CORPORATE FOCUS—Shift From Internet Strategy Boosting Computer Reseller

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Summary


Business:

Computer and peripheral reseller


Headquarters:

Torrance


CEO:

Frank Khulusi


Market Cap:

$17 million Dividend Yield: N/A*


Total Liabilities:

$98.1 million P/E Ratio: N/A*


Long-Term Debt:

$7 million

* PC Mall Inc. does not pay dividends and has not posted annual earnings.

Shunning its high-risk Internet approach to business, Torrance-based computer reseller PC Mall Inc. is boosting its bottom line and stock value by transitioning into more traditional marketing channels.

The company, which recently changed its name from IdeaMall Inc., has moved away from investing in Internet startups and is now concentrating on its core business, selling computers and accessories using telemarketing.

The company’s stock, after dipping to nearly 50 cents a share in December, has begun a slow climb back. It has been bouncing between $1.50 and $2 a share in recent weeks, and closed at $1.66 on May 30.

“Management focus shifted toward improving the operational efficiency of our core business and, at the same time, we reduced the amount of investment into our startup subsidiaries,” said Frank Khulusi, chairman, president and chief executive of PC Mall.

That’s a smart move, according to analyst Brett Miller of A.G. Edwards & Sons Inc. in St. Louis.

“This is not the market where (investors) are going to be looking for transition stories. They’re not taking a lot of risks,” said Miller, who also follows other resellers, such as Dell Computer Corp. and Gateway Inc.

“It’s difficult to get beyond the noise level of the market when you have a lot of the big companies out there in turmoil,” he said.

To grab the attention of investors in these more cautious times, PC Mall needs to concentrate on becoming more profitable, Miller said. And that is exactly what the company is focused on achieving.

PC Mall reported net income of $1.2 million (12 cents per diluted share) for the first quarter ended March 31, up from a net loss of $7.5 million (67 cents a share) in the like year-earlier quarter. That bottom-line turnaround came despite first-quarter revenues falling to $198.4 million, down from $237.1 million in the first quarter of 2000.

“We shifted our focus to profitability,” Khulusi said.

Like others, PC Mall got caught up in the excitement of the high-tech boom.

In 1998, the company launched Ubid.com and soon after took the bidders’ Web site public, which caused IdeaMall’s stock to climb to the $15-a-share mark.

On the heels of that success, IdeaMall started eCost, a high-tech product supplier, and eLinux, which sells Linux products to Internet professionals.

“These guys have tried to incubate and hatch more ideas than anybody out there,” Miller said. “The distraction of all these different ideas, via IdeaMall, hurt them.”

First-quarter losses from eCost and eLinux totaled $219,000 this year, a dramatic improvement from the $7.2 million net loss reported in the like quarter last year.

The company operates in an industry dominated by a few big players, and where small companies can compete only by offering unique services. PC Connection Inc., Insight Enterprises Inc. and CDW Computer Centers Inc. dominate the market because they sell enough of a volume to win significant rebates from manufacturers, Miller said.

Smaller companies, like PC Mall, can only survive by appealing to a “niche market,” he said.

“They can talk all they want about growing and becoming a leader but…you can’t get enough pricing to move people away (from the larger competitors),” Miller said.

Khulusi, who started the company out of his apartment in 1987, said his company’s competitive advantages are its personalized service and the rapid shipping it can offer customers.

“It’s a relationship-based sales methodology,” the 34-year-old entrepreneur said. “The relationships we hold are somewhat proprietary to us.”

PC Mall has about 900 employees and sells more than 100,000 products via telephone, its multiple Web sites and through the PC Mall and MacMall catalogs. Most of its clients are businesses or educational and governmental institutions.

Miller agreed that personalized service is a key component that differentiates the smaller companies from larger resellers.

“If you want to go after the small and medium business market, the best model out there, that we’ve seen, has been that of the direct marketer,” he said. “Whoever has a relationship (with a client) has the best chance of maintaining it.”

Khulusi said that no major changes are planned in the near future for PC Mall.

It’s a matter of “constant fine-tuning,” he said. “We try to change to always align ourselves with the fact that our customers’ needs are changing.”

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