How does PC World make its money?
We think it's the ink
PC World will turnover £100 million this year through sales of printer consumables - inks, toners, and ribbons.
Dixons, PC World's parent, isn't breaking down any sales figures, but this is our estimate based on the size of the printer consumable market, PC World's dominance in the UK, and from various on and off record discussions with players in the market.
The sales figures might not surprise you, but industry estimates put Dixons' margin on the goods at 40 per cent - that's £40 million gross profit. Competitors who want a slice of the business reckon the margin available is that high.
The size of the UK market for printer consumables was between $1.6 billion and $2 billion in 2000, according to Doug Cooper, general manager for supplies at distributor Computer 2000, but he doesn't believe Dixons is making anywhere near 40 per cent margin. "No way are they making that."
His reasoning is that Dixons has held prices steady on these products in the last year even though vendors have put up prices five times, and cut prices once. And he thinks Dixons plan is to grab business buyers.
"The typical business to business stationer hasn't been able to compete pricewise with Dixons, so it's dragged in business consumers," he said.
The Regthinks Dixons could be making close to 40 points on printer consumables because HP makes around 60 per cent margin on its products, and a broadband distributor, such as Computer 2000, makes less than eight per cent on commodities. So Dixons might make under 40 per cent on HP, but on second tier brands, or its own PC Line line it'll be making more.
[Interestingly, we believe HP's target is to sell $720 million worth of printer consumables in the UK in 2001]
So this is where the money is in times of PC retailers shutting shops, laying off staff, and working with supertight hardware margins. Cooper recommends all dealers to push the consumables - but that market is soon going to get pretty overpopulated.
Time Computers has launched its own brand, and Cooper thinks it'll be the big supermarkets that muscle into consumables next. "It'll move out into Sainsbury's, Tesco, and people like that," he said. ®
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