CompUSA, Inc. History

Address:

14951 North Dallas Parkway
Dallas, Texas 75240
U.S.A.

Telephone: (972) 982-4000
Fax: (972) 982-4276

Wholly Owned Subsidiary of Grupo Sanborns S.A. de C.V.
Incorporated: 1984 as Soft Warehouse
Employees:19,700
Sales: $6.32 billion (1999)
NAIC: 44312 Computer and Software Stores; 45411 Electronic Shopping and Mail-Order Houses; 811212 Computer and Office Machine Repair and Maintenance

Company Perspectives:

CompUSA's mission is to market goods and services that help customers use and manage information to improve the quality of personal and organizational life. CompUSA strives to provide the best value in all of the businesses it operates.

Company History:

CompUSA, Inc. is a leading operator of computer superstores in the United States, with more than 200 stores in 84 major metropolitan markets. CompUSA stores offer more than 5,000 products, including microcomputer hardware, software, accessories, and related items. The company's operations also include direct sales to corporate, government, and education customers. CompUSA superstores, each of which have approximately 25,000 square feet of retail space, offer technical support to their customers, repair and service of merchandise, and training centers. Sales via the Internet are conducted through a subsidiary named CompUSA Net.com Inc., which operates the web site cozone.com. CompUSA also sells build-to-order desktop and notebook personal computers through a subsidiary named CompUSA PC Inc.

1980s Origins

CompUSA began in Dallas in 1984 under the name Soft Warehouse, a company that initially sold software and hardware directly to corporate customers and within a year had opened its first retail store. During its early years, management explored the idea of opening a superstore, a large facility offering complete lines of low-cost merchandise. While the concept had proved successful for such retailers as Toys `R' Us, Circuit City, and Office Depot, computer retail was generally thought to require a smaller sales staff expert in the technical nuances of the product. Soft Warehouse, however, speculated that as the public became more familiar with computers, the computer retail operation would broaden in scope, and with a staff and management more skilled in marketing than in computers, the company opened its first superstore in 1988. While retail chains such as ComputerCity and BusinessLand emerged during the early 1980s, Soft Warehouse developed the first chain of superstores in the computer market.

In January 1989, Soft Warehouse was acquired by a group of investors led by Ronald N. Dubin. Late that year, the company hired as its president and chief executive officer Nathan Morton, a former top executive of a leading retail chain called Home Depot. Morton had no background in computers, and he later recalled for a 1993 New York Times article that his friends and family were shocked that he took the leadership position at Soft Warehouse, some attributing the move to a mid-life crisis.

Morton, however, had a unique vision for the development of Soft Warehouse, which led to a period of explosive expansion for the company. Along with other new executives, who came to Soft Warehouse from Kmart, Hechingers, and Wickes Lumber, Morton planned the construction of a series of superstores that would provide the lowest prices in the industry and the largest selection available on a national scale. Eighteen superstores were in operation by the end of the 1980s, and sales increased dramatically from $66 million in fiscal 1988 to $600 million in 1990. The company became the largest chain of computer superstores in the country, changing its name to CompUSA in 1991.

The success of CompUSA was due in part to its finely honed system of merchandise flow. Rather than maintaining an expensive network of warehouses and trucking lines, CompUSA management used computer software to help track inventory and anticipate consumer demand, allowing them to stock the right amount of merchandise in the stores.

Through 1990, product lines at the CompUSA superstores consisted largely of IBM clone personal computers, including a private brand line known as Compudyne. In 1991, the company persuaded manufacturer Apple Computer, Inc. to allow the distribution of the Apple Macintosh personal computer through CompUSA. As Apple had never before allowed distribution through discounters, the company regarded this agreement as reflecting its reputation as a national marketing force. Soon thereafter, CompUSA gained the right to sell another major personal computer brand, Compaq.

While 35 percent of CompUSA's sales were to corporate buyers in 1991, a growing market of home computer users also fueled the company's expansion. In the early 1990s, an estimated 75 million Americans were using personal computers, and users were increasingly willing and able to install and maintain their own equipment without deferring to a computer expert. Moreover, dramatic increases occurred in the number of Americans either working from computers in the home or running home-based businesses as their primary occupation. Catering to this new market, CompUSA provided free information pamphlets throughout its stores to help consumers better understand product capabilities, and the stores featured low prices that were particularly appreciated by small business and home users.

Early 1990s: A Rising Giant Suffers Sagging Profits

In December 1991, CompUSA completed an initial public offering of its shares. Trading began at $15 and within a few months reached a high of $40 as investors leaped at the chance to buy into the burgeoning company. Losses reported in the prior year were attributable to control issues, and CompUSA's sales continued to increase. By the end of 1992, CompUSA operated 36 superstores across the country and had plans to add 12 more over the next six months. The company also introduced training centers in most of its stores, offering computer courses to its customers that generated nearly $700,000 a month, most of which was profit, helping offset low profit margins caused by heightened competition in the industry. The company's sales for 1992 reached $820 million.

In 1993, CompUSA decentralized its corporate structure in preparation for future growth. Nathan Morton was promoted from president to chairperson and CEO, replacing Ronald Dubin. Morton divided the company into three operating units responsible for the eastern, western, and central areas of the United States. An international unit was also formed to research expansion into Canada, Mexico, and Europe.

In spite of the company's expanding sales territories, however, profits lagged. Typical quarterly sales increases of 60 percent failed to generate similar increases in net income, and during the first quarter of 1993, CompUSA reported a 65.8 percent increase in sales and overall losses totaling $986,000. Operating expenses associated with opening new stores as well as high interest expenses contributed to the loss. At a board meeting in December 1993, Morton resigned.

Morton's replacement was CompUSA's president and chief operating officer James Halpin, who had come to the company six months earlier from the Home Base home improvement retail chain. Halpin oversaw the last weeks of the fiscal second quarter in which sales surged 65 percent and the company posted a loss of $5.5 million. He agreed that expenses had gotten out of hand. Rather than trimming expenses by slowing the company's growth, Halpin's plan included out-sourcing assembly of Compudyne computers, centralizing inventory management, and consolidating the management structure by eliminating several executive positions. With these measures, Halpin hoped to restore CompUSA to profitability, facilitating his plan to open 30 new stores by June 1995, which would bring the total number of CompUSA superstores to nearly 80.

Late 1990s Roller-Coaster Ride

Halpin quickly asserted himself, orchestrating a remarkable turnaround that soon had industry observers applauding the resurrection of CompUSA. As he had initially announced, CompUSA's corporate structure was trimmed, purged of posts deemed superfluous. Operating costs were slashed and the company's merchandising mix was revamped, marking the exit of products such as ready-to-assemble furniture to make room for higher-profit computer accessories. By mid-1996, the company was preparing to announce record sales of $3.5 billion and, more impressively, record profits. CompUSA's chief operating officer, Hal Compton, described the influence of Halpin's leadership in an interview with Discount Store News on May 20, 1996. 'In August of 1994,' he said, 'our stock was at 6, we'd lost $20 million in the previous year, and we were completely out of cash. A year and a half later the stock is soaring [nearly $35 per share at the time], we're reporting record profits and we're sitting on $300 million in cash.'

Less than two years after insolvency loomed, CompUSA could justify developing ambitious expansion plans. With 105 stores in operation by mid-1996, the company announced it would add 25 units in 1997 and another 35 units in 1998, aiming for a projected total of 200 stores by the end of the decade. An even bolder bid toward expansion had been made earlier in 1996, when CompUSA attempted to purchase Tandy Corporation's 100-unit Computer City chain. The deal fell through, however, only to be revived months later when negotiations resumed. Eventually, in August 1998, CompUSA completed the windfall deal, purchasing one of its most nettlesome rivals for approximately $175 million. The company appeared destined to blanket the nation with its stores, but not long after the Computer City acquisition was completed, Halpin found himself occupying as tenuous a position as he had occupied only a few short years earlier. CompUSA, for the second time in six years, was suffering from profound problems.

By the end of the 1990s, CompUSA was adrift financially again. The company reported an operating loss of $54.2 million in June 1999, with analysts projecting a $22 million loss on declining sales in 2000. In response, the company's stock value

1984:Soft Warehouse is founded in Dallas.

1985:Company opens its first retail store.

1988:Company opens its first superstore.

1991:CompUSA is adopted as corporate title.

1996:PCS Compleat, Inc. is acquired.

1998:Computer City is acquired.

2000:Grupo Sanborns completes acquisition of CompUSA.

By the end of the decade, desperate times had descended on CompUSA. Another miraculous comeback was needed, and the ramifications of its failure were straightforward. 'It's clear this turnaround has to work,' CompUSA's chairman told Business Week on December 20, 1999. 'If it doesn't, the management has to be changed,' he added. With his back against a wall, Halpin announced his plan for recovery, pinning the company's hopes on an online operation called cozone.com and the alteration of CompUSA's merchandise mix, which was expected to reflect a greater emphasis on expensive consumer electronics products such as digital cameras, handheld computers, smart toys, and cellular phones. As Halpin began implementing his vision, an added twist to the mystery of CompUSA's future occurred in March 2000, when a massive, Mexico-based telecommunications and retail conglomerate, Grupo Sanborns S.A. de C.V., acquired CompUSA. Concurrently, Grupo Sanborns announced it intended to sell 49 percent of CompUSA to a consortium comprising Telefonos de Mexico, San Antonio-based SBC Communications Inc., and Microsoft Corp. As CompUSA charted its course for the beginning of the 21st century, the influence of its new owners remained as unclear as its ability to establish itself as a retail leader.

Principal Subsidiaries: CompUSA PC, Inc.; CompUSA Net.com Inc.

Principal Competitors: Best Buy Co., Inc.; Circuit City Stores, Inc.; Dell Computer Corporation; Gateway, Inc.; Compaq Computer Corporation.

CompUSA, Inc. History

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