I recently interviewed the owner of a well established, family-run retail box-flogger who has about six staff and turns over about $2 million per annum. The business had provided a reasonable living but times were getting tougher and he either could not see, or did not know, how to change things just to stay in business.
He was saying that notebooks now accounted for nearly half his PC sales but was bemoaning the fact that his average gross profit on these was about 5-8 per cent compared to 15-20 per cent for a desktop.
He also complained that the $1500 notebooks were too good and made it very hard to up-sell, whereas he could usually get a few hundred dollars more out of a PC sale.
The conversation turned to printers, scanners and accessories and he said that, in order to meet competition, margins were now measured in a few dollars rather than a few per cent. He was making $5 on an entry-level printer and $10 on a scanner.
Is this the future of specialist IT retailing — ever decreasing margins before finally abandoning the market to the mass merchants? It need not be if resellers reinvent themselves as affordable experts.
There are significant opportunities to expand any retail IT business and I am not simply talking about spending more on advertising to steal someone else’s piece of the same pie. It is time to look at expanding the pie.
One reselIer interviewed set up a first class PC repair operation. He now achieves close to an average 30 per cent gross profit due primarily to selling services. He took a risk investing in good people, equipment and marketing and had the patience to wait while he grew the pie.
The next big thing will be computer integration in the home — home automation or smart homes. This should be the domain of specialist resellers but they have to hurry because others are already eyeing off this lucrative field, including the Hi-Fi industry, a new franchise group specialising in home automation and larger mega retailers.
My advice — invest now in learning how to offer home users an IP-based convergent solution which integrates computers, Hi-Fi, MP3, video, telephone, lighting, climate control, watering the garden, security, Internet, cable and wireless. I will bet right now that I could not easily find a reseller with these skills, let alone one who knows how to sell them.
Then there is the growing small business market which, according to statistics, comprises several hundred thousand businesses with fewer than five employees. These companies need business grade IT but can’t afford it so they buy domestic equipment and put up with inadequate service levels. A huge market for someone with reasonably priced, off the shelf, tried and tested solutions. Increasingly, reseller survival is now more about learning and marketing new skills that differentiate you from the pack.