How, why and where consumers buy home computers is changing. As the level of ownership grows and computer use becomes second-nature for younger generations, more families expect to have one in the home, in the same way as they expect to own a TV: it is now viewed as an essential part of a home's communications and entertainment equipment. And with greater penetration - 76% of the population now owns a computer - comes an increased confidence in buying them, so consumers are more comfortable purchasing online or direct from the manufacturer.
Consumers' growing confidence in purchasing computers from non-specialist sources means that retailers such as supermarkets are moving into this sector, putting an even greater squeeze on traditional specialist computer stores.
James Flower, analyst at Verdict says: 'As computers become a more mainstream product and consumers know more, there is naturally less need to go to a specialist. Maybe for their first PC purchase they did, but over time consumers gain confidence and know more about the product. The same trend has been seen with digital cameras.'
The lowering of entry-level prices has had a similar effect. Until relatively recently, the purchase of a computer was a considerable investment. 'When consumers had to spend £1000 for a machine, they went to specialists,' agrees Flower. 'Now they can get one for £300-£400, it is a less considered purchase.'
Not all consumer groups are as active in this sector as others. The lowest penetration is seen among the older and less affluent. But among others there is a growing likelihood of multiple PC or laptop ownership. Changes to employment practices mean more people are working from home, which has also boosted the market.
Despite the constant technical advancements and improving capabilities and speeds of computers, the single most important factor influencing purchase is price; shoppers will go to the retailer offering the best deal. As the market reacts to this and stokes it with heavy price deflation, this in turn is putting pressure on margins.
But there is some good news for retailers, as factors such as availability, reputation and good packages also influence where a machine is purchased.
The total market for information processing equipment stands at £5.4bn in 2007, an increase of 17% since 2003, according to Mintel. Growth has slowed in recent years as a result of price deflation, and laptop PC sales are growing at the expense of desktops. Laptop penetration is now 13% (up from just 3% in five years), so there is considerable room for growth, especially as wireless broadband connection becomes the norm.
As the specialist retailers have been put under pressure, many have fallen by the wayside. The market leader, DSGi-owned PC World, is the only specialist chain of any notable size, accounting for almost a third of all spending on computer equipment. Other specialists account for a further 5% of sales.
PC World has heavily advertised its multichannel approach with the tagline 'Best of both worlds'. 'Its Click and Collect service drives footfall into the store where the salespeople have more chance of selling accessories,' says Flower. 'Everyone is trying to sell more peripherals as there's more margin there.'
Tesco entered the computer market in 2006 and now has Apple Zones with a permanent range of IT products in 12 stores. Similarly, Asda sells computers and peripherals online, and discount grocers including Lidl and Aldi run occasional PC offers.
It is, however, online sales that have really eaten into the specialists' share. IT purchases are based on specifications above look and feel, so they are easy to make online. PC hardware and software is the third-biggest online spending category, behind travel and groceries.
Dell, with its direct sales model, has carved a good position, although it is expanding with more third-party distribution. It is particularly popular with 25- to 34-year-old buyers.
Apple has been expanding its Apple Store concept since it opened its flagship outlet on Regent Street, London, in 2004. This route allows the company to present environments with high levels of product knowledge and high-quality service to showcase its range. It now has nine standalone stores in the UK and is rolling out its store-within-a-store concept in PC World, Comet and Tesco.
Online electrical and IT specialists include dabs.com and empiredirect.co.uk. With price an important factor for computer purchasers, online retailers have the advantage of lower running costs and can pass these savings on.
The downside of the high level of penetration is that consumers are taking longer to replace their old computers. As technology has advanced and memory and processor performance have increased, there is also less reason to upgrade regularly, although changes such as Microsoft's roll-out of its Vista operating system can stimulate the market.
By 2012, the sector's value is expected to reach almost £6.1bn, up 12% on 2007, according to Mintel. Advances in technology will continue to sustain the market and computers are in a good position to take more consumer entertainment spend as they can assume the roles of TV, DVD and CD players and recorders.
FACTORS INFLUENCING CONSUMERS' CHOICE OF HOME COMPUTER BY IMPORTANCE (%)
2006 2004 2002
1 Price 22.8 20.4 15.7
2 Reliability 21.1 19.2 14.8
3 Specification 15.0 15.3 12.6
4 Company reputation 7.8 6.7 5.3
5 Recommendation 7.4 6.3 5.5
6 After-sales service 6.9 6.3 4.9
7 Personal experience 6.6 5.4 4.5
8 Special offers 4.6 3.9 3.2
9 Software bundle 4.3 3.5 2.9
10 Advertising 1.1 0.8 0.7
Source: TGI Europa, BMRB, Mintel
Base: 25,000 adults
COMPUTER RETAILERS BY SHARE OF CONSUMER SPEND (%)
1 Currys/Currys.digital (DSGi) 9.1 8.8
2 Comet (Kesa) 6.6 6.1
Total 15.7 14.9
1 PC World (DSGi) 32.1 30.1
2 Dabs.com (BT) 4.2 3.5
3 Apple Retail (Apple) 2.0 0.8
4 Evesham Technology 1.3 1.6
5 Micro Anvika 1.0 1.1
Total 40.6 37.1
Overall total 56.3 52.0
COMPUTER RETAILERS BY ADSPEND (POUNDS)
Advertiser 2007 2005
1 PC World 24,963,332 34,729,041
2 Dell 3,836,443 12,569,644
3 Currys 2,083,787 559,327
4 Staples 1,216,506 282,922
5 Argos 912,072 574,893
6 Comet 559,083 1,260,021
7 Woolworths 319,636 63,790
8 Tesco 218,094 272,640
Source: Nielsen Media Research
ANALYST COMMENT - ANNE BENOIST, ASSOCIATE DIRECTOR, ENLIGHTENMENT
PC manufacturers in North America, Europe, and Japan have come under pressure recently due to falling prices in established markets and increased competition from relative newcomers such as Lenovo.
In May, Dell revealed plans to cut its global workforce by 10% to reduce costs; and last month, Hitachi announced its intention to pull out of the home PC market and focus instead on network systems for business.
Looking at Britain, the latest data from TGI suggests that demand for home computers has peaked. This year the percentage of adults with a PC at home failed to rise for the first time in more than a decade, falling to 75% from a high of 77% in 2006. Household fragmentation may have contributed to this result, but it is likely that widespread out-of-home web access and increased corporate provision of laptops - allowing staff to use their work PC at home - has led some to forego buying a machine for personal use.
Even so, the length of time that existing owners spend at their home PCs continues to increase: in 2002, 14% used theirs for at least 15 hours a week; this year the figure is 25%. Underpinning this trend is the shift of the home PC from being a business tool with entertainment capability to an entertainment centre with spreadsheets.
It is not surprising, therefore, that when it comes to buying a home PC, software-bundle content and overall price are becoming more important to consumers, while spec, reliability and after-sales service are becoming less important. Assuming this commoditisation continues, it seems likely that other manufacturers will follow Hitachi's example and leave the market to those big enough to manage low margins.