CompUSA will be closing its doors after the holidays following its sale to Gordon Brothers Group, a restructuring firm. Last spring the company had already shut down more than half of its stores and had received a $440 million cash infusion for restructuring. Clearly the restructuring didn't work out as planned. 
The news of this bankruptcy has led quite a few to ask the question, is this a case of poor management or the sign of a larger macroeconomic problem? I argue that this is primarily a case of mismanagement and issues within the business model at CompUSA. The company was never able to get the needed edge over its fierce competition in the electronics and computing industry. Such competitors as Best Buy (NYSE:BBY), Wal-Mart (NYSE:WMT), and even more recently Apple (Nasdaq:AAPL) were consistently able to market their products better and have much higher margins. Even the ever-struggling Circuit City (NYSE:CC) was able to draw customers in better than CompUSA.
It's hard to believe that CompUSA had been around now for 23 years and for some time a few years ago it was actually considered a major player in the consumer electronics world. The store has always been a hot spot around Black Friday for great prices on Christmas gifts. Unfortunately for CompUSA, they were unable to withstand the competitive pressures from their larger and seemingly more adaptable competitors.
It seems to me this year is just like most others, electronics are a very hot item for Christmas. It is likely that the Best Buy's of the world will do just fine, if not better during this Christmas season. The moral of the story here is this; don't make too much of the CompUSA news. Such is the American economy, and always will be the American economy, competition is fierce and those who get severely behind will not make it.
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I think you may be missing a different market competition at work here. Online stores.
What customers did CompUSA market towards? Slightly more gearheaded computer users than the rest. Well, guess what, gearheads and even slight gearheads have begun to realize that you can consistently save 20-70% on products when buying online, even reputable ones like newegg.com and tiger direct. Gearheads are also more often on the cutting edge and willing to do the online experience more often than everyday joes.
I know that I, for one, have bought and returned most products bought from CompUSA, just because I see it priced ridiculously lower online. That is just the lower priced items. What techie wants to buy a $4000 TV and stereo from CompUSA that he could have got for $2300 online?
I think we will see it hard for any other store to come up and take compUSAs place in the brick and mortar market from here on out. Actually, over the next 10 years, I wouldn't be surprised if BestBuy begins losing many sales to online bargain huts. There will always be that market of users that want and need that in-person experience, it just might be a smaller number of people.
Posted by: Nick Yeates | December 10, 2007 6:38 PM | Permalink to Comment