Cascading profits from second-hand computers
123Compute liquidates old machines when companies upgrade

Every few years businesses across North America take advantage of decreasing prices, increasing processing power and better software by upgrading their computers. The problem is that their old systems, many of which still function, have little resale value. That's where Jordan Rosenzweig comes in.

"We'll take just about anything, computers, monitors, keyboards, even broken stuff," Rosenzweig, president of pre-owned retailer 123 Compute said. "We buy most of our stock from businesses, but people sometimes drop things off at the store. Others leave them on our doorstep during the night."

The process is known as cascading. Rosenzweig piggybacked on the trend to build his desk-and-phone operation into a $5 million a year business with 27 employees and four stores.

One of the reasons he's been so successful is that while new equipment prices continue to drop, shoppers can reap even bigger savings buying pre-owned merchandise.

One of Rosenzweig's clients, Mohammed Arif, has three computers in his house, all of them pre-owned. But he still takes the time to visit 123Compute wherever he needs accessories.

"It's a good deal, because it costs less," Arif said. "This used USB printer cable I'm buying will cost me only $5.99. At Radio Shack it would be close to $20.00."

Rozenzweig has been in the computer business almost all his working life.

After finishing his university degree in engineering, he started selling software door-to-door, but moved into the used computer business gradually, beginning in 1988, when he sold his first disk drive.

For the first few years he ran the business out of rented office space. He only opened his first store front on Décarie Blvd., just North of Du Collège, in 1997.

"We named the store 123Compute, because at the time many services listed businesses beginning with numerals before those starting with the letter "A,"" Rosenzweig said. "So we were always first."

According to one industry acquaintance, Rosenzweig's success can be boiled down to hard work, a broad outlook and solid industry contacts.

"It's much easier to sell used computer equipment than it is to buy it," Doron Stephen, a Toronto based computer consultant said. "Jordan has been in the industry so long, that he knows all the people and can get good merchandize."

The company's stores, which are located in Montreal, Toronto and Los Angeles, also provide a broad geographic reach, that makes it easier for 123Compute to deal with customers in remote areas.

"I don't know of any other Canadian dealers who (buy and sell used equipment) across the country," Stephen said. "Most others either can't get the product, or they sell used computers as a sideline, making the bulk of their profits with new equipment."

The Internet has provided 123Compute with another key distribution channel. Sales have grown during each of the five years since the company's E-Commerce site was launched, topping $500,000 during 2003. And internal projections call for that to double in 2004.

Internet margins are far lower than those in the retail stores and competition is fierce, said Canoe Hussam, the company's Internet manager.

Thousands of listings pop-up when you run the words "used computers," through traditional search engines. But Hussam is proud to have tweaked 123Compute's Web-site html code, so that its name appears near the top.

"We are number six on Yahoo and number two on Google," Hussam said proudly.

The export market also provided 123Compute with a big growth channel, particularly for very old machines that use hard-to-find or out-of-date software.

Africa and Haiti are two key destinations said Robert David, the company's vice-president. But in recent years the buying trends have changed.

"Third world countries used to take only end-of-line stuff, which cost little," David said. "But in recent years they are asking for increasingly modern equipment."

According to David, China is another key market, because of the large number of skilled technicians there who are willing to take the time to learn use and fix broken machines.

"Whatever we can't sell or fix, we put in a container and send to China," David said. "They use everything."

Despite his success with both Internet and export sales, Rosenzweig remains a firm believer in the retail model, and he plans to open new stores as opportunities arise.

"There is a large segment of the population that has to see and feel something before they buy it," Rosenzweig said. "And the only way you're going to get those people is at the retail level."

Nevertheless he remains cautious, and refuses to be nailed down about future plans.

"I've been in this business a long time. I've worked on Commodore 64s, Ataris, Amigas, Apples and PCs and I've always kept up with the times," Rosenzweig said. "You have to be adaptable."

 

 

Photo caption: According to Jordan Rosenzweig, president of 123Compute, the used computer business thrives because of the "cascading," phenomenon, by which large companies upgrade systems regularly providing an opportunity for re-sellers who can help them clear out old stock.

 

Fact Box:
Company Name: 123Compute
Web-site: www.123compute.ca
Owner: Jordan Rosenzweig
Locations: Montreal, Toronto, and Los Angeles
Products: Pre-owned computers, monitors and accessories
Employees: 25
Sales: $4.5 million
Phone #: 514-855-9550

peter@peterdiekmeyer.com

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