The Strategist Next Door

TIMES STAFF WRITER

Jackson Lan tested his daring business model by opening his first PC Club store only 50 yards from a CompUSA superstore. Seven years and 18 additional PC Clubs later, Lan is sticking to his copycat location strategy. His PC Club stores are usually within walking distance of CompUSA, Best Buy or Fry's Electronics.

In the last 18 months, Lan opened his first stores outside of Southern California, in Las Vegas and Mesa, Ariz., both near CompUSA stores.

"If I can make money right next to them, I can survive anywhere," he said.

Lan carved out his coexistence with the big chain stores by chasing after a different corner of the computer market. Giant retailers sell electronic gear with flashy in-store displays, piped-in music and row after row of hot software titles.

But Lan's stores are much smaller and bare-bones, with only a handful of software choices, because he caters to the do-it-yourself PC hardware techies, the computer version of weekend mechanics who repair their own cars.

His customers pry open PCs to upgrade their slow systems by slipping in the latest Intel processor, or change motherboards or CD-ROMs, add networking or sound cards, fax modems, hook up second printers or buy hard-to-find replacement parts such as audio cables and adapters for old keyboards--all of which Lan sells.

PC Club also sells Lan's own Enpower brand of desktops and laptops. Many of these are made to order and assembled in his factory in Industry. They are usually delivered in one or two days, beating by up to a week the delivery time of custom-made PCs sold by Dell Computer, Gateway or Compaq Computer.

Lan sells about 45,000 PCs and laptops a year and staffs his own repair department. It all added up to about $82 million in sales for PC Club last year, according to Dun & Bradstreet.

But it's more than just a copycat location strategy that keeps PC Club growing. Lan, a Taiwan emigre, relies heavily on Asian contacts he cultivated during six years working for Hewlett-Packard as a sales and marketing manager in Taiwan and Singapore. Scores of electronics firms he once had as clients now supply him with hardware, or help steer him to other reliable parts makers.

This is critical because the life span of the latest computer technology is measured in months. When Lan sells a motherboard--the main circuit board of a computer--it will be a cutting-edge product for only six months to a year; after that he must line up a replacement.

With hundreds of motherboard manufacturers in Taiwan, Lan strikes deals with his contacts for the next wave of product shipments. Almost half what he sells in his stores is made in Taiwan or in affiliated factories in China.

"Jackson stays in business and keeps growing because he's well-connected to Asian suppliers," said Lee Little, Advanced Micro Devices' Southwest regional sales manager. "In this business, it's how well you are buying. If you don't have reliable products, you won't stay in business long."

The 49-year-old Lan also keeps up with his Taiwan connections as a member and former president of the Southern California Chinese Computer Assn., which has about 200 member firms.

In his native country, Lan studied engineering, then earned an MBA before working five years at a large Taiwan plastics maker. Then he jumped to Hewlett-Packard, where he sold mini-computers while getting to know Taiwan's major electronics firms.

One of those companies, a manufacturer of motherboards, in 1989 asked Lan to take over its U.S. sales operation. So Lan and his family moved to Southern California. Three years later, he decided to open his own business.

He needed $500,000 to start PC Club and raised most of it by selling a house in Taiwan, taking advantage of the soaring real estate market there, where prices shot up 1,000% to 3,000% in 20 years.

Lan opened his first small store in Industry, and it was four years before he indulged in the extravagance of air conditioning. In the summertime, his customers griped about the heat. "We save money for you," Lan told his customers, laughing at the memory.

Lan opened more stores in clusters, from San Diego to the San Fernando Valley. But he still dislikes wasting money. In his headquarters, a conference room sign reminds employees to turn off the lights and the air conditioning when they leave the room.

By putting his stores near big retailers, Lan not only picks up extra foot traffic, but, thanks to his rivals' advertising campaigns, avoids spending much money on market research about where to locate.

"We trust their analysis," he said wryly.

A typical customer is John Price, who built a desktop computer from scratch using parts he bought at PC Club. The original equipment manufacturer parts that PC Club sells, he said, are "10% or 20% cheaper than at Best Buy. And they generally run cheaper than at CompUSA, which is nice to have next door, because if [PC Club] doesn't have it, I go over there."

Indeed, foot traffic tends to drift in both directions between PC Club and CompUSA stores. "They send a lot of folks over here for software. And they have some things we don't have. We kind of help each other," said Lollie Lancaster, a manager at CompUSA's Industry store.

Harder for Lan to dictate is the swift, rampant change that is altering the retail landscape and which has forced him to slow his expansion drive.

CompUSA lost $4.9 million in its latest quarter, and sales at stores open at least a year fell 7.2%, in part because it has lost ground to rivals that sell online, including PC makers Compaq, Gateway, Dell and Hewlett-Packard. Another retailer, Egghead.com, has closed all its retail stores to sell software and PCs strictly over the Net.

But Lan is wary of the Internet frenzy and is still betting much of his future on the brick-and-mortar store concept.

"Everybody is just crazy about the Internet. But who really makes money? People make money in e-commerce by selling the stock, not selling the product," Lan said.

It makes sense for established PC makers, he argues, to shift some sales to the Internet because it's merely a different form of order-taking, from phone calls to online. But he's skeptical about the prospects of pure e-commerce companies that have rising sales but no profits, such as Amazon.com.

"Right now the Web traffic is more important than the bottom line," he said. "I'm conservative. I like to see if they make money or not."

Still, Lan is edging toward e-commerce himself. In May 1998, he set up a PC Club Web site, offering extensive technical information and product prices. But PC Club still doesn't sell anything online, though he expects to start doing so by early next year.

"I think Jackson is sitting back and looking at where the direction of the market is going. He doesn't want to be just a me-too type company," said Rosie Chin, a sales engineer for Advanced Micro Devices.

Still, Lan has dramatically slowed his growth plans. A few years ago, his goal was to have 99 stores across the country by 1999.

Chin believes Lan slowed down because of the constant price drops in computer peripherals and the advent of "disposable PCs," which hurt profit margins for all retailers. Just a few years ago, a quality computer system cost $3,000. Now it can be had for less than $1,000.

"It takes just as much effort to sell a $999 system as a $2,999 system," Chin said.

Lan says that tighter profit margins were only one reason for the slowdown in his out-of-state growth. The major snag, he said, was realizing what a nightmare it would be for his management team (which now oversees 200 employees) to open so many stores so fast.

Instead, Lan spent $2 million to help streamline his company's software system so he can get real-time information on store sales, instead of unreliable and time-consuming faxes or separate computer logs. Lan travels with a laptop computer and tracks each of his store's sales daily. The new system also allows store clerks to instantly transmit custom PC orders to the factory.

Lan is hoping to revive his out-of-state expansion push over the next five years.

But CompUSA said last week that it will close some of its weaker stores in the coming year. Does that alter Lan's copycat location strategy?

"CompUSA," he points out, "still has more than 200 stores" he could follow.

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PC Purchases

PC Club has found a niche among computer retailers by selling peripherals as well as its own brand of desktop and laptop computers. Percentage of consumers who buy PCs from various categories of retailers:

Computer superstores (such as CompUSA): 31.0%

Consumer electronic stores (such as Circuit City): 23.0%

Small computer specialty stores (such as PC Club): 20.3%

Mass merchandisers (such as Sears): 13.9%

Office products stores (such as Office Depot): 11.8%

Source: International Data Corp.

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