BY GIG PATTA
Research Director
Resellers Compete Against Superstores, Internet Outlets
With competition like computer superstores on one side and Internet computer retailers on the other, it is a wonder that local computer resellers managed to maintain its edge in the industry.
The San Diego Business Journal’s List of the Largest Computer Resellers is ranked by the number of employees in 1999. Eight of the 19 local computer resellers experienced a decrease in number of employees from the previous year. None of the resellers showed a significant decrease in local sales volume for fiscal 1999.
However, one computer reseller indicated the sales volume in the last quarter of 1999 will not be as high as in previous years.
“Usually toward the end of the year, sales ramp up for most computer resellers,” said Brian Schwartz, director of sales and marketing for Byte & Floppy Computers, No. 10 on the List.
Schwartz said Byte & Floppy caters mostly to selling on the corporate levels rather than to individual, walk-in customers. Corporate customers account for about 90 percent of Byte & Floppy’s local sales volume.
Earl Langenberg, Byte & Floppy’s corporate sales manager, explained the Y2K factor had a significant impact on computer buying for the third quarter.
“The common excuse we’re hearing is that people have been doing (Y2K) testing and don’t want to integrate new products into their systems,” Langenberg said. “Especially, they do not want to retest the products and test the integration into the systems.”
January Rush
Langenberg predicted corporate customers will make a run in purchasing computers in January, which may contribute to a shortage in supply.
Computer resellers maintain competition from the Internet has changed the techniques in selling computers.
Lenny Thorell, president of Computer Masters, No. 9 on The List, said most of these Internet computer retailers focus on selling directly to the consumers, but there’s more room for profitability in the business-to-business computer selling on the Internet.
Thorell also cautioned the Internet has caused price wars, which has led to a decline in other types of customer amenities.
“Everyone wants to have the lowest price on the Internet,” Thorell said. “There are all these search engines that go out and find the lowest prices.”
He warned these lowest prices often do not include shipping charges, handling fees and other charges.
“A customer ends up paying a lot more, approximately 20-25 percent in these special fees,” he said.
As an example, Thorell said there was a recent computer-selling controversy of giving away free computers.
“In the fine print, you’ll find out you must spend $25 per month in the next three years for a free computer,” Thorell said. “If you do the math on that, the computer system will cost you more than purchasing it outright.”
Schwartz agreed the Internet has changed the way that computers are being sold.
He said people are more educated and they can get a lot of their questions answered from home now.
“Internet sites like CNET gives a lot more technical information on computers,” Schwartz said. “People are now more educated than in the past.”
Langenberg said traditional computer resellers must refocus its business strategies into improving services in order to compete against the Internet companies.
“It’s difficult for an Internet business, which is located somewhere remotely, to service a customer,” Langenberg said. “It allows service a differentiating factor and makes the (traditional computer resellers) work harder by providing better service.”
Thorell said the person-to-person customer service will be the key advantage over these Internet companies.
“We don’t have voice mails and a customer will talk to a person instead of an automated machine,” Thorell said. “It’s giving the customers the small business feel (with personal interaction).”
Thorell said his company maintained an excellent growth rate of 25 percent each year despite the increase of competition. Computer Masters recently opened an office in Laguna Hills this year and plans three additional offices in Las Vegas, Seattle and Phoenix next year.
Same Animal
Thorell also predicted computer superstores will not be a factor in the computer retailing industry in the future. Many of these computer superstores merged with larger competitors or they are expanding inventory to sell electronics, including computers.
“Computer superstores and Internet superstores are the same animal,” Thorell said. “They cater to consumers that are just looking for the lowest price and don’t care about the service.”
Schwartz said he used to work in one of these computer superstores and their intent was very good to the consumers in trying to provide the lowest prices in the market. “Computer superstores remain competitive by cutting costs by lowering prices, but also by cutting payroll,” Schwartz said. “Years ago, they would have nearly a half a dozen people working in hardware maintenance, but maybe only a couple would remain to service the customers.”
Langenberg added computer superstores serve its niche by catering to the regular customers rather than to the businesses.
Only Abtech Systems, Inc., No. 3 on The List, and Abacus Computers, Inc., No. 5 on The List, reported their sales volume of 40 percent or more catering to the consumers. It indicates many of the companies on the List are moving towards business-to-business services than to selling directly to consumers.
“They are moving toward the serve-yourself mentality than letting us help to serve you,” Langenberg said. “These superstores don’t have to sit with a customer for 15 to 20 minutes anymore to educate them.
“Customer service is going to give us the advantage over the other competitors,” he said. “And the focus is to follow through to provide 100 percent customer satisfaction.”
