST at all. A lot of money came out of the family budget for Olympic tickets and so forth - it was definitely the largest contributor to the lull in sales."

It would seem though, that only the mass merchants are handing in good sales reports at this stage. Small-to-medium retailers who spoke to ARN are feeling more of a pinch.

Merdad Shetab, managing director of Sydney-based retail chain Computer Interchange, disagrees with Slack-Smith. Shetab said the drop in sales has been felt across the company's 13 stores.

"The market picked up slightly after the Olympics. However, it is still well below normal levels. We should start to see Christmas spending pick up around early November, but I am not expecting a big improvement," Shetab said.

Like Harvey Norman, Computer Interchange largely sells into the SOHO and consumer markets, but Shetab said he has not seen the pick up in sales reported by Slack-Smith. He believes that the market will remain slow until consumer confidence improves.

"People are still trying to understand the changes to the tax system and how it will affect them. They don't know what they will have to pay or how to deal with the paper work," Shetab said. "It will take a full financial year before we begin to see the real effects of this new tax."

Concern regarding falling PC sales is most strongly felt by the corner store retailers who have failed to see markets emerge out of what ASI's Orford describes as the Olympics holding pattern.

Concern expressed by the smaller retailers in September that the bottom was falling out of the PC retail market was largely put down to the Olympics. However, as sports fever dies down, many small retailers have still been left with a hole in their income.

Far from the madding crowd of the Olympics, Peter Rennie, owner/partner of Regis Computer Rentals and Sales in suburban Perth, reports that business has continued to be slow.

"Generally speaking, business has been OK, as people are becoming aware of the sorts of technology available to them," Rennie said, but "everything seems to be in a bit of a lull at the moment".

Rennie is putting the lull down to a cut in business IT expenditure, adding that customers are not interested in buying new systems because many were updated in the run up to Y2K.

To a certain extent, Rennie believes he has been sheltered from the worst of the PC slump by the company's business model which focuses on rental systems.

"I have enough in my rentals to keep me going, even if sales are slow. People are beginning to realise the tax advantages associated with rental systems," Rennie said. "They also realise they don't have to be worried about obsolescence because they can just upgrade every two years or so."

Nonetheless, Rennie is concerned that price rises brought about by the falling Australian dollar will not help the situation. Like many small retailers, he is looking forward to Christmas to stimulate the market.

"Things should pick up a bit around Christmas. A lot of people are chasing educational software and gaming systems. Then, in the post-Christmas period, people come in looking for video cards and upgrades," Rennie said.

Rob Beaumont, owner of Berlin Wall Software Supermarket in Adelaide, said that while he could see that smaller outlets were feeling the pinch from falls in sales, his own retail operation was remaining buoyant, thanks to software sales.

"Our business Software is growing at an alarming rate, despite the pre-GST panic buying. The more we put on the shelves the more walks out the door," Beaumont said. "As Christmas approaches, we will need some serious buying power to cope with the heavy purchasing - we are looking at a stock increase from 8500 to 10,000 titles."

However, retailers whose businesses have a more general focus rather than a software focus are not quite so optimistic about Christmas.

Gary Millgate, owner operator of Millgate Computer Sales in Gympie Queensland, describes sales as "very, very, very slow".

"We compared the figures to this time last year and we are way behind. I don't think you can blame it all on the GST - the dollar is also a big factor," he said.

Millgate would like to see local industry receive more support from the government sector in order to establish IT manufacturing in Australia.

"We need to be able to source more components locally, but without some government encouragement it is hard to get these things started up," Millgate said.

Jerry Zajac, managing director of JCMN Computer Sales and Repairs in Sydney's west, holds out little hope for Christmas. He described business as "dead as a door nail. Christmas is always bad," Zajac said. "Most people already have PCs in their homes, and the corporate sector is not interested in purchasing."

According to Zajac, JCMN is largely surviving on repairs and maintenance, after seeing a significant drop in new sales.

"The GST is killing everything. They said the BASs would be easy but they aren't and small business is spending too much money on accountants - they don't have the skills to do their own accounting on a computer," Zajac said.


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