News that CompUSA will shut its remaining 100 stores and sell off its assets offers some insight for distributors and manufacturers feeling the pressures of consolidation. The downturn of the electronics retailer was not for lack of investment, but likely poor positioning.
Investing in the business in the late 1990s, Mexican telecom and retail store magnate Carlos Slim (now the richest man in the world) took CompUSA private, and the company grew its consumer electronics business through acquisition, including The Good Guys, a California chain.
The Wall Street Journal estimates annual sales last year at $4 billion, but likely to come in at $1.5 billion this year. Early in 2007, it said it would close 126 stores, more than half of its total then.
Anyone who visited a CompUSA had a good chance of having a less-than-stellar service experience. So it’s not surprising the company found itself in a bad corner. It was competing with Best Buy and Wal-Mart on the retail side, and Dell and PC catalog vendors on the other. It was outgunned on the low-price and selection side, and clearly could not differentiate on the service side. In fact, Best Buy a few years ago saw its weakness on service and beefed up its service and value-added capabilities.
CompUSA’s last survival attempt this year was to target small businesses and affluent consumers, groups with high service needs and potential high margins. They require extremely high customer service levels to outweigh competitor price advantages. Wholesale distribution markets are much more fragmented, but it has become just as hard to compete head-to-head with low-cost providers, whether national chains or catalogs. It is critical to offer distinctive value to customers outside the product boxes.