Brand power gains at retail - personal computers - Special Supplement: Home Office Merchandising

Discount Store News, Oct 5, 1992 by Paul Hisey

In a recent poll of consumers shopping discount stores, power brands like Apple, IBM, Compaq, and Hewlett-Packard were conspicuous by their absence. The reason is simple: discounters don't stock any of those brands.

But that's changing. IBM has formed a personal computer retail division that will run as an independent company and sell easy-to-use, inexpensive computers direct to retail. Apple has launched its first wave of retail products, the Performa series, and will follow in 1993 with the first of its personal digital assistant products, the Newton. And, Compaq similarly has brought its-ProLinea models to market aimed specifically at retail outlets. Xerox, long a dealer-only brand is selling its products through not only higher-end electronics stores, but through retailers like Wal-Mart, as well.

Retailers like Best Buy and Sears Brand Central established themselves early as brand-only outlets, eschewing no-name clones when possible. However, the most desirable brands, particulary IBM, offered only underpowered, underfeatured models to the retail trade. That, too, has changed.

Now, mass retailers have their pick of the most popular brands, in high-powered, fully featured configurations. That most major vendors have come up with lines aimed straight at the consumer market is less a sign of limiting distribution of their more established products than a recognition that the shopper in the mass market has very different needs than the corporate or sophisticated home user.

Compaq, for instance, introduced its ProLinea line of home computers to offer adequate power with bundled software, not to supply a poor cousin of its premium line to an ill-favored channel of distribution.

"The mass market needs 5.25-in., whereas the corporate user doesn't," said Brian Dennison, retail product manager, Compaq. "Home office is taking off, but-home office users have very different needs in terms of power and features."

Dennison, who attended the grand opening of The Incredible Universe said, "the mass market is where we'll see real growth" in coming years, and Compaq's decision to offer its products through mass channels has met with so much enthusiasm that the company has had a hard time filling all the orders.

The Incredible Universe is one of the first to offer the full ProLinea selection, partly because of Compaq's past relationship with another Tandy subsidiary, Computer City.

In fact, the new Tandy operation is an example of the mass market trend in computing. At 160,000 square feet, with warehouse racking cement flooring, the store which up to 50 will be built in coming years) is virtually the antithesis if the traditional computer reseller. Nevertheless, The Incredible Universe offers a full range of Canon, IBM, Apple, Compaq, Packard-Bell, Laser, Leading Edge, Panasonic and Epson products.

The new access to top brands win soon open another arena, the traditional discounter. Discount stores have tested computer departments for years, but were normally limited to off-brands. Also, very few manufacturers ever really addressed the needs of the mass market (Laser and Wang were two exceptions). Now, virtually everyone is producing one-box models with bundled software aimed directly at low-service, low-cost environments. The day of the convenience computer buy may be upon us.

For now, the main beneficiaries have been the CE chains, many of which have had increases in computer sales, sometimes in excess of 100% over the previous year. "Frankly, we're not selling an awful lot of IBM and Apple," one retailer said. "But having them there brings the customer in, although they usually end up buying a clone."

Office supply superstores, too, have benefited, as long as they have kept to the original premise of low-cost stores. Office Depot, which two years ago wasn't even in the computer business and as recently as last year carried only a limited selection of clones, recently added both Apple and Compaq to augment its Packard-Bell and IBM lines.

The big losers, other than traditional retailers, have been the off-brands. KLH Computer, despite its distribution through warehouse clubs like Sam's and recently through Wal-Mart, has dissolved, and others aren't far behind.

"The home office consumer is just as conscious of quality as the traditional user," Dennison noted. "And they want to buy the same equipment they're familiar with from the corporate world." That gives Compaq, IBM and Apple a hefty advantage at retail.

The elimination of lower-priced clones will not mean a sudden return to the price points of previous years. Vendors will be forced by the surviving clones, who invented the mass computer market in the first place, to remain price competitive. And as larger discounters get into the act, vendors will quickly find that in the mass market, retailers and their precious shelf space have the real clout. The vendors themselves don't see the market as an either/or proposition, at least not yet. "The mass market has different needs and requires different products," noted Microsoft retail channel manager Nancy Bick. "We're reacting to those needs with our consumer channel, but we won't engineer our products down."