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Signs of a turning economy?
Jon Bach (President)

Signs of a turning economy?

Posted on December 10, 2009 by Jon Bach

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If you're connected with me on Twitter or Facebook, you probably have noticed my recent posts about how great business has been, and how we've been more and more busy these past months. It has been a great feeling to once again focus my efforts on expanding our capacity to meet demand. But why have our sales picked up so heavily in the last quarter? Is this due to a gain in market share, or is this something bigger? I don't claim to have the answers, but I would like to go over the data and our theories.

To start, I'd like to do something that's pretty rare for a private business to do these days, and show you a graph of our monthly sales over the last few years. I do this because I just can't resist -- it is uncanny how closely the timing and trends mimic the greater USA economy.

While it is hard to identify trends in the short term, when you step back and look at years of data, it is amazing how consistent it is. The left side of the graph above shows the slow and steady growth that is the hallmark of our business model -- that we've seen very consistently since the day we opened our doors in 2000. We have occasional peaks and valleys, but the trends are clear. You can also see that we saw the first impacts of a receding economy at the beginning of 2008.

What's interesting to me is how well this timing lines up to data from the US census bureau. The graph to the left shows what has been happening with the USA retail market over the last few years. You can clearly see the drop starting in January 2008, and the improvement over the last few months. You can find a number of other interesting graphs at the CalculatedRISK Blog, which all tell the same story.

The biggest questions on my mind as I ponder this data is: why did we do relatively well through the recession, and why have our sales turned around at such an accelerated pace, compared to the greater US economy?


Myth #1: the upswing is due to Windows 7. I'm not denying that it has played a role, but it isn't enough to explain the graphs above. Windows 7 did not come out until October 2009. Even if you consider the upgrade coupons bundled with Windows Vista, it is just too late to explain the improvement. We offered our own upgrade program in March 2009, and MS offered theirs in June 2009. And yet our sales started seeing significant improvements in January 2009.

Myth #2: this is a normal pattern as we approach Christmas. Ignoring the fact that sales began to improve in January 2009, we also simply have never seen such a dramatic surge in business around the holidays. We do see a Christmas rush, yes, but what we're seeing now is an entire order of magnitude larger.
 

So what is causing this recent surge in business? Yes, we have run successful advertising campaigns, and we're receiving a series of great reviews and publications. But the truth is, this growth out paces that. When it comes to advertising and growth, we take the "slow and steady" approach, and the last 6 months is no exception. We have absolutely been working hard, but we also have been talking to other companies in our industry, and to our vendors and manufacturers, and what we hear is that our experiences are typical of the greater industry. It's the whole industry! So what do I think?

Theory #1: smaller boutique builders are gaining market share. This would be consistent with the recent reports that Dell is currently seeing a big drop in income, while we and others in our industry are seeing growth. It would also explain why our distribution partners are seeing business improve as well (because Dell and other big box stores source their parts straight from the manufacturer).

Theory #2: the boutique computer industry is on the leading edge of an improving US economy. This theory is rooted in the belief that consumers have been "making do" with what they have. Heaven forbid you keep a tech junkie from the newest hardware! As funds start to become available again to consumers, we could be seeing a spring-back effect, in that the pent-up demand for updated computer systems is now starting to be met.


What do you think? Any way you slice it, it looks like we have a great 2010 ahead for our part of the computer industry! Is it also a good sign for the greater economy?



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John Adamson

I don't see the US economy improving. We're a consumer economy and it won't improve as long as consumer credit is down, "reported" unemployment is 10%, and top line numbers remain down. Bottom line numbers have been maintained by slashing costs - hence the 10% unemployment. (The 10% doesn't include part timers who want full time jobs or people who have given up looking. The combined number is pushing 20%.)

Based on my own experience, I believe you're increasing sales because you're a boutique builder.

Dell, HP et al. sell a commodity product based on price. They get a low price based on proprietary parts, cheesy plastic design, marginal specs, and their acceptance of an "acceptable" failure rate.
As a customer, that's fine if you're in the good part of the failure curve, your unit does what you want it to do, and you don't mind cheesy.

I had a Dell XPS 400 that worked but had a cheap metal case that vibrated.
It hummed. The only thing that stopped that was wrapping a bungee cord around it and taping all the seams. That worked - but it looked stupid.
I went with an HP Elite next after Vista had been out for a while. My only real complaints are that it blue screens trying to hibernate and the thin case does a lousy job of muffling the noise of the video card.

I was going to buy another Elite when Windows 7 came out. I also wanted to upgrade to the i7 Intel.
I was lucky I put it off because they had a real problem with defective units. It went to the point of a class action suit. They have supposedly corrected the problem. The price is great but why gamble? (I also saw that they dropped some previously standard specs and went with a cheaper case - again the cheesy factor.)

My point: I'm here looking at you.
I put the TV in a closet years ago; ditto the radio. Everything is now PC. Since it has become that important to me, I've gotten to the point where I'm willing to consider spending a premium for quality and reliability. (In your case, it's about a 50% premium.)
A year ago, I wouldn't have considered Puget because I wouldn't have looked for a company like yours. I don't think I'm alone.

Posted on 2009-12-11 22:13:37
Andrew

Thank you for sharing these numbers with everyone, it is great to see a company offer this level of transparancy.

The receission has caused a lot of people to rethink their spending habbits. There's a phrase that has become very prevelant in the last year or so that wasn't nearly as popular before. It is one of the few good things to come out of this recession and the phrase is value for money.

It's a phrase that is being used instead of price to performance. Before the recession many of my purchasing habbits were made based on the fastest system for the least amount of money. Computers (and not just computers, but cars, televisions, furnaces, refrigerators etc.) are getting to the point where many consumers are redefining what is important with a given product. I recently purchased a refrigerator and spent more than I nornally would have because of an increased savings in electricity over the life of the product. Since it was something that I was hoping to have for a long time it was a justifiable premium to pay. How does this relate to Pudget systems, or any other boutique dealer? I'm glad you asked.

I perceive a computer now to be "fast enough." I recently had a hard drive fail and replaced it with a drive that was not the fastest, didn't have the most capacity but had a 5 year warranty. It was a little more expensive that a competitors drive but it was again a justifiable cost for the longer warranty. Pudget systems is developing a reputation for building highquality systems with a longer lifespan. For me, that is why I would recommend and purchase from a company like Pudget. I am no longer looking at price/performance ratios, what I am looking for is value for money.

Posted on 2009-12-15 21:29:07

Excellent points, thank you! When you might think that consumers would look to the cheapest alternatives possible, you both make very good points about how the value of quality is even higher, and less of a price premium, these days.

Posted on 2009-12-16 02:18:43

Looks like I wrote this post at the right time! http://www.reuters.com/article...

Posted on 2009-12-18 10:21:17
Daniel

Personally I'm fed up with shoddy worksmanship. I only intend to buy from people (not just computer related) and companies that I KNOW provide me high value for money.

In worsening economic conditions with less disposable cash and more limited access to credit, it is reasonable that people will be more willing to search for quality than they used to.

Assuming my current computer remains reliable and in working condition, my next build will probably be built by your company for the reasons I outlined above.

Anyway, keep up the good work and I have enjoyed reading all the articles/blogs on your site. Please keep doing that if possible so I know what the technology is that I'm looking at in a couple years.

Posted on 2010-02-06 18:25:50

I feel that the key in any economy is to provide maximum value and provide your product or service as you claim. A lot of people unfortunately hide behind the internet and don't think about the client or customer.

By providing value and helping others, success comes quick to all.

Posted on 2010-07-24 19:52:29
Dennis Sanders

I couldn't agree more about custom PC builders like Puget. I just found out about Puget from someone at work that has purchased 3 systems and could not say enough good things about Puget. Most of my friends and colleagues are sick and tired of the shoddy stuff coming from the big PC makers and my next PC will definitely come from Puget. In fact my niece is bringing me her Dell laptop to fix (the Optical drive, hard drive, and battery are kaput) it is less than 3 years old. ...and I can't tell you how many horror stories I have heard from family and friends regarding HP PCs dead when the bring them home or die right after the warranty is up. It is a sad state of affairs. I think that is why so many people I know are going to Apple computers, Apple quality is significantly better than the PC makers like Dell and HP but at a pretty high price, and many people I know are sick of the MS Windows Vista fiasco and in my humble opinion 7 is not much better. I have turned to Linux and will never go back and switched my wife to a Mac and she couldn't be happier.

Posted on 2011-04-08 09:12:02
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