Computer Shootout at O.C. Corral : 5 'Super-Store' Chains Clash in Lucrative Market for National Stakes

TIMES STAFF WRITERS

Fry's Electronics made George Margolin an offer he couldn't refuse.

An inventor and president of a local computer club, Margolin waited in line for 90 minutes to spend several hundred dollars to buy a computer chip during the computer and electronics "super-store's" recent grand opening sale.

"Their prices were so low, I could pay more wholesale for that chip," said Margolin of Newport Beach.

With the opening of Fry's Electronics in Fountain Valley and the presence of four other computer super-store chains, Orange County is fast becoming the ideal place to buy computer hardware and software at bargain prices.

"Orange County is the only place in the country where you have all of the super-store chains going head-to-head," said Seymour Merrin, president of Merrin Information Services, a market research firm in Palo Alto. "It should be great for the consumers of Orange County, and it will be an interesting test to see how many super-stores can fit in a given area."

Elsewhere, Computer City has added two stores in the county to complement its Garden Grove location. Dallas-based CompUSA--the nation's largest super-store chain, with 58 stores and $1 billion in sales--has a store in Fountain Valley, and its top executive said the retailer is looking for more sites in south Orange County. Last weekend, Columbus, Ohio-based Micro Center opened one of its massive "computer department stores" in a converted 45,000-square-foot former Builder's Emporium location in Tustin.

Consumers also are being wooed by warehouse clubs, department stores, office product super-stores, smaller consumer electronics stores and myriad mail order companies. The increased competition spells trouble for traditional computer retailers but is generating lower prices and better selection for shoppers.

"I would say that Orange County has become the single most competitive computer market in the country," said Alan Bush, president of Computer City, a division of Tandy Corp. in Ft. Worth.

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Super-stores tend to have the best prices for hardware and software because their increased buying power provides greater volume discounts. And, like other "big box" retailers--so-called because of their size and shape--super-stores pride themselves on finely tuned purchasing and inventory regimes that pare costs to the bone. "This is an industry where the weak are killed and eaten," Bush said.

Computer super-stores--those with at least 20,000 square feet of retail floor space--accounted for 8.4% of the $32 billion in personal computer products sold by retailers in the United States last year, up from virtually nothing five years ago, according to Merrin Information Services. Traditional computer stores, corporate dealers and value-added resellers--stores that package their own software with the equipment they sell--now hold 63% of the market.

But super-stores are expected to capture 22% of the nation's estimated $61.5 billion in computer product sales by 1996, while the traditional retail outlets will fall to 41.1%.

Four years ago, CompUSA opened Orange County's first super-store in Fountain Valley. Computer City, then backed by Japan's Matsushita Electric and the Inacomp Computer chain, followed suit with its Garden Grove store.

Tandy acquired the Computer City chain in 1991 and began opening similar stores around the country. So far this year, Computer City has opened stores in Brea, Santa Ana and just over the county line in Cerritos.

Bush says the chain eventually will have eight stores in Southern California. And because of the attractive demographics of Orange County, Tandy will probably open an Incredible Universe, a mega-store covering 100,000 square feet of space, compared to 30,000 for a typical Computer City, which itself carries about 5,000 types of hardware, software and accessories.

Each Computer City location generates about $30 million in annual sales and can see 10,000 people pass through its doors on a given weekend, according to Bush.

Municipalities are anxiously courting these larger retailers because of the sales taxes they generate and jobs they create.

Computer City's Santa Ana store, which is expected to generate about $300,000 in annual sales tax, is one of the city's top 10 revenue sources, according to Mayor Daniel H. Young.

Tustin officials wooed Micro Center with promises of as much as $638,000 in economic assistance over the next 10 years.

The computer super-stores rely heavily upon proven sales strategies. They emphasize low prices, broad selections of brand name and discount products and heavy advertising campaigns.

When it comes to selling computers, "you treat them like toasters and TV sets," said T. James Vaughan, western divisional sales manager for Computer City, who honed his retail skills in the highly competitive warehouse club industry. "You give customers name brands, the best prices, good service."

Not everyone agrees.

"PCs are more complicated than toasters and microwave ovens, so it's a fallacy that you can sell them the same way," said Rob Tingley, an Orange County businessman who has purchased several personal computers. "A lot of people get the fast sell from these places, but they never really learn how to use it because they need someone to sit down and show them how."

Rick Mershad, Micro Center vice president, also disputes that computers are commodities that can be sold like household appliances. That philosophy drives Micro Center's store layouts, which divide the so-called "computer department store" into several distinctly different service areas.

"Some customers need hand-holding and we'll provide it," Mershad said. "Others, who are on their third or fourth machine, have more sophisticated questions, so we've got a separate, walled-off area for them with trained specialists to help them."

Edward Sowell, chairman of Cal State Fullerton's computer sciences department, said he questions most super-stores' commitment to customer service.

"I can't help but feel that if I bought a computer at (a super-store) and started asking detailed questions I'd get bounced around an awful lot."

Computer super-stores are stealing a page from so-called "category killers"--stores like Toys R Us and HomeBase that are noted for a stunning array and depth of name-brand products. "Bigger is better as far as the consumer is concerned," said Irvine-based retail industry consultant Linda Crowley.

"If you're buying (computer) hardware you want the best price, just as with electronics, office products, linen and books," Crowley said. "Everything is getting bigger and bigger."

That bigger-is-better attitude is a decided contrast from the old days, when computer retailers offered loose chips and electronic gear for the build-it-yourself enthusiast and sold to customers on an appointment-only basis.

"It was a jungle back then," said Sowell, the Fullerton professor. "But with all the choices now, it's a different kind of jungle."

And the Fry's store, the fifth in a chain that originally started as a grocery store in the Bay Area, is something altogether different. Several times larger than most computer super-stores, Fry's offers dozens of lines of TVs, radios, telephones and a hodgepodge of unrelated merchandise that ranges from Playboy magazines to Wheat Thins.

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It's no accident that the computer super-stores have chosen Orange County to do battle.

The bottom-line allure is demographics: Orange County has 2.5 million residents and a median household income of $52,200, according to the Department of Housing and Urban Development.

"Orange County is one of the wealthiest communities in the world," said Victor D. Alhadeff, who founded Egghead Software in 1983. "You can't take those kinds of demographics for granted."

Inventor George Margolin said IBM officials recently told him that the North Orange County Computer Club's members buy more computer goods per capita than anywhere else in the nation.

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The increased competition has caused problems for traditional computer sellers. Cutthroat pricing has forced many smaller computer retailers out of business, as large chains can sometimes price name-brand computers as low as so-called clones.

"I think it's sad that they've chosen Orange County to duke it out," said David Freeman, president of the ACP Superstore, a computer retailer in Santa Ana since the mid-1970s. "It's a war zone. Still, the competition is good."

Freeman credits his store's success to offering "consistent, neighborly service and support that these other guys can't deliver. . . . Our customers have shopped with us for the last 18 years. We plan to continue to sell name brands and close-out bargains."

ACP also sponsors a computer swap meet every other month that draws as many as 8,000 people and 300 vendors of computer equipment. Merrin, who calls the swap meet a "cult event," said he expects ACP to prosper despite the heightened competition.

Another niche player is Domino Computer with stores in Yorba Linda, Irvine and Fountain Valley. Domino lets shoppers design their own PC system, with help from a technician. Once they become more knowledgeable, consumers will likely want to upgrade their machines and Domino counts on the return business.

Alhadeff, who is now chief executive officer of Catapult, a Seattle-based training company owned by IBM, believes the Orange County market is big enough for small and large competitors to survive.

"There always are multiple formats for retailing," said Alhadeff, whose company provides training at Computer City stores. While large retail chains focus on value, "smaller stores can provide an element of personalized service."

For example, Rob Tingley, manager of technical services for HomeBase in Fullerton, recently switched his corporate computer purchases to a smaller, value-added reseller that he said provides "good prices and the service and support we need. . . . We're tying our mainframe in with high-end microcomputer systems and we're just not going to go to a super-store that concentrates on selling boxes out the door."

Jim Sanders, a computer consultant in Costa Mesa, said he believes super-stores generally fall short in the area of product support. "I spent 40 hours trying to find out what was wrong with one system," he said. "No way would the super-store be patient enough to handle that."

And Phillip Marx, a support engineer in Costa Mesa, said he buys half of his estimated $20,000 in yearly computer equipment purchases from mail order-only firms to avoid paying sales tax. "For the rest, I go to anyplace that has what I want," he said.

Sowell of Cal State Fullerton said he, too, prefers to purchase his personal computers through mail-order catalogues. But he's willing to shop at stores--large and small--for the best price.

"The 286 machine I bought came shrink-wrapped from the Price Club," he said. "It was what I wanted and the price was right . . . and as far as service, I worked with a Packard Bell office in Chatsworth."

Bush of Computer City said he knows that a super-store can live or die on its service, which is one reason his chain hired Catapult to offer training.

"The reality is, today's software is significantly more complex. . . . Mere mortals aren't going to be able to do all these things without help. Training is essential," said Alhadeff.

And while providing a wide selection of equipment and good service are important, Bush said competitors must always pay attention to price.

"The customer can see the exact same product somewhere else and so we have to have the lowest price," he said.

High-Tech 'High Noon'

Orange County has the greatest concentration of computer "super-stores" in the nation. Seven of the retail giants are doing business here.

1. Computer City

465 S. Associated Rd.,

Brea

2. Computer City

Village Shopping Center

7901 Garden Grove Blvd.,

Garden Grove

3. CompUSA

9380 Warner Ave.,

Fountain Valley

4. Fry's Electronics

10800 Kalama River Ave.,

Fountain Valley

5. Computer City

South Coast Plaza Village

1661 W. Sunflower Ave.,

Santa Ana

6. ACP Superstore

1310 E. Edinger Ave.,

Santa Ana

7. Micro Center

1100 Edinger Ave.,

Tustin

Super Sales Ahead

Industry analysts predict computer super-store sales will more than triple by 1996, and that their market share will more than double. Estimated dollar amounts in millions:

Sales: '93-96 market share

1993: (9.8%) $3.7

1994: (13.7%) $6.1

1995: (17.9%) $9.4

1996: (22.0%) $13.5

Sources: individual companies; Merrin Information Services Inc.;

Researched by JANICE L. JONES / Los Angeles Times

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