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HP loads high-end PCs for Costco

The computer maker is putting a high-end spin on its efforts to target PC buyers at discount giants such as Costco Wholesale and Sam's Club.

Hewlett-Packard is dressing up for a good time at the clubs.

Wholesale clubs, that is. The computer maker is putting a high-end spin on its efforts to target PC buyers at discount giants such as Costco Wholesale and Sam's Club.

Consumers might associate such stores more closely with two-year supplies of peanut butter, but HP is betting that people who shop there will be interested in paying more than $2,000 for a top-of-the-line HP Pavilion desktop.

HP has been selling low-end computers in the club stores for some time. But for the past few weeks, the company has been experimenting with offering several new, feature-laden PCs.

Its test balloons include midrange desktops with large flat-panel displays and desktops fitted with high-end features that previously were available only from the company directly, such as top-of-the-line graphics boards or large amounts of memory.

"This cycle, we have some really exciting products for the mass merchandisers. We do have a wider portfolio of products than usual," said Mark Bony, product manager for HP's Pavilion desktop PC line. "It's early yet, but we have met expectations so far."

That would be a notable accomplishment, given the status of the current retail market. Retail PC sales have been slow since they fell off in April. June was somewhat better, analysts say, and July marks the beginning of the back-to-school period, when PC sales typically pick up as families buy computers for college-bound children.

Experimentation isn't new
HP has experimented at the club stores before. For example, it used PCs sold at Costco and Sam's Clubs for a trial run of systems with the first Athlon chip from Advanced Micro Devices.

HP is still selling desktops for as low as $529 at the club stores. But its new high-end desktops pack many more features.

One such desktop is the HP Pavilion 792c-b, available at Sam's Club. The machine comes with a 2.4GHz Pentium 4, 1GB of RAM, an 160GB hard drive, a DVD-rewritable drive, 17-inch flat panel display, a Nvidia GeForce4 graphics card and a Soundblaster audio card. It sells for $2,499.

Costco is stocking a similar Pavilion model, the 732c-b, which has the same processor and monitor but offers only 512MB of RAM and no Soundblaster card. It sells for $2,299.

While a potential buyer might be able to find a desktop with a similar configuration, these particular machines are not available outside of Costco or Sam's Club. The desktops are also different from other retail PCs because they lack the large number of rebates often seen at Best Buy or Circuit City. Instead, HP is offering them for an "everyday low price."

By comparison, a Dell Computer Dimension 8200 with a similar configuration to the Pavilion 792c-d will come to about $3,000.

Joining the club
HP's new tactic of moving desktops at Costco and Sam's Club toward the upper end might pay off, analysts say.

"Costco or Sam's shoppers aren't cheapsters," said Toni Duboise, an analyst with ARS. "This is definitely a pronounced effort to gain eyes in these wholesale stores. I think there's something to say for that strategy in today's economic times."

Indeed, club stores have become an increasingly important avenue for marketers to target. Revenue in warehouse club retailing, led by BJ's Wholesale, Costco and Sam's Club, has surged from $14 billion in 1989 to $70 billion in 2001, making the stores a key player in retail, according to market researcher Legg Mason.

"During the past seven years, we estimate that the membership-warehouse club industry steadily gained share of total retail sales," Legg Mason analyst Sally Wallick said in a recent report. "The warehouse club industry is positioned in a sweet spot of retail."

Consumers are increasingly looking for "discount prices on quality, mostly branded merchandise," she said.

By targeting Costco, HP can pitch its wares to both businesses and affluent individuals. Costco has 17 million paying members, with businesses representing about a quarter of the total.

Typically, mass merchandisers such as Costco cater to more affluent buyers. Demographic studies show that many wholesale club shoppers earn more than $55,000 annually.

About half of HP's sales at Costco are to small businesses, Bony said, and the other half go to PC enthusiasts.