CompUSA: Operating System Crashes
By Tom Ryan
CompUSA, one of the early pioneers of the category killer concept, seems to have bet on the wrong category.
The computer superstore, which helped launch the widespread use of business and personal computers two decades ago, recently announced plans to close more than half of its stores. Citing “changing conditions” in the $145 billion consumer electronics market, CompUSA CEO Roman Ross said the 126 stores set to close are underperforming or in areas with too much competition. Along with a $440 million cash infusion from its Mexico-based parent company US Commercial Corp and cost-cutting efforts, the retailer plans to restructure around its top 103 locations.
The company, based in Dallas, was founded in 1984, the same year Apple launched Macintosh and three years after IBM introduced its first PC. In 1985, Microsoft released its first retail version of Microsoft Windows. Although the timing seemed perfect, the computer category quickly became renowned for cutthroat competition and measly profit margins. Dell and Hewlett-Packard eventually started selling products online, and chains like Circuit City and Best Buy were taking an ever-bigger chunk of the higher-margin gaming software category.
To diversify, CompUSA started broadening its mix to include TV’s, camcorders and cell phones. In 2003, it acquired home entertainment and electronics retailer The Good Guys, then closed its stores and absorbed the product lines.
The problem was that the consumer electronics category suddenly became intensely competitive as illustrated by recent store closings announcements from Circuit City and RadioShack. Price competition particularly picked up this past season after Wal-Mart aggressively moved into consumer electronics with advertisements for big-screen TVs for just under $1,000 and a $387 laptop computer the day after Thanksgiving.
Some say CompUSA is stuck in the middle – unable to compete on price with Wal-Mart and Costco and not up to the service provided by Best Buy and Circuit City.
“What we’ve got is a market in consumer electronics and PCs where you have to be hyper-efficient, where you have to be an execution monster in order to be profitable,” Van Baker, a media and consumer analyst with Gartner Inc. told the Los Angeles Times. “I’m hard pressed to see how they’re going to be viable by decreasing their size 50 percent.”
Chris Swenson, director of software industry analysis for NPD Group, sees a chance for CompUSA to refocus around its best stores.
“There’s definitely room for a retailer on a smaller scale with all the stuff they sell. There’s a whole spectrum of retail demand,” Swenson told internetnews.com.
But Brian Sozzi, an analyst at Wall Street Strategies, was more doubtful.
“They just haven’t found a niche they can carve into. Why go to CompUSA when you can by a computer and a TV at Best Buy?,” Mr. Sozzi told internetnews.com. “I think it’s just about the end for them. There’s only so many stores you can cut for profits.”
Discussion Questions: What challenges does CompUSA face as it attempts to
turn its business around? Have the recent actions taken by the chain put it
at a starting point to set itself on the right course? What lessons can CompUSA take from other retailers that have gone looking for a niche to fill?
There isn’t enough true differentiation or margin for CompUSA, Best Buy, and Circuit City. None of these retailers can significantly improve margins via private label, and there isn’t enough margin in extended warranties and service to sustain all 3 companies’ ambitions. Long term, they’ll either merge or return mediocre profits (if any) to their investors. When there’s no sustainable competitive moat, margins get low and profits become minimal.
CompUSA is like so many retailers; they developed a concept, consumers liked it; they expanded and then never changed. CompUSA was a store you went to with questions and got good answers. Today, the associates have no knowledge and suppliers are determining the merchandise mix and presentation. Best Buy’s Geek Squad has taken away the knowledge advantage. When supplier promotional money overrides resolving a consumer’s problem, then customer service declines. Computers are no longer unique. They are bordering on being a commodity. CompUSA needs to define a target market, re-merchandise, educate associates and market who they are.
I remember the days when I shopped CompUSA’s original store and was amazed by all the “cool” products they carried. Some days, people would be waiting in line just to get in the store. Unfortunately, those days are over and CompUSA is downsizing, having been a victim of struggling with an identity crisis, only to rebrand themselves in a very competitive and many times low margin market. Unless CompUSA can reposition themselves while redefining their differentiation, they will continue to decline until the closed sign is put up on all their stores. As for lessons CompUSA can learn from other retailers…it really is going to be difficult in a niche that is currently in a “grow or die” phase.
I think it’s fascinating that this story and the one on the Apple stores have come out on the same day–together, they tell the whole story of how to reach the electronics consumer in a world where everything is only going to keep changing faster.
Over on the Apple story, Ben Ball writes:
“1. It’s an EXPERIENCE Apple creates.
2. The key to the experience is SERVICE.
3. The focus of the service experience is the CUSTOMER.
Not the product. Not more efficient retailing. Not collecting the maximum number of slotting dollars or display allowances. Not pushing the close-out merchandise to the front to get rid of it. Not (name your favorite retailing sin here)–but the customer.”
To its credit, CompUSA has tried to change a few things over the years. Before there were stand-alone Apple stores, for example, there were Apple stores within CompUSA stores (although it was clear that support for the concept was lukewarm at the district and location level.)
But for the most part, CompUSA has spent most of its corporate life committing all Ben’s retailing sins. And what do you know? Those sins are not the road to profitability but to irrelevance.
If CompUSA is going to survive, it’s going to have to find a customer it can serve and then drive the entire culture to delight that customer–with fewer resources than it’s ever had to make a change like this.
And they’ll be doing that job in real time, while the world watches with baited breath, waiting eagerly for the first signs of a stumble on the part of senior management.
I think Jamie Tenser has it right…they are serving a shrinking marketplace (the uninitiated computer purchaser). With the advent of more “intuitive” software, hardware connectivity, and user experience–the desire to go to a “Computer Store” of any kind to be educated and walked through the decision making process is shrinking.
Blame it on internet sites that have grabbed the education of the consumer or telephone sales that have dropped the margins on the machines, or the wisdom of the return buyer, but walking into a CompUSA is not “top of mind” for a large part of the shopping public that is in search of electronics/technology/computer purchasing.
At this point, what is the “reason for being” for the stores? Does the public know it? What is the point of differentiation from other outlets, etc.?
In the 90s CompUSA was every geeks dream–if you needed a part CompUSA was the place to go. Now, with the acquisition (or the assimilation) of the GoodGuys stores (which was a bad idea if you knew anything about GG’s business practices at the time) they are trying to be like Best Buy and Circuit City but without the flare and customer services. As everyone has indicated here, the shopping experience at CompUSA isn’t all that great and the integration of GG’s product line never was really seamless. The TVs, etc. were always stuck in the back when they should have been to the right or left as you walked in. Customer service is not so good and the return policy on cameras is ridiculous.
I’m witnessing two of their stores closing which are located on my commute home from work. I’ll miss these places, as the closest CompUSA is now 30-40 minutes away from me. In all honesty, I’m still a huge CompUSA fan. When I’ve needed some electronics, I have always gone to CompUSA first, then Best Buy, and then Circuit City.
Perhaps they need to restructure, partner with the Shack or come out with new store format which caters to selection while maintaining cost of inventory.
I did work closely with CompUSA several years ago and they are in the same position that the music retailers found themselves in, with the key customer able to buy on the interent. The online music industry, of course, benefited from their key consumers being very computer savvy, as the CompUSA consumer is, too.
Many of the CompUSA stores were failing computer city stores, if you remember, which they absorbed via buyout. Best Buy, who is everyone’s darling now, was not so strong back when CompUSA was on the upswing. I agree with other comments that the in-store sales people hurt them. Fry’s electronics built a much smaller regional business but did so through more helpful sales people on the floor. Dropping down in size and rethinking their product line should help them survive, should they make the right choices.
A few days ago, I went to the CompUSA store which is right next to their headquarters. I wanted to buy a network cable and also check prices on DVRs. In the cables section, many products did not have price labels on them. There were several staff members around–but they seem to be busy talking among themselves. When I went to the DVR section, again, no one attended me. When I fetched one of the staff members, he seemed to know little…although, he did his best to find answers from other folks. No doubt, they scored zero in my book for the retail experience.
As a brand strategy, I agree,they don’t seem to have one. Even their name sends a wrong signal–while they are aggressively getting into consumer electronics, their name “CompUSA” provides a very different message.
Adapt or perish. This is the key to retail, and CompUSA is not following this. CompUSA needs to increase their customer service, offer consumers a competitive price and good selection, but most importantly: define themselves through their in-store service personnel. Service, service, service should be their mantra. Both BB and CC are doing this, and Comp needs to recognize the value in this. Without it, they will simply be another retailer on its way into the history books.
CompUSA did a great job of developing a category killer format, however, as consumer expectations of the category changed, they failed to change with it. Today, CompUSA finds itself in the middle of a category they can’t define and can’t support. They’ve been a victim of creating formats that are not sustainable. Early on they were big into providing computer training but as years pass, this has become a non-issue. Another push they made was to become a destination location for Apple computers. Again, this proved unsuccessful due to Apple’s move into building their own stores. You might say CompUSA has become a victim of creating formats but not being able to sustain them. If they’re going to make it long-term they will have to find still another niche they can own and maintain long-term.
I went to CompUSA twice and never went back. The sales people were like used car salesmen and smelled of tobacco. To me it seemed it was all about sales. The employees really did not seem knowledgeable about computers but were more concerned about selling you an extended service contract. Tom Ryan is correct; they are stuck in the middle unable to compete on price and unable to compete on service with local independent computer stores. We have a local independent computer store group that has been around for 18 years and has seen the CompUSAs of the world come and go.
It’s ironic that the next discussion topic on the list after CompUSA’s decline is the rise of Apple. Why can’t CompUSA cut it? Check out the discussion of all the things that Apple’s doing that CompUSA is not and it will become painfully clear why they can’t compete.
The future of retailing is about the customer experience–not just the buying experience, or even the shopping experience, but also the PRODUCT experience. That element is completely missing from CompUSA and completely present at Apple.
Visiting a CompUSA store late last year I was immediately shocked by the condition of the store. It was poorly lit, seemed a bit dusty and had the general appearance of a store that was designed and built decades ago. Aisles and sections were poorly labeled. Store personnel seemed to enjoy gathering for endless coffee klatches.
This, in a store that is trying to sell the latest in cutting edge electronics and high-tech essentials and gadgetry. I felt like I had gone back in time to a less competitive era.
A store selling electronics should be fun and intuitive as should be its products. This store seemed tired and struggling to minimally keep up with the times. At the time of my visit I assumed this to be an older store (which should never have been allowed to grow old) and hopefully an anomaly. I have since heard similar reports about CompUSA stores in other parts of the country.
Interestingly, Apple stores thrive though limited to products from just one company. Of course, great tech support plays a factor here.
As someone who worked with CompUSA in the late 1980s and early to mid 1990s and once again recently, I saw a huge change in cultures from the earlier period to now. CompUSA was THE retailer that everyone wanted and needed in the computer industry. CompUSA had the personnel who understood the consumer. Their people knew how to talk to people. The personnel knew the products inside and out. Now that is missing. Now there is no difference between what CompUSA is selling vs. Circuit City, Best Buy or Home Depot. The biggest difference is the level of service and sales associate knowledge. Can CompUSA recapture past glory? Not if they don’t fix some of their customer experience issues.
Comp USA has suffered the misfortune of seeing its category killer niche narrow and disappear. It prospered early on by selling home computers to mainly first-time buyers who required a lot of sales help with the decision. For a while, it also did well selling upgrade components and software. But over time, as hardware costs have declined, users have stopped regarding PCs as capital investments and started to regard them as office supplies.
There are no longer very many naive buyers out there. Adults tend to be on their third or fourth computer and young people have used them since pre-school. Now, we buy solutions in a box at Wal-Mart or Costco or Office Depot or Best Buy or online and when the hard drives get too cluttered or the registries too junked up, we copy our files onto a new machine and give the old one to the sanitation department.
So consumer expectations have shifted and Comp USA’s once-winning formula proved brittle. Salvation may lie in a shift toward certified in-home services, following the lead of Best Buy’s Geek Squad and Apple’s Genius Bar. How about a walk-in service counter and a team of experts who can help with home networking, media centers and print servers? It’s just a hunch that might be refined through some careful research with today’s home and small-business computer users.
In addition to the well enunciated problems with their service and name, I think selling computers in any type of physical store is only going to get tougher. People with even a moderate level of computer knowledge can get more information about product choices, features, and cost online than in any store. And, the Internet offers it a lot quicker. About the only thing left for this category for physical retailers is service, so if you haven’t got that you are in big trouble.
All one needs to to is experience first-hand both CompUSA and Apple retail and the story tells itself. Ms. Baird is spot on when she says that it is all about the customer (not consumer!) experience and their interaction with the brand (both retail and product). The dichotomy between CompUSA and Apple are obvious even to the passive shopper. If you’re going to spend money–where would you be put more at ease and comfortable to spend that money?
This is a merchandising problem plain and simple. CompUSA has a viable brand it can leverage to draw traffic into its stores, but they appear to have lost touch with which categories are most relevant to that brand. CompUSA can retrench around a smaller store base; if 50% of the chain is not performing to even tolerable levels then so be it. For the remaining stores though, CompUSA can turn this around by looking into the business with both analysis and consumer research, to identify not only those categories which can be productive but also those which are most relevant to their brand, stores, and channel. Once assortments are rationalized, then existing store space should be re-allocated, and future store sizes reconsidered. CompUSA’s only future is in logical categories, inside stores that are the right size to be productive.