CompUSA Closing Over Half of Stores
Wednesday, February 28th, 2007http://www.extremetech.com/article2/0,1697,2099068,00.asp
NEW YORK, Feb 27 (Reuters) - CompUSA, the computer and gadget retailer owned by Mexican billionaire Carlos Slim, said on Tuesday it would close more than half of its U.S. retail locations over the next two to three months to focus on top performing locations.
CompUSA said in a statement it would close 126 of its stores and would receive a $440 million cash capital infusion, but it was not specific as to the source of the cash. The company also said it would cut costs and restructure.
The company operates 225 stores, which its Web site says are located in the United States and Puerto Rico.
“Based on changing conditions in the consumer retail electronics markets, the company identified the need to close and sell stores with low performance or nonstrategic, old store layouts and locations faced with market saturation,” Roman Ross, chief executive officer of CompUSA, said in the statement.
“The process began last week with the closing of four CompUSA stores and over the next 60-90 days, the company will close a total of 126 stores in the United States to focus on initiative that enhance its top performing locations .”
On Monday, CompUSA said it would close two stores in California, one in Texas and one in Illinois. CompUSA said it was trying to streamline operations and bolster margins at top-performing stores.
Last September, an official from Slim’s conglomerate Grupo Carso told Reuters that Slim, the third-richest man in the world, was considering selling the loss-making business.
Intense gross margin pressure, especially in the flat panel television category, has plagued others in this sector, contributing to Circuit City Stores Inc.’s announcement earlier this month that it was closing 70 stores.
CompUSA competes with Best Buy and Circuit City.
What the article doesn’t say so clearly is that both CompUSA and Circuit City are getting the stuffing kicked out of them by Best Buy. I worked full-time at a CompUSA store in Little Rock when they were at their peak, and even though they were holding their own, Best Buy was firm competition. Circuit City, on the other hand, had an outdated business model and store layout that made them inferior to CompUSA and absolutely pitiful compared to the emerging Best Buy.
I also worked for a while at a Circuit City during my Freshman year at university. When the store manager announced during a meeting that Best Buy was constructing a store in Jackson, I commented to a co-worker that they were going to “eat us for lunch” when they opened the store. Management assured us that “although Circuit City can’t necessarily match Best Buy on selection or prices, what we can beat them with is customer service!”
Yeah, I kind of bailed soon after that. The Jackson Circuit City closed abruptly about a year after Best Buy opened, if I recall correctly.
In order to survive in a non-niche market, a business model must allow a business to either dominate or differentiate. Target would have to stretch to meet the rock-bottom prices at Wal-mart, and yet Target survives because there are people that just won’t shop at Wal-mart, and prefer Target’s slightly less low-end merchandise, which they perceive as higher-class than that of Wal-mart. People always talk about small businesses being the victim of Wal-mart, but the truth of the matter is that the businesses that could provide enough differentiation through service or special selection survived Wal-mart moving into their area, but those that had nothing to offer except being one of the only places to get something got stomped when competition came along who could leverage its considerable weight to lower prices.
Circuit City, at least in my area, wasn’t able to differentiate enough to prevent hemorrhaging of customers when better prices and selection came along, and seems to exist nationally only as a shell of its former self. CompUSA appears to have held on longer, perhaps having a business model that allows for a comparable selection of consumer electronics, plus a greater corporate appreciation for the geek hobbyist (who desires to build his own computer from components) than Best Buy. But when was the last time you heard of someone building a computer from components bought from a retail store? The online retailer has taken away one of the last advantages CompUSA had, and now it dangles by a thread in the shadow of Best Buy.
“Based on changing conditions in the consumer retail electronics markets, the company identified the need to close and sell stores with low performance or nonstrategic, old store layouts and locations faced with market saturation,” is equivalent to saying “We can’t compete toe to toe with our competition, but we hope to survive by being everywhere that they aren’t.”
Which is the desperate plea of a doomed business model. I declare Best Buy the winner of the consumer electronics war of the previous ten years. We’ll see how the Best Buy vs. Wal-mart vs. The Internet war of the next decade goes.
