The push for computers as home appliances

Department stores are now joining specialty shops in selling to households

Business Week

March 13, 1978

The average America owns a TV set, an automatic coffee maker, and now even an electronic calculator. But he does not own a home computer and is not even sure he wants one. How to get the consumer to make that purchase is one of the most hotly debated topics in retailing today, and last week home computers began their first full-fledged test in department store -- a test that might help to settle the argument.

Until now home, or personal, computers have been sold to individuals through specialized electronics stores that cater to computer hobbyists. But to become the mass market that many people are predicting, they will have to be sold in volume outlets such as department stores. As many as 25 manufacturers are already rushing their models to market. The incredible pace of electronics technology has made it possible for them to offer a home computer for $1,000 or less that is as powerful as a system selling for upwards of $100,000 a decade ago.

A real test

But the price tag is hefty, and the product is complex. To find out if a department store can sell home computers in volume, Macy's California has launched a major merchandising campaign for the $500 VideoBrain unit made by Umtech Inc., which hooks into a TV set (BW -- Dec. 26). "The job done at Macy's will affect the way retailers across the country think about computers," says Richard Melmon, marketing manager for Umtech.

Macy's is uncertain how its customers will react, admits Robert C. Frey, who is the chain's consumer electronics buyer and is regarded as one of the nation's savviest. But he is betting that the VideoBrain, with its fixed-program cassettes, ultimately can be marketed to a wide cross section of consumers. Early results are somewhat promising: In the first two days, the San Francisco store sold six of the expensive units.

Many marketers believe, however, that a commitment is premature. They feel that a mass market will not develop until there is a much larger amount of software available for such computers. Most users, says International Data Corp., a market research firm, do not want to write their own programs.


Still, leading manufacturers are gearing up for major sales, counting on the appeal of video games. "The initial entry of these things is through piggybacking on games," says Harvey L. Poppel, a senior vice-president at Booz, Allen & Hamilton, a management consulting firm. Thus Bally Mfg., Atari, and Fairchild Camera & Instrument expect to expand their video-game units into more versatile computers, while Apple Computer and Commodore International are adding games to broaden the appeal of their computers.

At least 80% of the home computers now being purchased at the 112 electronics specialty stores of Team Central Inc., a subsidiary of Dayton-Hudson Corp., are bought for entertainment purposes, according to buyer Wayne Wenzlaff. Team Central sells the $1,000 Apple computer. Says Wenzlaff: "People look at it and say, 'Hey, look what games it can do.' And then we say, 'Look at what else it can do.'"

That is where the tough selling job comes in. But the list of nonentertainment tasks for home computers is growing fast. In an earlier, unsuccessful market test, for example, Neiman-Marcus promoted such uses as record-keeping for income taxes, check-book balancing, and computer-aided instruction. Now everyone has his eye on one of the biggest potential nonentertainment applications: hooking the unit to telephone or cable TV links with outside data bases, or libraries, for information.

Today's market

That is some years off, however, and stores such as Macy's California want to start selling in volume right now. The chain is no stranger to high-technology products. Six years ago, it was the first department store to take on the pocket calculator. And Frey has moved the chain strongly into digital watches and video games.

Intrigued by the potential of the home computer, Frey brought in a $3,000 unit last year "to see what we would learn." One thing Macy's found out was the difficulty of displaying a computer so its applications are obvious to prospective buyers. Frey says: "There was an intense desire on the part of a lot of consumers, and our own personnel, to be involved with the machine. But when people stopped and asked what it could do for them, we found that we couldn't explain it."

Lack of understanding

Most people do not understand computers, notes Booz Allen's Poppel, and they are frightened by the thought of one in their home. "The thought of getting it set up in the first place . . . is intimidating," he says.

To overcome such resistance, Poppel says, "this kind of sale needs handholding." Now Macy's and other retailers are trying to provide the necessary customer service and support. Macy's is bracing itself for a torrent of questions by holding training sessions for sales-people. And its supplier, Umtech, is preparing a videotaped point-of-sale program explaining the product. It will also answer customers' questions by mail if Macy's sales force cannot do so in person.

Another problem is selling to the right person -- someone who will not return the computer to the store after buying it. Macy's sales training, as a result, emphasizes whom not to sell, the VideoBrain to. That includes businessmen looking for a professional machine or hobbyists looking for a user-programmable device such as the Apple or the new PeCos One being introduced by APF Electronics Inc. "We don't want to take back 500 of these things," Frey says.

Part of any sale, of course, is optimum display of the product. Macy's will place four units on its main floor in San Francisco, but serious customers will be directed to a "media room" on the sixth floor where they can see the computer installed among home furnishings that suggest a home computer center.

Specialty shops

While department stores are just getting started, specialty stores have already found a growing market in home computers. For example, CompuShop in Richardson, Tex., says it sold 28 Apple home computers in January and is now selling one a day.

Some people in the industry believe that specialty shops may be the only place to sell home computers -- at least for now. Not only do general merchandise chains lack the necessary expertise to sell computers and support them after a sale, but the products are also not "consumer-oriented enough for the mass market," says A. C. "Mike" Markkula, chairman of Apple Computer. He does not count the VideoBrain as a home computer, since a user cannot program it, and it lacks a large data-storage capability -- options, however, that Umtech will soon be adding.

Markkula agrees with most people that, over the long run, as home computers become cheaper and easier to use, they "will create a market than can be serviced by a department store." Umtech is not the only producer considering the department-store route. Commodore is selling its PET computer mainly by mail, at $795, but it is talking to several department stores. "They have a built-in market of tens of thousands of people," says Charles Peddle, systems division head.

Despite the many problems confronting home-computer marketers, Booz Allen's Poppel thinks a $500 personal computer has a potential market encompassing the entire upper middle class and upper class over the next few years. And International Data figures that sales, which last year amounted to nearly 24,000 units with a value of $63 million, will jump to more than 100,000 units worth $300 million by 1980. Manufacturers' estimates for 1978 in most cases exceed 100,000.

Moreover, the home-computer industry is convinced that it is seeing just the tip of the sales iceberg. "After all," explains Philip S. Schlein, president of Macy's California, "the first Hewlett-Packard calculators sold well at $800, and they had a much narrower appeal than this product."

GRAPHIC: Picture, Macy's VideoBrain display: Retailers must show the consumer what it can do besides play games. Christopher Springmann

Copyright 1978 McGraw-Hill, Inc.