From today's "The Street.com" Despite all this I'm holding on in hopes that the board does its job and brings in a new CEO. CPU has a really unique franchise that will be hard to destroy. Just having some truly knowledgable employees in the stores would probably be enough.
After Grueling Woes, CompUSA's
Revival Efforts Fail to Spark Faith
By Suzanne Kapner
Senior Writer
12/30/99 12:45 PM ET
DALLAS -- Three years ago, it was the
red flag from company workers about
falling PC prices. Then came more
insider warnings about inefficient selling
practices and antiquated computers.
Finally, there was the poor service that
was sending customers away in droves.
But inside a gleaming Dallas high-rise, senior CompUSA
(CPU:NYSE - news) executives ignored or minimized the
danger signs, say six former and current employees. The result:
A company that once sat near the pinnacle of the
home-computer industry is scrambling for its life.
For investors, what happened to CompUSA is more than a tale
of a fallen Goliath. Some of the problems were out in the public
eye -- for retail investors to see. But Wall Street overlooked
them, at one point driving the stock up to a market cap of
around $3.5 billion back in December 1997.
Now, that market cap hovers under $500 million. And with
losses piling up -- fiscal 1999 produced $46 million in red ink,
after charges -- the stock of the PC retailer is languishing
around its 52-week low of 5 1/8, just set Tuesday. Wednesday
evening's sales report -- of disappointing figures -- wasn't much
help.
"I don't see a rapid turnaround in their core business,' says
Scot Cicarrelli, an analyst with Gerard Klauer Mattison, a firm
that hasn't done underwriting for CompUSA. He projects losses
of $20 million this fiscal year, on a 9% sales decline to $5.7
billion.
CompUSA
Company snapshot
FY 99
FY 00
(estimates)
EPS (loss)
50 cents*
(.21 cents)
Revenue
$6.3 billion
$5.7 billion
Market cap as of 12/30
$481 million
Headquarters
Dallas
Employees
20,000
Stores
210
*After charges. Fiscal year ends June. Source: Company and analyst reports.
So how did it happen? TheStreet.com talked with current and
former employees, corporate clients and retail customers. The
picture that emerges is one of a poorly managed company that
tolerated too many mistakes.
Now, CompUSA is set on turning itself around. Trying to cut
$100 million in costs, management has announced plans to
improve customer service, update stores, make better use of
the Web, install new software systems and revamp sales.
But to some observers, the game is up.
Ready, Shoot, Aim
Lots went wrong at CompUSA these past few years. But some
critics point first at CEO James Halpin and his team's
management practices.
Lawrence Mondry, vice president of merchandising, says, "If we
have a fault, we act sometimes before we're completely ready."
According to a former executive who declined to be named,
employees derided management's tactics as "ready, shoot,
aim."
"New endeavors would start, and there was no plan to execute
them," the former executive says. "We often didn't have
systems or infrastructure to get things done."
The former executive points to an example where the company
developed a build-to-order PC plan to compete with Dell
(DELL:Nasdaq - news) and Gateway (GTW:NYSE - news)
without having the manufacturing and sales teams in place to
support the product.
A spokeswoman disagrees, saying extensive research was
conducted and all manufacturing and sales plans were laid out
before the product was unveiled.
According to others, CompUSA's corporate division was so rife
with inefficiencies that each store had its own corporate sales
people and support staff, as if running hundreds of
mini-companies. In addition to duplicating back-office costs,
markets with multiple stores often saw salespeople competing
for the same corporate customer, says Jim Swartout, a onetime
district sales manager.
It wasn't until this summer, when the corporate division lost an
estimated $75,000 on $2 billion in sales for the fiscal year
ended in June, that management made serious changes. Gone
were 1,800 of 3,600 in the division. In place of the decentralized
structure were 200 area managers supported by a call center.
Even this necessary step was bungled, say former employees
and corporate customers.
Without any warning that changes were afoot, a computer buyer
for a large medical organization arrived at work one Monday in
August to find she was unable to contact CompUSA, her
longtime supplier. "It took them five days before they gave me a
phone number so I could check on the status of some goods I'd
ordered," says the buyer, who asked not to be identified. "I tried
to cancel the order, but they wouldn't let me."
Fed up, the organization, which had purchased more than $7
million worth of hardware from CompUSA annually, stopped
doing business with the company in September.
Halpin, CompUSA's CEO, says that the account likely was an
unprofitable one, among many that the company has cut off. As
a result, corporate sales are expected to decline 60% this year,
and Halpin says he's unsure where they will bottom.
Management structure wasn't the retailer's only trouble. For a
company that billed itself as a computer superstore,
CompUSA's own systems were so antiquated that salespeople
had to manually input invoice numbers, says a former corporate
sales manager. "We had 50 to 60 computers going out at one
time," he says. "Someone had to sit there and key in every
serial number."
CompUSA has since invested $130 million in new systems --
money that could have been spent sooner if the company hadn't
doled out $175 million to buy the ailing Computer City chain
from Tandy (TAN:NYSE - news), the executive says.
(CompUSA defends the acquisition, completed in August, as a
chance to eliminate a competitor.)
Meanwhile, for all the talk of improving customer service, not
much had changed when Joe Faber, a 24-year-old Manhattan
resident, visited a CompUSA store in northern New Jersey last
month in search of a 19-inch monitor for his mother's
Macintosh computer. After purchasing the monitor, Faber
realized it was too large to fit in his compact car. So he took it
back inside and asked a clerk to deliver it the three miles to his
mother's house. The delivery charge was $80.
Frustrated after spending an hour and a half in the store, he
returned the monitor and left empty-handed. A few days later,
he logged on to outpost.com, owned by Cyberian Outpost
(COOL:Nasdaq - news) and bought the monitor for the same
price. Overnight shipping was free. "I will never shop at
CompUSA again," Faber says.
Halpin's response to the incident: Delivering that item may have
eaten up the margin.
Not a Dinosaur
It's this kind of history that makes Wall Street question if
CompUSA can come back.
"My bet is that they'll get bought by someone eventually,' says
Arvind Bhatia, an analyst with Southwest Securities, who
thinks the stock is cheap for an outfit with a solid brand name.
Bhatia, whose firm hasn't done underwriting for CompUSA, rates
the shares accumulate.
If CompUSA is indeed a takeover target, Halpin won't discuss it.
Indeed, Halpin, CompUSA's chief exec since 1993, is the
picture of determination, bristling at suggestions that he's at
fault for the downfall.
And to be sure, outside forces such as the collapsing price of
PCs made Halpin's job all the more difficult. After selling $500
worth of computers, CompUSA is lucky to have $40 left in gross
profit. By comparison, a clothing retailer would have about half
of the $500.
How Low Can You Go?
CompUSA stock price vs. average retail PC price
Source: PCData and Baseline
Even so, Halpin remains an optimist. After all, he brought the
company back from the brink before. He reversed a fiscal 1994
loss and presided over the company through its glory days.
"We have a drawer in the office filled with candy --- to keep the
energy up,' he says, invoking a can-do theme in senior ranks.
"The changes we made in the last 12 months would take a lot of
companies five years to make.'
Indeed, there are some signs of improvement. Gross margins,
which had dropped as low as 10% and rose to 15% in the
September quarter, are expected to set a new high of 16% for
the December quarter, Halpin says.
Samuel Crowley, vice president of operations, points to a
particularly pleasing sign: Customer complaints are down by
half compared with a year ago. He cites better training and
complaint tracking, use of company shoppers to measure
service and spot telephone checks of customer satisfaction.
Beyond these steps, CompUSA is branching into DVD players
and digital cameras to become more of a technology superstore
and is planning to spin off its e-commerce site, cozone.com, in
an initial public offering in the coming year.
"We're not a dinosaur," Halpin says.
Perhaps not. But CompUSA can't afford any mo |
