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‘Channels are bound to feel the heat’
How do you view the developments in organised retail over the last five years?
During its initial phase, organised retail has been largely targeted at higher-income households, but now retail chains are increasingly targeting lower-income groups. And this signals that organised retail has finally arrived. Entry of deep-pocket players like Reliance and Bharti-Wal-Mart will only spiral the retail wave.
Large format stores (>5,000 sq ft) have clear benefits in terms of providing wider market access and higher footfalls. I foresee the large retail chain to ignite a large latent demand for IT products expanding the market size as never before.
Do you perceive large chains as a serious threat to channels?
Honestly, channels are bound to feel the heat. Initially the impact will be limited. But as large players grow their understanding of IT business they will start dominating sales volumes, creating severe competition for channels.
The retail chains dominate our consumer PC sales in several APAC markets. For instance, in Australia-New Zealand, they contribute close to 70 percent of HP's total consumer PC sales. Their contribution in Hong Kong is between 50 and 60 percent and in Singapore, it is about 40 percent.
How do you see IT retail evolving?
It's difficult to hypothecate as it's only the beginning. There are clues available from the evolution of IT retail through large-format chains in advanced markets like the US.
As the retail revolution spreads and competition intensifies, there will be serious downward pressure on prices. And this could lead to the retail chains adopting a value-add model.
In the US, some chains have launched their own PCs to give them better control over pricing, margins and inventory. Many others have moved to providing packaged services and solutions to SMBs. Eventually, most chains will end up competing with both, the commercial and consumer IT channels.
What is HP's strategy?
We are treading cautiously. We surely don't want to miss the opportunities the retail revolution presents, but simultaneously, we don't want to upset our partners.
Our experience in other countries has taught us that once these retailers gather critical mass, they tend to arm-twist suppliers. A large national chain may simply say 'No' to us for not offering the price it wants. This could have serious consequence on the brand and business.
So what options are you evaluating?
Our primary objective is to protect our best interest. While we will tie up with all major chains, we will also strengthen our channels by increasing our engagement with them.
We will offer them better rebates, advertising & lead generation support, and deeper demo discounts. We have 200 HP branded exclusive franchisees and another 200 that aren't branded. We will extend the brand support to these partners as well.
We are yet to finalise our product strategy, but to avoid conflict we might reserve certain brands for channels and push premium brands through retail chains. For instance, Presarios will go through channels while the Pavilion range through retail chains.
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