A Place to Buy, Fix or Fondle Good Apples

A lot of people have heard of the Bronx Zoo, but a Mac Petting Zoo?

That's what Tekserve co-owner Dick Demenus has in the seminar room of his 26,000-foot retail Apple computer store in the heart of Manhattan -- a Mac Petting Zoo.

Now in his 22nd year of selling Apple computers, Demenus has acquired an impressive collection of Mac products. There's the original Mac 128, which is signed by Steve Wozniac; the Lisa; the Outbound, an Australian knockoff of early Mac laptops; the Mac Portable; the Newton; the Next; the Cube; and an early version of the iPod.

The Mac Petting Zoo is an added draw for an Apple reseller that already brings in about 2,000 walk-in customers per day. In these tough economic times, Demenus is pulling out all the stops to keep traffic flowing into his store.

Tekserve grew out of Current Designs, an electronics product business Demenus and co-owner David Lerner once ran. One day in 1987, the two men were walking around Manhattan's shopping district when they saw something they had never seen before.

The Mac That Started It All

"We fell in love with the Mac 128 at Macy's," Demenus told MacNewsWorld. "There were other computers there by Zenith and other companies too, but we were sold on the 128's graphical user interface and the mouse."

They bought a Mac 128 and started using it to design electronics products. At some point, the computer needed to be fixed, but Demenus found that it was an expensive proposition to do so.

"So we started fixing our own Macs and our friends', and soon enough we had our own little Mac repair business going," said the electrical engineer. "That was 21 years ago. We've gone from a staff of three to a staff of 200."

Demenus wouldn't disclose annual revenue, but he did say that Tekserve has been profitable since 1987. The company sells Mac desktops and laptops, as well as portable devices such as the iPod, and it still has a robust maintenance business to this day. Tekserve also holds seminars on Apple products.

Tough Year Ahead

Despite the popularity of Apple products, Demenus expects a down year in 2009 due to the year-long U.S. recession and its effects on consumer and corporate spending.

"We've gone through all the ups and downs of Apple over the years," he said. "We're not expecting a banner year -- we expect revenue to be down by about 25 percent."

Three thousand miles away, Computer Stores Northwest, a Portland, Ore.-based chain of Mac Stores with nine locations in Oregon and Washington, had record years in terms of profitability in 2007 and 2008. The company has 250 employees.

However, company CEO Kevin Anderson is expecting a less-than-stellar year.

"We're not certain about 2009," Anderson told MacNewsWorld. "I'll be content with level sales with last year, but I would bet we won't get there."

Last year, Computer Stores Northwest brought in more than US$50 million in revenue, he said.

Like most consumer electronics businesses, Mac stores are suffering from the downturn in consumer spending, said Andy Hargreaves, an equity analyst with Pacific Crest Securities.

Even the Mac stores owned and operated by Apple are having trouble.

"Total Mac store revenue in the quarter ended Dec. 31 was up just 2 percent," Hargreaves told MacNewsWorld. "That's compared to total Mac store revenue being up 37 percent in the quarter ended Sept. 30."

It wouldn't surprise Hargreaves if independent Mac stores are in worse shape than their Apple-owned brethren.

"The volatility in the reseller channel is probably higher than in the Apple stores," he said.

No iPhones for You!

In addition to outnumbering smaller players like Tekserve and Computer Stores Northwest in terms of the number of stores, Apple also controls which products it licenses for resale.

Last year, the iPhone was the hottest-selling Apple item on the market, especially during the Christmas shopping season. Yet, independent Mac store owners aren't allowed to sell it -- only Wal-Mart, Best Buy and AT&T stores can.

"It may be a blessing in disguise because of the complications of contracts and so forth," Tekserve's Demenus said. "I mean, we're not hurting as a result of it, but we're a little insulted by it."

Tucked away in the Pacific Northwest, Anderson expressed similar sentiments.

"I probably would be one of the very few retailers who would express understanding of Apple's iPhone policy," he said. "It's something we would love to sell, but independent retailers have no experience selling cell phone plans. We'd like to get it here, but it's not for everybody."

Demenus and Anderson said the hottest items in their stores are iPod digital music players, MacBooks and iMacs.

"The MacBook is probably the highest volume," Demenus said. "There aren't that many towers that get sold anymore, because the iMac desktop and the MacBook Pro are so powerful, customers don't need towers."

Preparing for the Upswing

Despite current economic maladies, Anderson knows the recession will end at some point and he wants to be ready when it does.

"We have no plans to expand just yet," he said. "Unlike Apple, we don't have $25 billion in the bank to play with. We won't move forward on new locations until we see how the economic situation resolves itself and how Apple products are going to sell."

On the other hand, Anderson continues to push profits back into the business.

"We think it's a mistake to hunker down and make it a self-fulfilling prophecy that we'll shrink," he said. "We will come out of this eventually. Those who invested in their businesses during tough times will be better positioned to take advantage of the upswing whenever that occurs."