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Slow growth plagues PC retailers

Growth slows in first-time PC buyers market and this takes its toll PC retailers that focus on home computers.

Growth in the PC market is slowing as first-time buyers become a smaller piece of the market's pie. And this is taking its toll PC retailers that focus on home computers, according to a new study released today.

The study, conducted by San Francisco-based Odyssey Venture called Homefront, revealed that 32 percent of home computer purchases in the past six months were first-time buyers, a drop from 49 percent for the same period a year earlier.

As a result, growth in PC market penetration is slowing, said Odyssey, which dedicates itself exclusively to understanding consumers and at-home entertainment and information technologies. Currently, there are personal computers in 37 percent of U.S. homes.

Repeat purchases dominate the market because "computer manufacturers are not making what consumers want," said Odyssey President Nick Donatiello in a written release. "You won't see PCs in more than 50 percent of U.S. homes until these companies figure out how to make computers easier to buy, set up, and use."

Companies such as Tandy (TAN), are avoiding this problem by shifting their focus to existing computer consumers as well as the SOHO (small office-home office) and corporate markets. Tandy managed to boost its same-store sales--sales in stores open more than one year--for its U.S. and Canadian retail operations. Sales for the month of February were up two percent from the same month a year earlier.

"Tandy wanted to get away from the unpredictable side of the business to a more predictable side of the business," said Merrill Lynch analyst Peter Caruso.

He added that the market to corporations is a more stable market than the consumer market because businesses have a capital budget set aside to buy computers.

Tandy's Computer City stores showed a four percent increase in same-store sales while RadioShack climbed two percent.

Circuit City (CC) has not had such good luck. Some 30 percent of the consumer electronic retailer's sales come from home PC sales, according to Caruso. Circuit City reported a four percent decline in same-store sales for February, following the company's dismal third-quarter report of a ten percent decline in same-store sales. The company had attributed the drop to weak sales of personal computers and most consumer electronic products.

"The home computer side is cyclical, and if you are selling to just home buyers, you will be affected by that. Right now consumer debt is high, people can 't go out to buy big ticket items" added Caruso.

During February, the company continued its ongoing expansion program with the addition of 14 Circuit City Superstores, the replacement of three existing Circuit City Superstores, and the addition of one CarMax Superstore.

"Fiscal 1997 was an extremely challenging year in consumer electronics, with intense competition throughout the year, strong prior-year comparisons in the first half of the year, and weaker demand for consumer electronics and personal computers during the second half of the year," said Richard Sharp, company chairman and chief executive officer.

The company said it will continue with its aggressive expansion program that will raise the number of superstores to over 500 by the end of fiscal 1998.

Caruso upgraded his rating of Circuit City this morning to near-term "buy" from "accumulate."

In morning trading the company's stock was up as high as 34-3/8 from yesterday's close of 31-3/4.