Savvy PC Sellers Find Niches to Survive

Anyone who has ever seen the endless collection of computer ads from major chains cascade from the Sunday paper knows that the big boys are not shy about using their marketing might to try to capture a larger share of the lucrative consumer computer market.

So what does that mean for the small mom-and-pop shops that once dominated the home PC field?

As with most other industries, the savvy ones find niches that the majors can’t fill, by appealing to service-starved customers or corporate accounts.

Others, as evidenced by the now-disconnected telephones at several small San Fernando Valley shops that were in business just six months ago, find the ever-increasing level of competition too much to take and move on to other ventures.

“Are the big boys pushing out the smaller guys? That is something we get asked for a number of [retail] segments,” said Scott Krugman, a spokesman for the Washington D.C.-based National Retail Federation.

He said the increased competition in the computer retail market “is forcing the mom-and-pop shops to be more creative and to focus on the things that are more difficult for the larger big-box superstores to offer, like customer service.”

A decade ago, when personal computers themselves were not quite as ubiquitous, small shops had a bigger advantage. First-time buyers could get the personal attention they needed to help demystify the computer.

Now, with more than 50% of the homes in the U.S. wired, the computer-savvy class has grown and so has the appetite for hardware.

Christopher Null, an editor with PC Computing magazine, said sales are expected to grow from 11.8 million units in 1998 to an estimated 17.5 million in 2002--luring retailers from across the board into the fray.

“On every corner there’s a Best Buy, a Good Guys--Sears even,” said Udie Nathan, manager of Computer Revolution, a Northridge computer retail outlet that opened in December. “Everyone carries computers.”

In this highly competitive market, consumer electronics and computer superstores hold a commanding 36% share. Less than 5% of computers are now sold at “classic computer stores,” according to Computer Retail Week magazine.

But many small Valley retailers are proving to be scrappy adversaries, filling a niche they say the larger stores can’t squeeze into.

“We felt that customer service was missing in the Valley,” said Nathan, explaining his firm’s decision to test the computer retail waters. “Here, we custom build all of our systems to your exact specifications. If there are problems, you come talk to the person that built your system.”

But major chains like CompUSA, the No. 1 computer retailer for the last two years, according to Computer Retail Week magazine, aren’t ready to concede that the little guys have them beat on service.

The company is testing a new beefed-up staffing program in three markets, including San Diego, designed to respond to increased customer demand for service, said Art Richardson, manager of the CompUSA region that includes Los Angeles County. But at the same time, Richardson and others say, even in a market crowded with brick-and-mortar outlets, and facing an ever-greater challenge from computer sales via the Internet, they still see a place for small stores that can find a profitable niche.

Some customers find mega-stores like Fry’s a bit daunting, and turn to smaller shops for refuge. Others, like brothers Mark and Eric Maas, seek the expertise of a shop that specializes in computers.

The two arrived at the MacUniverse store in Tarzana on a sunny Saturday, armed with an invoice listing Fry’s best price on a new 300 megahertz Mac G3. Fry’s was out of stock.

The two didn’t mind making the trip to the Macintosh specialty store because, “they’re more knowledgeable here about Macs,” Eric Maas said.

And the fact that the store was willing to match the price didn’t hurt.

Several small Valley retailers said they would meet or beat the competition’s advertised price, but even that hasn’t been enough in some cases to keep customers from flocking to the big boys.

Joseph Shamolian, vice president of the family-owned Computer Palace chain, said his Glendale store used to be open on Saturdays, before Fry’s siphoned off enough of his weekend business to prompt weekday-only sales at that store.

“When Fry’s and them came in, they dominated, they took over a lot of our retail business,” said Shamolian, whose 19-year-old company sells about 100 computer systems a week.

Now, he said, 70% of the four-store chain’s business comes from corporate accounts, quite a switch from its nearly 100% consumer-retail roots.

That approach, appealing more to corporate customers, was just one of the so-called niche marketing strategies employed by some of the Valley’s smaller computer retailers.

Bob Tajali, owner of a new Computer Renaissance store in Encino, hopes that the wide price range of his computers, most of which are refurbished, will attract price-conscious customers who also want more personalized attention.

“I can do certain things most big businesses can’t do,” said Tajali, whose franchise store is in the shadow of an Office Depot, the nation’s No. 3 computer retailer.

“They only offer high end, whatever’s coming out today,” he said, pointing to used Pentium systems in his shop that can be had, printer and all, for $500.

But even at the low end of the market, the woods are full of competitors.

Null of PC Computing magazine, said the average price for a system in 1998 was about $1,000. By 2002, that figure is expected to be $577. And Infobeads, the research arm of publisher Ziff-Davis, notes that as of January, sub-$600 PCs accounted for nearly one-in-five desktop PCs sold retail in the U.S.

“That’s a trend that we’re definitely seeing,” Null said. “PC prices are just plummeting. And more and more people are interested in buying those low-end units.”

Not only does that present more competition for the computer shop around the corner, but Null said it has convinced more and more start-ups that there’s money to be made selling low-end units in cyberspace.

“We see more and more of that driving Internet sales online,” said Null, who said some online retailers sell products at or below cost.

“I would be surprised if there were fewer than a thousand [companies] selling PCs online.”

So the threat to Karen’s Komputers is not just the 400-pound gorilla down the street. It’s also the bargain-basement vendor online.

Still, Valley computer retailers insist that they can stand the heat and have no plans of getting out of the new technological kitchen.

“The competition keeps everyone honest,” said Nathan, whose parent company, ABC Drives in Northridge, also operates a wholesale outlet.

“When there’s competition, that shows that there’s a market.”