Big-Box Retailers are Not Helping PC Sales

by Patrick Moorhead   |   April 30th, 2013

Last week, I wrote about the “softer” and arguably some of the more important PC attributes. Toward the end of that column, I threw out there a few examples of how U.S. big-box retail isn’t helping market those softer features. I want to dive a bit deeper into that this week as I think U.S. big-box retail shares a large part in the decline in PC sales and outline why I believe that. I will start with a little background.

I’ve been involved in and around electronics retailing since 1993 when I worked for AT&T Computer Systems then with Compaq in the late 90’s when they were #1 in consumer PCs. Back in those days, U.S. retail for computers looked very different than it does today, primarily a combination of big-box electronics stores, regionals, department stores, and office super stores. Manufacturer stores and online really didn’t exist. My how things have changed. E-tail is huge (Amazon), manufacturer store(s) (Apple) are lauded, only one national electronics retailer is still alive (Best Buy), mass merchants have aggressively entered the space, and clubs are as aggressive as ever. And, of course, there’s Microsoft and their stores.

What hasn’t changed in 20 years is just how poor the PC buying experience is in the big box retailers…… and that poor experience is negatively impacting sales at a time when the industry can least afford it. Big box retail does best when the category has been established and there is minimal change. In the PC world, everything is changing. Windows 8 brought a brand new UI that had not fundamentally changed since DOS. Gestures and PC display touch is new too. Let’s not forget about convertibles and hybrids, all new. How did big-box retail respond? The same way they have for the last 20 years.

Big box retailers responded by selling more end-caps to manufacturers, they added more demo days with manufacturer’s reps and did more promotions….. and it’s not working. It’s not working because fundamentally there exists a massive disconnect between what consumers want to and need to know about the latest generation of PCs. I’ll use Windows 8 notebooks and convertibles as an example and drill into that experience.

As we all know, Windows 8 brought with it a new, multi-mode UI and a new gesturing system that is used with mice, trackpads, and touch displays. Even Microsoft acknowledged recently it took a few hours for consumers to get comfortable with Metro. Windows 8 also brought instant on when paired with the right hardware. A consumer may even want to try out instant on and even compare certain notebooks. New notebooks are also bringing better battery life with thinner and lighter designs. To gauge how heavy the system is, you would want to pick it up and maybe carry it around. Maybe you would want to compare notebooks and how quickly the Ultrabook boots versus the $299 notebook.

How many times have you walked into a big-box retailer and walked down the notebook aisles and saw Windows 8 notebook PCs that:

  • Shells with no electronics inside
  • Turned off
  • Error messages on the screen
  • Not connected to the internet
  • Running a demo loop that required a retail password to interact
  • Had unsavory data visible from a prior consumer
  • Batteries removed to protect from theft
  • Tied down with security wires and could not be lifted
  • Touch display and backlit keyboards not merchandised

I am asking the question rhetorically because I know the answer. We all do. All of us have experienced this. I’ve heard all the reasons why big-box retail provides this kind of experience for the last 20 years. The reasons typically involve profit margins, security concerns, and the challenges of managing a distributed workforce, etc. Interestingly, I never see the above examples at an Apple store. Never, ever. I can sit at the Apple store there for hours and literally do a test drive like I would a car. I’ll bet Apple would let me download apps if I asked.

The unfortunate outcome is that the big-box retail experience is actually playing against increases in Windows 8 sales. The stores just do not provide, for many, the environment that meets the needs of someone trying to buy a new Windows 8 notebook. Consumers need a way to “test drive” Windows 8 and big box retail isn’t delivering. I believe one of the consumer reactions is to not buy a new Windows PC because they deem it risky. What do they buy instead? One of the consequences is that it helps nudge the consumer to buy a $199 smartphone or tablet which, when weighed against the big box retail experience, is a much lower perceived risk than buying that new PC.

Patrick Moorhead

Patrick Moorhead was ranked the #1 technology industry analyst by Apollo Research for the U.S. and EMEA in May, 2013.. He is President and Principal Analyst of Moor Insights & Strategy, a high tech analyst firm focused on the ecosystem intersections of the phone, tablet, PC, TV, datacenter and cloud. Moorhead departed AMD in 2011 where he served as Corporate Vice President and Corporate Fellow in the strategy group. There, he developed long-term strategies for mobile computing devices and personal computers. In his 11 years at AMD he also led product management, business planning, product marketing, regional marketing, channel marketing, and corporate marketing. Moorhead worked at Compaq Computer Corp. during their run to the #1 market share leader position in personal computers. Moorhead also served as an executive at AltaVista E-commerce during their peak and pioneered cost per click e-commerce models.
  • http://www.facebook.com/nigel.dessau Nigel Dessau

    Patrick – it’s an issue of ‘follow the money’. Big Box stores do no make money selling PCs – best case they made money on manufacturer’s rebates. We have both seen how that has driven poor management and decision making at most of these stores. When they made money on ‘accessories’ it was easier for them – now that’s hard too.

    I do not believe Best Buy has any long term future in selling PCs – maybe not even tablets or phones. As they become more consumable they will end up being sold between the diapers and the beer.

    • http://twitter.com/IT_Ulf Ulf Abrahamsson

      In an article in Sweden for a month ago, they stated that the only way to earn money today on computers and hardware was to get marketing money from vendors to use as margin. If you don’t get that, you will never survive just selling products like computers. So how can we get computers more exciting again? Windows 8 will not help, thats for sure.

  • jfutral

    I like where @Nigel went. Also, how much is exacerbated by the current state of upheaval big box stores are experiencing, too? Seems to me any maker expecting best Buy to be a vital part of their marketing, sales, and distribution is hanging their hopes on a dream that once was and is not anymore.

    Other than Apple, of course. And no one seems to want to believe Apple is doing anything innovative in that regard.

    Joe

  • keith

    Big box retail and tech retail have a whole bunch of challenges and issues and they could do a lot better in promoting solutions but to suggest theyre holding back Win8, et al., is a huge leap and sounds more like an excuse Ballmer would give to his internal team – MS has its own stores and there are some chains that do a good job promoting – but there’s little buzz around it – its not a breakthru but a catch up

    • steve_wildstrom

      Microsoft stores are too few and far between to make a real difference. And the merchandizing of Windows 8 that I have seen in big box stores has to be hurting. I have little doubt, though, that Microsoft has hurt its own cause by cutting back on cooperative marketing dollars. In retail, you only get what you pay for.

      • http://www.facebook.com/nigel.dessau Nigel Dessau

        I went to buy a washing machine at a big box store years ago. Standing in front of two models, I asked the assistant what the difference was. He said “about $100.” True story. Same thing happens every day in the PC department. No merchandising can fix that.

  • http://twitter.com/Dan_Braden Dan_Braden

    Another factor affecting PC sales that I have not seen commented on as much is the fact that for awhile a Windows 8 upgrade was sold at ~66% off its retail price. This is a huge relative discount that was never available for a most recent Windows version. I have to believe that at one third the historical cost to upgrade, a significant amount of people didn’t buy a new system but “upgraded” their systems by installing Windows 8.

  • http://www.BarnesFamily.com/ davebarnes

    Who, in their right mind, would ever set foot in a Best Buy?

  • Jurassic

    I don’t think you can place the blame on retailers for the failure of Windows 8.

    Retailers have always displayed PCs this way, but just because the demo machines have not been useable by customers, it has not hindered sales in the past.

    In most cases, consumers have already decided on which PC they will buy before they enter the stores. Full reviews and YouTube videos provide all the information that people need to make an informed decision.

    The real blame for Windows 8 failure is due to the product itself. For most people, Windows 8 does not offer reason enough to buy a new PC, and in fact the changes to the interface, the restrictions, and the learning curve required are putting consumers off.

    • Rich

      +1

  • Glaurung-Quena

    You mention Microsoft’s chain of stores as an afterthought. Obviously they haven’t launched many stores yet, but they have said their goal is to improve the PC buying experience for people, basically seeking to counteract many of the negatives of the big box shopping experience that you speak of.

    I’m wondering, do we have any solid data on whether or not MS is having any success with their stores? I seem to recall that MS itself has kept mum on the issue, but has someone done any independent research on this?

    • Peter

      No hard data, but here’s a snippet from a few months ago. A couple of weeks before Christmas, I happened to be walking through Pentagon City Mall – a seriously upscale mall near the Pentagon (i.e. northern Virginia, across the river from D.C.)

      I noticed a Microsoft Store there – the first one I had seen. This was just before Christmas and all the stores were busy, except this one. There were only two customers — TWO. And ten staffers. I have never EVER seen an Apple Store with only two customers.

      You can draw your own conclusion. Mine is very negative.

      • Glaurung-Quena

        Yeah, I’ve encountered numerous anecdotes indicating that their retail stores weren’t doing all that well. Pity nobody seems to have done an actual study.

        • Peter

          True. But that will be hard since MS refuses to provide any data.

      • Rich

        The conclusion is that the store was providing employment for ten staffers.

  • Andrew

    Also at issue is the fact that I don’t see the computer manufacturers or suppliers stepping up with advertising these benefits to the common computer buyer who might shop in a big box. Perhaps if Microsoft, Intel, and the computer manufacturers actually advertised their products to show off how light/thin/quick to boot/easy to use they were, they might actually get people interested enough to seek out the products. Instead, Microsoft gives us people dancing with their Surfaces, and Intel gives us praise for the ultrabook without really telling us what’s actually so great about it or how it’s different from a $299 laptop. Perhaps if mass advertising actually showed people the things that were possible by using a Win8/Intel computer (pretty much what every Apple ad always does, no matter what the product), there might be more interest on the part of consumers to actually seek out the products in stores.

  • PeterBlood

    Another thing the chaotic PC selling environment does is push customers to the safe and much saner environs of the Apple Stores with its much more friendly and knowledgable staff.

  • Peter

    The problems of the big-box stores are related to those of the PC vendors, and their margins, since they provide a lot of the marketing money.

    Horace Dediu at Asymco recently pointed out that Apple’s 4Q12 operating profit from PC (i.e. Mac) sales was considerably greater than Dell, HP, Lenovo, Acer and Asus COMBINED. Microsoft made money but didn’t seem to share much of it.

  • def4

    The PC industry has been so static and so focused on cost cutting that it is very hard to implement the changes needed for survival.
    Change is much more expensive in the short term than the status quo and money is tight because of the long term focus on cost cutting. But that’s the least of their problems.

    The big problem is that the whole system is simply not used to implementing and absorbing change. What is the percentage of PC hardware designers, marketers, salespeople and customers that are used to and only truly familiar with a single Windows version?
    There is a huge number of people out there that can only remember using Windows XP. Some have experienced an easy transition to Windows 7.
    They are not used to change, they are not curious or enthusiastic about it, they do not expect cool and helpful new features that they should pay extra for.
    The PC industry has conditioned consumers to only expect faster and cheaper and they have nobody else to blame for this but themselves.

  • jfutral

    Most retailers aren’t helping their sales in general. One of the innovations I see at an Apple store is they make it as easy as it can get to _pay_ for your purchase. They have as many people on the floor looking for people ready to buy as they have people looking for people who need “sales” help.

    I made a purchase at a Macy’s, well, almost. I wanted to. I had picked out the luggage I wanted (on my own) and was ready to buy and couldn’t find an open cash register anywhere. I eventually left and went to Sharon Luggage.

    Joe

    • Rich

      I’ve had the same experience at Macy’s – lots of cash registers but no one to operate them. But no problem, I buy everything online now, even clothes.

      The physical stores need to start innovating, fast.

      • jfutral

        One would think this shouldn’t be that hard. There are companies doing it well, such as Apple. The other companies that are doing it well, I think, are smaller companies in terms of fewer physical distribution points, such as Ikea and a kitchen store here in Atlanta called Cooks Warehouse. Great online presence, beautiful retail stores, easily purchased, shipped or pick-up choices. Target, I think, is giving it a good go, but locating inventory so I can pick up an online purchase the same day gets cumbersome.

        Joe

  • http://www.facebook.com/people/Ed-Callway/667851361 Ed Callway

    An apple store has about 3-4 laptop models. That’s it. Clear price and feature jumps between each one. And they all look about the same, and attractive. So a consumer feels secure about picking a model – more money is more functionality, until you run out of budget. A Best Buy or Microsoft store is a sea of dozens of models from $300 to $1500 – but with no clear differentiation. The little tags under each model have picked 3 hilariously random statements from a PDF brochure, conveying absolutely no information. The sweet $500 spot is the worst – are you getting a 3GHz quadcore and crisp 1600×900 IPS screen, 8GB & 1TB? Or a 3 year old 1.5 GHz dual core and 1366×768 screen dull passive LCD with 2GB and 250GB? Same price, same aisle, and the commissioned sales weasel is worse than useless, they’re actively dangerous.

    This isn’t about tech or OS superiority, it’s about CLEAR product choices making users feel better. You must walk out of any store knowing you made the best choice for the budget, not feeling that you might have bought stale vegetables.

  • wtphuckdisisstupid

    Sorry Patrick. I had a protracted conversation with Best Buy sales-people around the beginning of October, 2012. They were *very* enthusiastic about Windows 8. Apparently Microsoft had convinced them that the glory days of fat PC margins were back. I remember staring at all of them. It was if they had been drugged, they were so giddy. I said, “Has anyone from Microsoft been out here?” They said yes. They were, in fact, specifically trained on how to present the product. It was disgusting to hear this, being a consumer, but I listened.

    I kindly informed them that their future cash-cow was D.O.A. The smiles on their face did not budge, not even an iota. They were so convinced that they were all about to make big-bank on Windows 8 that nothing could phase them. Most of them were under 30 years old. I said, “OK. We’ll see.” And walked out.

    Well, we’re seeing. Windows 8 is a dog, as judged by the merits of Windows 8.