CompUSA Who?

I'm going to start this post a little differently, with a disclosure. Since I own no stock in any of the companies I talk about, nor do I work for any of them, I feel I can make any observations I want. While that is true about every other article I've written, I have worked at this company. I was hired by CompUSA in October of 2003. I worked first on the sales floor, and later as an Assistant Retail Sales Manager. I left the company in May of 2007, when the branch near me closed (more on that later). This both gives credence to my observations and has the risk of distorting my views since I actually worked there. You can be the judge.

I should start with a history lesson since many of you probably haven't ever heard of CompUSA, even though they are one of the largest electronic retailers in the US, and have been for many years. I used to describe the marketing quality of CompUSA like this:

If you were to fly to Afghanistan and arrive in a random city, you would rent a Jeep and drive straight out into the desert. After you were at least 50 miles away from any sign of civilization, you would start looking for the first band of nomads you could find and ask them a simple question: "Have you ever heard of Wendy's?" The answer will probably be, "Of course I've heard of Wendy's! I love their Big Bacon Classic." Do you know why this statement, while ridiculous, is probably true? Because Wendy's actually knows how to market to consumers. But back to CompUSA. I was actually told on several occasions by customers, "You know, I actually live just up the street from your store and I've never heard of it."

Did you know that CompUSA has higher yearly sales (in 2005 before they started closing stores) than Pep Boys, Abercrombie & Fitch, Men's Warehouse, Dollar Tree, Petsmart, Advance Auto Parts, and WENDY's. Not only is CompUSA bigger then Wendy's (despite the fact that they haven't grown at all in the last 7 years; meanwhile Best Buy has tripled and Circuit City has doubled), but CompUSA has almost twice their annual sales (4.7 billion versus 2.4 billion).

Listed below are the 7 largest "electronics" retailers in the US. How many have you heard of? My guess is 6.

(I'm excluding Walmart, Kmart, Costco, and other major retailers who happen to sell electronics.)

(data from the Fortune 500 list)
Best Buy - 30,848 Staples - 18,161
Office Depot - 15,011
Circuit City - 11,598
Game Stop - 5,319
Radio Shack - 4,778
CompUSA - 4,700 (estimate from 2006. Since it is a privately held company, more accurate numbers are not available)

I'm not sure what the executives at CompUSA have been thinking, but at one time they were bigger than both Best Buy and Circuit City. I think it has something to do with the fact that they are absolute morons when it comes to marketing.

Last week I was in Cleveland and I was looking through the ads in the newspaper. Best Buy had a great 50 page ad (it is almost Christmas time, after all), Circuit City had a 30 page ad, and CompUSA didn't have one. I actually went to the CompUSA in Fairlawn, OH (not more then 15 miles from my locale) and they actually had an ad in the store when I first walked in. Although it was really a pittance of an ad at about 8 pages. So this is their wonderful strategy: don't advertise externally to drive traffic into the store, but wait till people come in on their own and then mark the product down (in the ad) so that you'll lose more money on it. Absolutely brilliant, CompUSA. You get an A++ for your marketing strategy.

Let me ask another question. Have you ever seen a Best Buy commercial (or more like a 1,000)? Does "Turn on the Fun" sound familiar? Perhaps a Circuit City commercial? How about CompUSA? Yeah, I didn't think so, for the last one. Despite being one of the largest retailers in the nation, CompUSA thought it would be prudent to never advise on TV at all, because after all, it's just a passing fad that no one uses (only 112 million households). I worked at CompUSA for nearly four years and I can tell you with absolute certainty that CompUSA only ran ads for one month of that time period. The one time they actually tried running ads (which were on major stations like TBS, nationwide) for a single month, they didn't see their sales jump 150% instantaneously and decided to stop running them.

Many advertising experts believe it takes at least 5 to 7 times seeing a company's ad before a consumer will start to recognize your brand. I've seen some studies that say it takes as many as 25 times seeing the brand name before you'll recognize it and consider doing business with the company. CompUSA's main problem is that they either do nothing and hope it gets better, or try for a little while and give up long before they'll actually start seeing the fruits of their labor.

As if the fact that they didn't advertise wasn't bad enough, their logistics were even worse. Say whatever you want about how Walmart got as big as they are ($352 billion in 2006), but their logistics team is incredible. If you go into a store and buy something, the second the transaction is completed a factory in China starts making another one and within a couple of days it's at the store. I realize that this is a gross oversimplification, but they have done something that no one ever thought was possible. They are not only by far the largest company in the world but they are still growing at over 10% a year. Think of it this way; in order for Walmart to gain another 10% in sales next year they'll have to grow their sales by 106 million dollars per day. They are going to grow (in only new business) a CompUSA every 44 days.

Let's contrast that above paragraph to CompUSA's logistics strategy. To put it simply, they didn't have one at all. Basically what they did was allocate a percentage of new product to a store, not based on their actual sales, but rather on their gross yearly sales. So if store A sells a lot of low end computers (<$1000) and does 1 million in yearly sales, and store B sells a lot of high end computers (>$1000) and does 2 million in yearly sales, this is how things would get allocated. If CompUSA bought 300 $2,000 computers, they would send 100 to store A and 200 to store B. Now, this doesn't seem like that bad of a strategy, but let me add this little tidbit of information. What if I told you that store A hasn't sold a single computer over $1,500 in the last six months, while store B has sold every single one they got and often has none in stock to sell. It's starting to sound a little stupid, isn't it?

Well, this is exactly what I witnessed while working there. In Columbus, there used to be two CompUSAs. One that sold a lot of lower end computers (my store) and another that tended to sell a lot more high end electronics (like plasma TVs, $2000 computers, etc..) So every time my store got a $2,000 Sony laptop we would try to sell it but it would end up sitting there for 6 months until the corporate office decided to clearance it, at which point we would sell it for several hundred dollars under cost (cost is what CompUSA paid for it wholesale).

I watched this happen over and over and over again. We would never get the things we actually sold in stock, but we'd get hundreds (one time literally 700 6ft USB cables in one day - we usually sold about 100 a month) of units of product that we either couldn't sell or which would take us a year to sell. Praytell, what would happen if we didn't sell any of that particular product? Well, the next month we'd get more of it. Not being at the corporate office in Texas, I can't be 100% sure, but from talking to the managers in other stores and in looking at sales and inventory numbers for the stores, it appears that corporate didn't ever look at anything.

I can be pretty sure about the above statement because in the spring of 2007 CompUSA closed approxiemtaly 1/3 of it's least profitable stores, including both my store and it's sister store in Columbus, Ohio. Not that I was suprised. After all I had been saying that things weren't being done right for three years. Some of the blame has to rest on store management (inlcuding myself) but by far the vast majority needs to rest of the corporate office. At the store level you can only really do some much with what you have. I mean their corporate buyers must have really sucked at math because our pricing was so bad that sometimes even I didn't shop there. Last year, I bought a new motherboard on newegg.com for $175 even though I could buy things at cost at the store. Why? Because CompUSA's cost on it was $250. That's right, CompUSA's cost was $75 higher then Newegg's retail price. Sadly, this happened far too often.

Not that everything was bad. According to Consumer Reports, CompUSA was always ranked very highly in customer service and knowledge of product. You can be sure that if you talked to someone at CompUSA, they'd know everything about your computer. When I used to "mystery shop" our competitors, it would appall me how stupid the guys at Best Buy are. You can ask them the simplest questions and they scratch their heads. If you asked any guy at CompUSA what the L2 cache of a processor was or any number of random complicated questions, you can bet that they probably knew the answer immediately. (I sure do.) After comparing the two stores I couldn't believe that people would buy computers (CDs and DVDs of course) at Best Buy instead of CompUSA, but that's what happens when people don't know you are there.

Which brings me back to the beginning. When I started working at CompUSA in 2003, it was because I went there to buy an MP3 player, and was so impressed by the knowledge of the salesman and selection they had that I filled out an application on the spot. Not two months later, I started making comments about how poorly the store was run and I could often be heard saying, "CompUSA is either going to get bought out by another retailer or go bankrupt within 5 years." I often make blanket statements like that based on my observations, and in this case I was nearly dead on. It was announced earlier this week, that in January of 2008 (4 years and 3 months after I started working there) that CompUSA will be closing all of their remaining stores and going out of business forever.

As is often the case, the most discerning eye is at the bottom of the company and not at the top. I used to say that if I took a crap on the CEO's desk and the board of directors voted it in as the new CEO, that the company would be better off. While this is a humorous notion, I nonetheless believe it wholeheartedly. The company executive leadership team was so moronic that the company would have been better served by piles of crap that just sat there and did nothing but stay out of the way.

I can't tell you how many times CompUSA would start a great program, like the 'CompUSA Network' (a rewards program), only to cancel it shortly afterward (a little over a year later). When that program launched, it was literally the most important thing in the entire world that each store sign up every customer who walked into the building. It got to the point that some stores were actually giving it away (it cost $15-20) on slow days because if they didn't sell enough they got completely reamed by upper management. Now, if you were the General Manager of a store that made a net profit (profit leftover after all expenses have been paid) of over a million dollars a month, that meant absolutely nothing if your store didn't sign 50 people up for the CompUSA Network. If executive bonuses are tied to stupid things like 'CompUSA Network' sales rather then actual net profit dollars, is it any surprise that they are going out of business?

Since I got to see the store's P&L (profit and loss statements), I can tell you that the managers got bonuses some months that the store itself actually lost money after expenses. They actually got a bonus even if the store lost money as long as they performed at other things. I can't say how other retailers do it, but if you don't encourage people to make margin, your company isn't going to make any either.

As I reflect on the events that will transpire of the next few weeks, I am saddened by the thought that soon the best computer retailer (CompUSA usually has over different 100 laptop and desktop models in stock while Best Buy and Circuit City have 20-30) in the US will be gone forever. Not because I worked there, but because I'm losing my favorite place to shop. Here's to you, CompUSA. A retailer who was great at the store level (in customer service), but completely lousy at the top. It just goes to show you that good advertising, expert logistics, and plain old common sense are the best ways to run a business.

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