Martin Banks, Personal Computer World 04/85 - checked

April 1985

Now, remind me: how does that song go? Ah yes, I remember: 'So long, its been good to know you.'

The writing is on the wall about your departure, you've bought your tickets and are retiring to the West Country to reminisce about how things were and remember the good times. I shall miss you. Well, some of you anyway.

What do you mean, you didn't know you were going? You mean you are going to stick around and fight it out? That's suicide in a big way. You can either walk out now, and keep some dignity, or be brought out later with your toes turned up. l don't think I would be a computer dealer now for love nor money.

Soon, the way things are going, there won't be anywhere left where it is worth being an independent computer dealer.

What's the reason for such a negative attitude? It is for reasons which make bad business sense, bad marketing practice, and in the end give me (as an average punter in the street) a degree of choice in selecting a computer or software package that I probably wouldn't know I needed until I hadn't got it.

To demonstrate the point before moving on I will tell a short but true story. The other week a picture fell down in my home; one of the hooks in the frame had come out and promptly got itself lost. I went to a local hardware store expecting to have to pay 50 pence or so for a pack of at least half a dozen of the things, just to get the one I needed (I have done this twice before and always lost the redundant ones by the time I have needed them). The owner of the store, however, dug in a box and brought one out. Joking about the effect on my bank balance, he charged me 3p for the single hook. That is what I call service.

It has been this type of service that many of the dealers in computer systems and software have attempted to offer, or have at least aspired towards (yes, I know they are all sharks, but there are good sharks and bad sharks). The customers, especially those that were after the slightly more expensive products, got some attention, and there was an attempt to relate the products to the user's specific needs.

Now, however, many of these dealers are doomed to go out of business. This will happen even if they are currently doing well. The reason is the arrival of the big boys into the playpen - the manufacturers are muscling in. In December 1984 two big names in manufacturing micros, ACT and Tandy, announced a new joint venture company. This will take the ACT ComputerWorld chain, and Tandy's Computer Centres, and combine them into a new, European-oriented retail chain. Within a year, they hope to increase the start-up figure of 50 shops in Europe to 150.

There is one key, fundamental and all-pervasive reason for the two companies to be in retailing, either individually or together. That reason is because it makes financial sense. There is a second, related reason - it is sound marketing tactics - but it's the first which is most important. A successful dealer can get up to 35 per cent margin on the computers sold, and from this the costs of the business must be made and the holiday in Tenerife paid for. If the manufacturer owns the retail outlet, then that 35 per cent is not going into someone else's pocket.

This is all extremely sensible, financially speaking, but it does seem to have one or two potential drawbacks for the rest of the dealer/retailer fraternity and, as a knock on effect, the end users and potential customers. These drawbacks are the same as can be deduced from the growing trend towards big, national dealer chains that, by definition, have tremendous purchasing power with their supplying companies and can operate the economies of scale to their own advantage.

The main drawback for the smaller, independent dealer is if one of these major chains or manufacturer-owned outlets moves into the same town or area. The newcomer will want to attract business and make an impact, that is obvious. One way he can achieve this is by making his prices... what's the word? . . . ah yes, 'competitive'.

Now, perhaps the dealers can compete by offering specific skills or services, by locating a vertical market niche in their serviceable area that will provide them with good revenues and margins because they are adding real value to the basic computer box. I think this is the way most independent dealers should go, but even here the odds are being stacked against them. Apple, for example, has announced its new dealer scheme which has, as its central core, an undertaking by a dealer to order £60,000 worth of kit. For a small, specialist dealer, selling systems worth £10,000 all up into vertical market slots, the computer may be only 15-20 per cent of that price. The rest is specialist product and knowledge, and that can't be sold quickly, a la supermarket tactics.

If such companies are keen to get their hands on all the margins that can be made from the personal computer business then they are going about things in entirely the right way. However, as happens with a lot of this competitive spirit stuff, the poor punter often ends up with a restriction of choice in the end, for eventually all the options are whittled down to be small enough to fall through the drain cover of liquidation.

Yet getting rid of the independent dealers is not entirely sensible. Yes, some are real crooks and need to be shot, but the majority serve a good purpose, and that purpose is getting better. I have written before that the business is changing from a 'bought from' to a 'sell to' market-place, and that the manufacturers are going to need all the outlets they can get if they are to maintain continued growth in business. They particularly need a variety of outlets staffed by people who know what they are talking about, as nearly all the potential customers who have even thought they might need a computer will have already bought one by now.

To continue growing, the industry now needs to sell to those people who think they probably don't want one, or who aren't at all sure. Such people need help, advice and careful nurturing to be won over, and that takes time and money.

The other alternative for such people, which will probably happen anyway, is that they will go with what seems safest. Over the next year or so, 'safest' is going to mean IBM. 'Big Blue' wants all the business and means to get it. Then, I suppose, there won't be any choice at all.

end