ComputerTown Inc. has been through tough times in its 22 year history, but nothing quite like the past 12 months.
“We’re trying to keep our head above water and I can tell you it’s not fun,” Tom Jacobs, president of ComputerTown, told MacCentral. “We’re trying to find the right model that will keep us in business.”
Since July of last year, Salem, N.H.-based ComputerTown has been struggling to stay in business and keep its remaining four retail stores open. In July of last year, the Apple Specialist
made arrangements to stay in business, but for some employees who were laid off, it was late September before they returned to a paying job.
Its latest casualty was the closing of its location in Brookline, Mass. on Wednesday. Ten people lost their jobs after being told last Thursday that the Boston-area location would probably be closed soon. The once profitable and thriving Macintosh dealer and catalog house is now down to three store fronts — two in New Hampshire and one in Phoenix — with some 30 employees from a high of over 100 last July. The company still maintains its catalog operation.
Jacobs said the primary problems facing the company are paying off debt it owes an inventory finance company, finding a new line of inventory credit, and consolidating operations to remain lean, mean, and profitable.
“I’ll be candid with you, we’re going through some tough financial times with our lender,
Finova (Group Inc.),” Jacobs said. “We need to pay off the debt we owe them and find a new lender to finance our inventory of product.”
The changing challenges for Mac dealers
The problems facing ComputerTown are a mirror image for Apple dealers across the country. Eroding profit margins, having to compete directly with
Apple, and fewer companies willing to finance inventory are leaving many dealers struggling to keep the doors open.
Jacobs said ComputerTown owes Finova’s Inventory Finance division a substantial amount of money for loans it made to ComputerTown to buy inventory of product, largely Macintosh equipment. Although Jacobs would not disclose precise numbers, sources close to ComputerTown’s operations tell MacCentral the debt “is in the hundreds of thousands.”
Computer dealers like ComputerTown would rather not pay for purchases up front until the product is sold. In some cases with larger companies that buy mass amounts of computers and need time to pay invoices, Macintosh dealers don’t have deep enough pockets to afford paying for the equipment until the check arrives. That’s where credit lenders come in.
Lenders, or what many in the industry call ‘floor planners,’ are crucial for Mac dealers who need the large-quantity inventory to survive. But companies like Finova are finding that profits in financing computer inventory are not what they used to be. Because of dwindling profit margins for dealers — sometimes less than $40 a Mac — lenders are finding it difficult to make enough money from financing computer purchases together with the risk of not being paid.
A good example of that is Finova itself. The once profitable lending group is on the verge of bankruptcy and has decided to get out of the commercial computer lending business, which has proven to be a financial disaster. Finova has seen its stock price plummet more than 90 percent since March from $60 a share to $1.20. Troubles started surfacing last May with a $70 million write-down for a loan to an unidentified computer distributor and the abrupt resignation of its CEO, Samuel Eichenfield. After months of looking for a new buyer, Leucadia National came forward last November proposing to invest at least $350 million in troubled Finova, but that deal feel through late last month and the company now sits with few alternatives to continue in business.
‘Hey lender, you got $50,000?’
“Even if we pay off this debt to Finova, it’s becoming almost impossible to find other lenders,” Jacobs said. “I’m not alone in this problem. Other computer dealers are scrambling to find new inventory financing now that Finova is getting out of the business. We’re out on a limb and were looking for a new lender.”
The departure of Finova leaves only a handful of big lenders including IBM Credit, TransAmerica, and Deustche Financial Services. But to do business with these lenders, dealers must have excellent credit. In some cases according to dealers interviewed by MacCentral, not even that will do.
“Their asking for everything but my first child,” one Macintosh dealer who used Finova in the past, said. “I have an excellent credit history and a clean Dun & Bradstreet report, but they’re balking at doing business with me. They know I have no where else to go, so they can do this and I have no recourse.”
A top-line Apple Specialist store for over ten years, this dealer is a prime example of others who asked not be named for this article for fear of it affecting business.
“Flooring is getting to be expensive for everyone involved,” said one dealer based in Texas. “If I can’t get approved with a new credit company, I don’t know how I can continue just paying for Macs as they come through the door. I need the ability to afford large orders to get the large customers and stay competitive.”
A competitive climate
Jacobs said he didn’t want to give the impression all of ComputerTown’s problems are the fault of others or Apple and that the company did make mistakes that have lead to its dire problems. “We didn’t adapt to certain things and realize when it was time to change direction,” he said.
But regardless of its mistakes, Jacobs believes direct competition from Apple became such a big problem so fast that it was a major factor in ComputerTown closing its corporate sales division last year, which at the time accounted for more than 50 percent of its business.
“Apple selling direct has hurt us a lot and I know it’s hurt every other dealer too,” Jacobs said. “It’s tough to compete against Apple when they can be so competitive on price and availability.”
“I know it’s never going to change and Apple doesn’t care, but it’s so ironic that Apple wants me to sell their products, but they turn right around and compete with me to the point that it’s almost cut throat,” a Texas-based dealer said. “And I’m not some dealer like CompUSA that doesn’t know a Performa from a PowerBook. I can never be as big as they are, but I almost have to be to compete on price and inventory.”
“If you’re a single location, you can compete to a certain extent,” Jacobs commented. “But if you’re as big as we are, you need the flooring, the better pricing and the inventory to deliver fast. It’s becoming tougher to fulfill those needs. By consolidating (stores), we have a better chance of surviving.”
Time will tell
For ComputerTown, the closing of corporate sales and consolidation of stores is an effort to remain in business, which Jacobs continues to be hopeful of.
“We’ve been in worse shape before. I’m confident we can pull out of this situation as well, but time will tell. We’re fighting to survive like anybody else,” he said.
As for other Macintosh dealers who watch the downsizing of ComputerTown, the hope is to learn from their mistakes and keep the doors open.
“When I hear what has happened to ComputerTown, I wonder if the same thing could happen to me,” said another unidentified dealer based in Ohio. “You’ve got to stay competitive and constantly reassess your strategy and the competition, including Apple, or it will eat you alive.”