What the Hell is … the PC retail rigging claim all about?

Britain's biggest PC retailer Dixons was this week facing legal action after being accused of playing its part in rip-off Britain.

Department store John Lewis threatened to sue Dixons over its exclusive agreements with Compaq and Packard Bell. According to John Lewis, which had the backing of Comet and Tempo in its criticisms, the deals were an attempt to rig the home PC market and could result in price hikes for British shoppers.

John Lewis said it was willing to take the Office of Fair Trading (OFT) to court if it did not re-open its inquiry into anti-competitive practices in the home PC market.

Dixons denied the rigging claims, saying the agreements with the two vendors - which represent 40 per cent of the UK home PC market - would actually cut prices and expand the market.

John Lewis' argument

John Lewis is understandably peeved about losing its Compaq and Packard Bell deals, claiming it could not make up sales by selling other brands. "Our research shows that people coming to the PC market for the first time have typically gone for very well-known brands," a representative for the dumped store said.

"These are the first two brands people think of."

John Lewis reckons it is in consumer interest to sell PCs in a variety of shops - users cannot shop around if they are simply comparing prices in PC World, Curry's and Dixons, which are all Dixons-owned.

"This is not about us and Dixons, this is about the regulator making sure this is a fair market for consumers," the representative said, though he admitted that John Lewis suing Dixons was "always an option".

John Lewis and others fear the move will eventually push up prices for consumers.

Vendors are to blame

Others feel the real villains are the manufacturers. "The people I have issues with are the vendors who agree to these terms because exclusive deals are bad for the industry," said David Atherton, MD of mail order reseller Dabs Direct.

"The Compaq and Packard Bell products in question are aimed at first-time users in the PC market. If these prices were unnecessarily high, they may deter some buyers from taking the plunge to buy a computer and get onto the Internet.

"Surely this is going against the government's policy to get everyone using the Web?" he says.

"I support John Lewis in asking for the OFT to reopen the inquiry because I believe in a level playing field. The reason there isn't an even playing field at the moment is because mail order is diverse and retail isn't," he adds.

Not only are mail order resellers unable to get their hands on Compaq Presarios and Packard Bell PCs, but it seems they cannot buy Hewlett-Packard's Pavilion home PC range through distribution either. According to distributor Computer 2000, HP's Pavilion's are only for retail. And though IBM's Aptiva range is available, in theory, its Ts&Cs have ensured it has become a retail brand.

This makes the UK's top four consumer PC brands available only through retail, and, after June, two of these will be available only in Dixons.

Dixons' supporters

The OFT stands by its decision that Dixons does not have a dominant position in the general PC market.

It issued the following response to John Lewis earlier this week: "Vertical agreements between manufacturers and retailers are excluded from the prohibition on restrictive agreements in the new competition law which came into effect on 1 March."

The OFT's "detailed and lengthy review of PC retailing last year" (which has never been published in full) came to the conclusion that the market was competitive and consumers could buy PCs at a wide range of prices.

The OFT based this on the fact that: "an extensive consumer survey revealed that UK consumers had no particular preference for shopping on the high street and that shopping by mail order or in out-of-town PC stores was a highly developed and comparative alternative."

But if consumers cannot get the best-selling consumer PCs via mail order, surely that's one less argument for the OFT's findings?

Another of the OFT's conclusions was that consumers did not prefer big brand computers.

According to Andy Brown, IDC research analyst, "consumers say they want a PC - I don't think the brand is important to them. But it does depend on what's being promoted - on what's being pushed at the consumer in the shop."

The OFT has said it will look at any further evidence John Lewis finds.

Supply chain efficiencies

Compaq defended its actions by saying it had "identified the need to streamline its distribution channel...(and) decided to work with a single partner who could offer the broadest distribution channel and broadest range of offerings for the consumer.

It continued: "This agreement will make a difference to Compaq's supply chain. To remain competitive, Compaq requires very low stock levels and a supply chain model that is linked closely with actual store sales. Every successful retail format in the UK and the USA is based on this principle.

"This is most easily achieved through a single distributor. The aim of this agreement is to reduce the costs involved in bringing a product to market so that Compaq can compete more effectively with manufacturers who sell direct."

Packard Bell UK MD Graham Hopper described the exclusive deal with Dixons as "a logical follow-on" to its current business.

"It's to focus on one channel - we've worked very closely with Dixons, and a huge proportion of our business goes through them," he said.

According to Hopper, the need to compete with other vendors going direct, and the likes of Tiny and Time Computers, made it essential to get these supply chain efficiencies. He denied exclusive agreements were bad for the industry. "This is not valid. There is so much competition and so many options that every vendor has to compete," he said.

Can't say, won't say

As for Dixons, it declined to comment on this article because, according to one of its spin-doctors: "There's nothing to be gained by an interview". It issued a statement which denied its exclusive agreements were anti-competitive, saying they would help keep prices down.

"By working with an exclusive distributor it is possible for suppliers to minimise overheads in the UK by using our infrastructure to compete with low prices," said Dixons CEO John Clare.

"Dixons Group prices are highly competitive - that's why we can continue to thrive in a highly price sensitive market," Clare maintained. ®

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