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?
in the middle, CompUSA retrenches, especially in California – Los Angeles Times
- Game Over For Retail, or Just CompUSA? – InternetNews.com