Hi-tech goods retailer Incredible Connection has an image problem. Tech-savvy consumers often use derogatory names - Incredible Corruption; Incredibly Expensive - when referring to the JD Group subsidiary. The perception is that the company's prices are just too high.
Newly appointed CEO Dave Miller says this is a perception he is working hard to correct, and he believes the company is already making progress in improving the retail chain's image. "I can assure you we are not overpriced at all," he says.
Merchandise manager Laurence Friedman says Incredible Connection takes pricing "exceptionally seriously".
Certainly, the company's margins suggest it is not engaged in price-gouging. Operating margins in the year to August 31 came in at 8,3%, significantly below parent JD Group's 11,9%. It reported an operating profit of R132m on sales of R1,6bn from its 44 stores.
Friedman says consumers may have the perception that its prices are higher because rivals sometimes sell same-brand computers with inadequate hardware. Though this allows them to sell the machines cheaper, consumers are often unhappy at the slow performance of the computers they buy, especially when running the resource-hungry Windows Vista from Microsoft. "We will not stock a PC with less than 512 MB of memory."
Listed on the JSE until JD Group acquired it in 2005, Incredible Connection is by far the country's largest specialist IT retailer. Miller, who replaced JD Group CEO-designate Grattan Kirk as CEO on September 1, has plans to keep up the rapid growth - about 25%/year at present. "We want 78 stores by 2010," Miller says.
That means not only keeping customers sweet but convincing people in the lower LSMs to buy computers and related peripherals for the first time.
The company, whose competitors include specialist retailer Matrix Warehouse, mom-and-pop stores and big retail chains, recently opened its first township outlet, in the Maponya Mall in Soweto. For the first time it is offering revolving credit. Says Miller: "Incredible Connection is a highly desirable brand but these consumers haven't always been able to afford the technology."
Miller is confident Incredible Connection will not be as badly affected by rising interest rates as other retailers, even though it's started providing credit to customers. He says there will be a credit squeeze, but predicts that people can no longer live without technology. "If they need to replace their PC, they will."
Indeed, Incredible Connection increased operating profit 59% between 2006 and 2007 on the back of solid revenue growth of 27%. In the same period, JD Group's operating profit tumbled 24% as bad debts climbed 45%. Incredible contributed 12,4% of JD Group's turnover in the year to August 31 and 8,6% to operating profit.
Though Incredible Connection seems set to weather the storm better than most, it does have challenges. One of these is finding and training quality sales staff as it expands its footprint.
The company must train staff to deal with consumers who know little or nothing about technology, as well as those who are highly knowledgeable. "There are a lot of customers who don't know about technology, so it's important to help them with product knowledge and after-sales service as well."
At the same time, though, tech-savvy consumers expect to be able to engage at a high level with the sales staff - for example, a salesman not knowing the difference between a dual-core and a quad-core Intel processor could cost the retailer a sale.
Friedman says Incredible Connection keeps a close eye on international technology trends so that it stocks the latest technology. "We speak to vendors at source and follow their technology road-maps very closely," he says.
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