The UK computer superstore sector, following a growing US trend, was born in 1991 when Vision Technology Group Ltd, headed up by Jan Murray, started the first PC World superstore in Croydon. The store flourished into a chain of four sites, bought by Dixons Group Plc in March this year. As PC World grew, the supermarket sector as a whole slowly began to develop. Retail outlet Kaytech Ltd opened stores in London, Bromley, Manchester, Southampton and Birmingham, while another superstore, Icon, launched in the West Midlands with a flourish of activity, promising activities and demonstrations by vendors. Specialist Computer Holdings Plc’s Byte subsidiary recently launched its first store in Gateshead, while at least one company on the other side of the Atlantic became interested; office equipment supplier Staples USA Inc launched an office superstore selling everything from personal computers to software and portable telephones in Swansea on April 30 this year. Two years on from PC World’s initial launch, the limitations of the UK market are about to become more threatening. Superstores depend on large, dense areas for their revenue and the UK’s small size makes it riskier for the handful of companies adopting large store formats. Although the retailers’ wariness of this market is obvious – most of the superstore start-ups only took place this year – there are signs that more branches will appear soon, making things more claustrophobic for everyone. Staples is opening three more branches before the end of the year – indeed, by the time you read this one of them will be in operation. PC World plans 30 to 40 more stores over the next three years, while Staples is looking to open 14 stores in all.

Overkill

Dell Computer Corp is a PC World supplier. The manufacturer’s value added reseller manager Richard Miller foresees possible problems. If you saw more than three superstores in the eight major urbanised areas then you might start getting overkill, he says: 65% of the UK population lives in six to eight urban conurbations. The out-of-town retail places are linked to major buying areas. If he is right, then the UK market could be saturated in theory before real exploitation has even begun. On the other hand, Specialist Computer chairman Peter Rigby has said in the past that 200 superstores could survive here. Stephen Brazier, industry analyst for research company Dataquest, questions whether UK players have found the right mix for success. He says that apart from size, the key difference between UK and US supermarkets is that US outlets can sell into corporate accounts more effectively, whereas UK stores lean more towards the consumer sector. US channels have proved adept at selling to businesses because the US dealer channel isn’t as strong, he points out. This is reflected by Tandy Corp’s US-based Computer City division which reaps over 40% of its business from the corporate sector.

By Danny Bradbury

Brazier highlights PC World as a company that would have problems adapting to corporate sales. Dixons’ background is selling to the consumer market, he says. I don’t know that it has the image, the staff or the motivation to sell into the business sector. The sheer fact that PC World is owned by Dixons would make most large companies pull away. For such a young sector, the retail channel’s profile is already fragmented, with stores possessing diverse backgrounds. At least three retail outlets are immediately controlled by one vendor, with more coming; Technology Plc, an ICL-owned distributor, recently bought the Icon Computer Superstore from the liquidator after the company’s Bermudan venture backers pulled out. This strategy gives it direct control of the manufacturing, distribution and retail businesses. Meanwhile IBM UK Ltd, which withdrew as a Technology Plc supplier after the ICL buyout, has implemented a store within a store scheme through one of its resellers, which is opening a selection of retail centres within the Officeworld chain of office supply outlets – up to 18 are possible by the end of next year.

Siemens Nixdorf Information Systems Ltd is planning a series of retail centres, although has not managed to open the first yet. German manufacturer Escom AG is also setting up its own retail control mechanism following its entry into the channel earlier this year. It now has 15 smaller retail stores and plans 26 by the end of October. Personal computer suppliers getting into retail for themselves and enjoying the resulting economies of scale could place more pressure on the multivendor superstores. Escom is an example of a relatively minor threat to the UK market in particular; invasion from other shores. Staples has also made inroads with its hybrid office-computer superstores, although we have yet to see threats from any other US players. Computer City has chosen Sweden for its major European debut and Alan Bush, president of the company, has no immediate plans to start a superstore in the UK market. Meanwhile, major US superstore chain CompUSA Inc is too busy expanding its domestic market in the US to bother with the UK market just yet. The company has 55 stores in the US, and plans over 20 more over there this fiscal year. Sales for the third quarter ending March 27 increased 68.2%, indicating that its domestic market is far from saturated. The frenetic activity in the mass retail sector over the past six months is a classic sign of competitors jockeying for position within a sector about to accelerate in growth, and this should signal a warning to traditional resellers and mail order firms alike. To fight the superstore ethic, traditional resellers will have to continue a trend which started at the turn of the decade when the market became more sensitive; they will have to differentiate their market from that of the burgeoning low end retail sector by adding more value.

Diversifying

A recent Dataquest report on the future of the reseller in Europe reveals something that the smart dealers have already done – as superstores and direct sales channels gather momentum, dealers should be diversifying into consultancy, training and network design. The report indicates that in the European market as a whole, resellers remain the most dominant group within the channel with mass merchandisers weighing in fourth. The market share of resellers, value-added resellers and other channels will continue to fall next year, though, with only the direct and mass merchandising market shares rising, says the report. In the UK market, dealers fare a little better – the report predicts that mass merchandising market shares will stay static next year, with both dealer and direct market channels rising slightly. This reflects the initial growth of the mass merchandiser in the European market, but rising retail activity and the poor reputation of the direct channel mean that it can’t carry on that way forever. Backwater dealers who think that they’re on the right track should be careful not to be derailed by the advancing mass-market juggernaut.