There's nothing sexy about the computer-technology-reselling business. Look beyond the gigabytes, the sleek aluminum and all that wireless...
There’s nothing sexy about the computer-technology-reselling business. Look beyond the gigabytes, the sleek aluminum and all that wireless wizardry, and what you really have is the digital economy’s equivalent of the rag trade.
That’s OK by Firoz Lalji. The 58-year-old president and chief executive of Zones was born to sell. Raised in Uganda and one of the third-generation of immigrant merchants from Gujarat, India, he has peddled everything from coffee to Canons, in both Canada and the U.S., along the way learning from the example set by his father and grandfather.
“They taught me the value of hard work,” says Lalji, who became a U.S. citizen last year.
Finally, the perseverance is paying off.
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The Auburn company is on pace to have its best year since going public in 1996. Yesterday, it announced quarterly profit jumped 21.4 percent, to $1.7 million, or 12 cents a share, compared with $1.4 million a year ago.
With one quarter remaining until the close of its fiscal year, the company has racked up sales of $406 million compared with $496 million for all of 2004.
The earnings, the ninth straight profitable quarter for Zones, are a dramatic turnaround from a few years ago. After a roller-coaster ride on the Internet boom last decade — news the company was launching an online auction site sent its share price soaring $44 on one day in 1998 — the company began to lose its way.
The nadir was 2003, when the Nasdaq-traded stock tumbled to 86 cents. Yesterday, it closed at $4.62. Lalji, whose daily involvement in the company he co-founded in 1988 ended after the company went public, had been lured back by board members in an effort to save the company. But the bleeding continued.
To prevent delisting, the already heavily invested Lalji began gobbling up the penny stocks on the open market, boosting his stake in the company from 28 to 51 percent.
Meanwhile, he set his eyes on transforming Zones from a consumer-driven, catalog company, selling mostly Apple computers, to one dedicated to servicing small and medium-sized businesses.
“You can call it a transformation, I call it a near-death experience,” Lalji says with a grin.
It may have felt like déjà vu. In 1971, his family, kicked out of Uganda by strongman Idi Amin, emigrated penniless to Canada, their sizable coffee plantation and sugar-cane processing businesses seized. “We lost everything,” recalls Lalji, who at 24 was thrust into the role of family breadwinner.
Soon after, in Vancouver, B.C., he started Kits Camera, eventually expanding the retailer to 225 stores in the U.S. and Canada. He sold Kits’ U.S. business to Ritz Camera for an undisclosed price in 1997.
To transform Zones, Lalji drew upon his merchant roots. Having taken a 46 percent pay cut, he demanded similar austerity from his work force. The company moved from Renton to a lower-rent office park in Auburn. The masterstroke was the acquisition of Corporate PC Source, a profitable Illinois company that gave Zones a bigger, national footprint.
“The hardest part was changing the work culture — we went from being an inbound service where customers called us to an outbound service where we call them,” Lalji says.
Today, the metamorphosis would seem complete. The company, with roughly 600 employees, is expanding each month. Many of the new hires join the ranks of its go-getter, young sales force, who work the phones, getting paid by commission.
But Zones may have found its focus too late, some say.
On its heels are the same manufacturers whose wares it sells. “The enemy is Dell,” says Lalji, ducking into a room with 20 manufacturers assembled for a vendor show.
The success of Dell’s direct-sales model — 16 percent growth in sales to businesses last year vs. revenue growth of 7.5 percent for Zones — is encouraging Hewlett-Packard, IBM, Apple and other mega-hardware vendors to beef up their direct-sales operations.
At the same time, economic uncertainty may lead businesses to cut back on information technology purchases. A report by Forrester Research predicts a slowdown in the $125 billion tech market for U.S. businesses, to 2 percent growth in 2007 vs. an annual average 7 percent since 2001.
“Margins are getting slimmer for resellers all the time, but being the last link in the food chain and with their share of the market declining, they get squeezed even more in a slowdown scenario,” says Andrew Bartels, vice president at Forrester.
To keep current, Zones is thinking outside the box — the shipping box, that is — by sprucing up its distribution service to keep pace with customer IT needs. These include installing software, customizing configurations and asset tagging so that Zones can manage the tech inventories of its clients, among them Nordstrom and Starbucks.
But the key to success, says Lalji, is streamlining Zones’ “cost backbone” and automating as much as possible.
Zones still faces a hurdle: economies of scale. Its competitor, Chicago-based CDW, has annual sales of $5.7 billion and a reason why its operating margins, 6.7 percent, more than triple Zones.’
“We’ve got the infrastructure in place, now we have to scale it,” promises Lalji, adding that as part of its expansion, the company is relocating a Nevada warehouse to Tukwila. “We can start by controlling our backyard.”
Josh Goodman: 206-464-3347 or email@example.com