Case Study: Why CompUSA Is Losing The Battle For Computer And Electronics Sales

March 27th, 2007 (15,172 views) by Pinny Cohen

CompUSA logoCompUSA, a nationwide computer and software chain, grew immensely in popularity in the late 90′s and seemed poised to own a significant market share in the personal computer and software market for the foreseeable future. Last week however, CompUSA announced it was closing 126, including ten out of eleven stores in New Jersey, a major market for computer sales. This massive change in market placement didn’t happen overnight though, so what happened?

Dominance

Early on in CompUSA’s existence, a different chain named “Computer City” challenged CompUSA. CompUSA, which had the better brand name, and offered special “free after rebate” sales, beat down Computer City, and eventually bought up the chain at a steal of a deal. One down, many more to go.

Competition

As in any hot market, more competitors showed up after CompUSA’s original success. Rivals such as Best Buy, Circuit City, RadioShack started carrying software and computer related items.

What were their core businesses originally?

Best Buy – Appliances, TV, Electronics, Movies, Video Games
Circuit City – Electronics, Office
RadioShack – Electronics
Office Depot – Office, Fax, Furniture

Each of these business models changed after CompUSA’s initial success. They all started offering computers, monitors, software and accessories.

CompUSA meanwhile, hot off the success they had in the computer market, decided to battle these rivals on their own turf by adding in video games, electronics, cell phones, TVs, and even cellular service to their own stores.

In line with the “Sharp Knife Through Soft Butter” Marketing Technique I have previously discussed, this started to dilute CompUSA’s brand as “the computer seller”, and actually brought on their demise.

Business Lesson: When you can’t get your core business right, the solution is not to expand the circle of products – rather to look into your company and figure out what you are doing incorrectly in the first place.

Customer Service

When they started, the general public knowledge of computers was very novice (aside from computer professionals), and people were happy to have someone in a CompUSA polo shirt tell them what each thing was (whether or not the information they received was accurate).

As the internet gained in popularity (enabling more computer related learning as well as more avenues for research on these products), and Generation Y grew up around computers, the general public was more informed about computing. Even “computer-illiterate” parents were able to just ask their children what to get and where to get it when it came to computers and software.

Aside from that, it was mostly young people who were providing the customer service and sales at your local CompUSA. Most of their peers were buying online, or attracted to “hip” stores like Best Buy instead. And, as is often the case, Baby Boomers prefer to deal with similarly aged people. The ensuing result was the loss of CompUSA’s entire base. This is actually reminiscent of what occurred to AOL, and why their browser was destined to fail (“built by dummies, made for dummies”).

Internet

Prices online almost always beat CompUSA’s prices. The two most organized attacks on their market share were Dell and Gateway’s direct sales model online, as well as “computer superstores online like NewEgg.com. CompUSA, in an effort to regain control, had special sales where after rebate computer related items were free….the same “diehard” computer fans would rush in each time (I was one of them), buy up everything free, and then leave. The normal buyers came later for one free item, saw it wasn’t even in stock, and left, pissed off forever at the store for lying and for the dreaded long lines.

Return Policy

One day, I’ll explain just how important proper return policies are (and I’m sure you’ll have strong feelings of your own about what constitutes a proper return policy), but for now let me just mention that at a certain point CompUSA changed their return policy to state that no opened items could be returned. This is virtually a death wish in a competitive market. Why would I ever risk buying something that didn’t fit, didn’t work, or wasn’t what I wanted if I can’t return it?

A typical visit to CompUSA would go like this:

I would go in, ask for some help finding a part for a certain product, and have a “consultant” show me the part. I would ask, “are you sure this is correct?”, to which I’d receive the reply “yes, this is right – I’m a consultant!”. Well, what do you know, I’d take it home, try to put it in, and find out it didn’t fit, didn’t work, or wasn’t what it claimed to be. I would then waste more time/gas driving back. I would get on the return line, which was on a regular basis twice as long as that to checkout (go figure). Once I finally reached the return desk, I would simply be informed “you can’t return that – it’s open”. I would then explain the situation, and go back and forth with them for 15 minutes while everyone lined behind me got a taste of what they were about to experience. The achievement I would feel, walking back to my car after successfully convincing them to return my item, would not be easy to understand unless you have been through the same.

The most interesting thing about this is my experience wasn’t isolated. I would routinely come across others who had similar experiences…this clearly wasn’t isolated instances I encountered.

The lesson for companies is:

a) Stick to your core business – it’s simple physics: if you are running in one direction at top speed, and never veer off that direct line, anyone else who is interested in catching you would need to be running faster than you or start at the same time as you. This is the strongest strategy.
b) Train your employees to the level of customer service that you would wish to receive at a store
c) Design an enjoyable experience for shoppers of your store.

I like to say, in business, we learn through mistakes; preferably not our own.

Did you have any experiences, good or bad with CompUSA? Feel free to add a comment.

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9 Responses to “Case Study: Why CompUSA Is Losing The Battle For Computer And Electronics Sales”

  1. Will Says:

    I worked at CompUSA for two years back in 1999 and 2000, and I couldn’t agree with you more. I don’t think they ever really understood who their core customers are.

    I remember back when they first started putting candy and magazines at the registers, I was appalled. One day I was the supervisor of the upgrades department, the next I was a candy salesman. Seriously, my bossed and manager pushed me to get my customers to buy candy! Who’d going to buy a bag of skittles when they’re paying for $200 worth of ram? Sure, we may have made a little extra profit when it happened, but I felt like it lowered our standard of service.

    Then they converted all our hardware salesman to commission. Guys that were making $12 an hour suddenly found themselves making $5. It was sheer panic, we lost a lot of good people when that happened. Those that stayed were the dregs of the bunch, the sleezy ones who had no problem selling $400 dollars in add-ons for a $200 product. It was around that time that a few of us began referring to the company as CompUSSR.

    I left in 2000 and haven’t looked back. Don’t get me wrong, I had some really good times working there. I met a lot of good friends that I still talk to. I just wouldn’t go through it again. Not with CompUSA. Not ever.

  2. pinnycohen Says:

    Will,

    Thank you for adding your own experiences with CompUSA. I think the reason why they added in the candy was that, at the time, it was mostly males 15-30 who entered the store (not many other people understood computers yet), and that market is very subject to impulse buying especially of junk food (remember Blockbuster stores?).

  3. Jack Diederich Says:

    If you want to see a focused computer/related store done right go to a Microcenter. Their website is horrible but the stores themselves are great. They have a good book selection, commodity items at commodity prices, and a big homebuild section for kiddies who like chrome and neon in their computers. They carry cheap beige boxes as well as Apples.

    What they don’t have is a strong national presence. I just happend to move from near the PA location to near the MA location. The two CompUSAs near me in MA have closed (Central Sq and Woburn) in the last few years but MicroCenter is still around.

    I’ve never been in a Fry’s so I can’t comment on how they compete with the other chains.

  4. John LeMasney Says:

    I have walked in and out of the two CompUSA stores in my New Jersey/Phila area [both closing] more than once with money in my pocket intended for a purchase. All they had to do was be civil, honest, and respectful to get my money, and they blew it more than once. Once I walked out with money still in hand after taking items to the register because they insisted that I give them my phone number, and rather than just accepting that I didn’t want to do that, or realizing that it was a breech of my privacy, they made it an issue. Business Lesson: If your employees don’t care about your customers, your customers will go elsewhere in droves. Business Lesson #2: You don’t need my phone number to take my money. I remember when they started pushing ‘lifestyle’ items, and all I thought was, I can get this nonsense at Best Buy – I went to CompUSA for the technology niche items, and when they diluted the focus, they removed my reason for showing up there. Great post, Pinny.

  5. Tommy Moon Says:

    As a tech geek, not an entepreneur or businessman, I first went into CompUSA early in 1993 to buy a flatbed scanner. While scanners were still rather pricy at the time, I narrowed it down to either a Mustek (now Microtec) at $800 straight, or an Epson at $1000 (which would need an additional hardware interface for PC’s at $200). I chose the Mustek and was very happy with it for many years.

    Over the years I’d go into CompUSA for little nuts & bolts things … cables, interface cards, hard drives, memory, accessories, etc …. no problem. Then all of a sudden that started to change, all of a sudden there was no floor help available, and worstly the ‘prices’ weren’t posted on the little items displayed. I’d have to either search for the price on a big poster near the items, using the UPC code, or drag them over to the main desk so that they can be ‘scanned’ for their price. Ridiculous!

    Three years ago I needed a laptop computer quickly for a road trip that I was taking the next day. Found one that fit the bill perfectly in a CompUSA advertisement, just a basic unit that had everything that I needed and was on sale for $600 (after rebate). Perfect. The advertisement said that it included a *FREE* wireless router and printer, but I didn’t even really care about any of that since I already had a router and printer. I get to the CompUSA store, find the unit, and start looking around for some sales rep to “wrap it up” … one comes over, starts talking to me and then — tries to “talk me up” to a higher level model, one costing $400 more! I mention the free wireless router and printer, upon which he says that, no it was a misprint in the advert, the *free* stuff only comes with computers priced $800 or more … can you say “bait & switch” now? Anyway, I just want to get the darned thing, pay for it, and go home to set it up. The sales rep notices that I’m not responding to his pitch, comments that he isn’t making any commission on this sale and stalks off, saying that a ‘lower level’ rep will help me out from here on in.

    Amazing! It was an easy sale, all the guy had to do was write up the damn sales ticket and let me get out of there, but instead there is all this grief !!!

    From a consumers point of view, it is no wonder that CompUSA is hitting the dirt face down …….

  6. Scott Johnson Says:

    I am actually one of the poor folks still working for CompUSA. I’m actually a “refurbish technician”, which is fancy corporate talk for tech underling. Ive only worked here for 2 years but Im not new to this genre of commodity customer service since Ive been doing it over a decade since I was 14 and hopefully until I graduate college. Ive seen a number of the places Ive worked for make mistakes in practice and I have seen CompUSA make the same mistakes over the last 2 years that Ive seen from these other companies that have closed as well.

    In CompUSAs particular case I noticed that where they really excelled, for a time, was in the sales of computer subcomponents that were hard to find. At the time, few other places carried such things and it was where you went to actually SEE what you were going to possibly buy. Moreover, if you had a problem you could exchange it far easier than doing an RMA online. Then they started catering more toward complete computer systems and their basic peripherals. At first this works out great as full systems back then were still extremely expensive and weren’t a commodity purchase. They forsook the niche that they catered to very effectively when they did this. The margin for subcomponents is on par with that of an entire system none the less.

    I enter the scene a bit later working there and one of the first things I was instructed on was selling extended warentee plans. These things are only sold to suckered customers and people who know the system and how to exploit it. People who are informed don’t usually invest in these sorts of things. The problem is that now customers are seeing the prices drop on these systems and are considering them expendable, “I’ll buy a cheep one now, use it till it breaks, and buy another cheep one”. You cant sell warentees to people with this kind of outlook. That leaves those who know how to exploit the system to buy them. It’s a failed method and will go the way of mail in rebates before long I suspect. Unfortunately, CompUSA put a hefty amount of its eggs into this basket and are hurting because of it. Associates don’t want to sell to a customer that doesn’t intend to buy a warentee because it doesn’t give them a commissioned perk.

    Don’t get me started on a bad aspects of the tech shop itself. Its even worse =\

    It’s alright though, Ill get my EE degree and I’ll do just fine =) BTW this looks like an interesting business blog, I think I might just linger.

  7. Erik Says:

    I was very sad to see the local CompUSA store close. From what is said above, I think this one may have been better run than the others.

    Yes, it is hard to compete with the deep discounting of the internet. But buying stuff on-line is a krap shoot. And I have seen dell ship some very poor quality — falls apart — laptops. My first laptop was a dell, and it was good. But after that, dell outsourced their production to China, and started shipping total krap. Can’t tell you how many times I have seen a dell laptop being sent in for repairs, usually the keyboard falls apart. And even though they eventually did improve their quality and solve their production problems. They did not acknowledge that they screwed up and they offered no apologies. I am a computer consultant and am routinely asked to recommend a computer, and between their poor quality for a couple of years, their total lack of apology for it, and their outsourcing customer support to script reading, barely english speaking, know nothings in India…. dell, may be able to deliver a computer at an amazing price but I will never again recommend them to anybody, no matter how good they become in the future, as far as I am concerned they have irreparably damaged their credibility.

    ————–

    CompUSA used to have a large selection of laptops and you could actually use the keyboard and see the screen and how good/bad it was. For awhile, CompUSA stocked the widest selection of low to mid range laptops of anywhere. And I was definitely planning to take a friend there to get one. But on the high-end they didn’t have much and I wanted top of the line. It was a total krap shoot when I bought my laptop sight unseen, I would so much rather have been able to get it locally. But I read a lot of reviews and rolled the dice and bought direct from the factory, not some fly-by-night discounter, and have been very happy with what I got.

    I think one problem for CompUSA and all the other stores that tried selling laptops is that people would go in and look, and then buy that same model for cheaper on the internet. It’s not fair to the store, but that’s what happens when you can’t add value to a product. Every store I have seen trying to focus on laptops has gone out of business. Eventually, CompUSA replaced their laptop display with a bunch of tvs. But that is the point when they stopped looking like a computer store and started looking and acting like just another department store. and there are already plenty of department stores who have much more experience in playing that game.

    With CompUSA you could go in and look and touch what you were considering buying. And although they had their share of know-nothing sales people, they also surprisingly had some very good ones. — Consider the logic of it, people who have solid knowledge about computers are going to go out and get a high paying computer job, not a low paying sales job, so retail computer sales people are in general a self-selected group with limited knowledge. But this is not always the case, I remember in particular the person in charge of their printers section was top notch. They had even sent her to some extensive special training in printer technology, she actually knew the technology inside and out, even managed to teach me something that I did not already know, and that is quite an achievement; having spent many hours studying printer specs and ink longevity, I am a photographer and a computer consultant.

    I was really looking forward to buying a high-end printer from her, just did not have the money yet, after awhile though she disappeared… With her knowledge level she probably moved on to a higher skill/pay job.

    But I can certainly see how their focus on becoming a tv store, put them out of the computer business and into the sights of Best Buy. They could not compete with Best Buy on price or selection of tvs, and once they stopped being focused on computers and became just another commodity store, they gave up their edge. BestBuy was not asleep either, they saw the opportunity and expanded into computers in a big way.

    One thing CompUSA did do very well though, was their camera department. I ended up buying a digital camera there and loved it. Again, being able to actually hold all the different models in your hand made a big difference. And CompUSA had a bigger selection and better display then a lot of dedicated camera stores. But at this point, I would say that the camera display at BestBuy is equal.

    Towards the end, the store was basically self-service, for instance they did not have anyone knowledgeable of the cameras. But I usually prefer it that way — no busybody salespeople trying to impress me with how much they don’t know. I do my own extensive research before buying something. But I can certainly see how self-service would not work for many people.

    I have one interesting experience with the warrantees. Now, I agree that a warrantee for a computer does not make any sense. Either the computer fails in the first 90 days or else it will last for 5 to 10 years, electrons seldom wear out . :-) By the time the computer breaks, you don’t want it anymore anyway, time for newer faster better cheaper. Such is the mantra which has given us all these incredible computers.

    But a camera is a different beast altogether, they are fragile and have lots of moving parts. And their ability to take a picture is not something that becomes obsolete. So when I bought the camera I bought the warrantee too.

    And then one day, not very long after I bought it, and despite being a pretty careful person. I dropped the camera from a height of about two feet, onto a tile floor — I was taking a low angle shot from an awkward position and fumblefingered the controls.

    Well, these consumer digitals offer fantastic image quality per dollar, but they can’t withstand any mishandling at all. It landed partly on the lens and after that no more zoom.

    Well, it was my own darn fault for not wearing a camera strap — I always do now!! And I totally did not expect them to honor the warrantee. But money was tight and I could not afford to replace it, so thought it was worth a try.

    Well, at first I tried to pretend that I had not dropped it, I did not lie, but was evasive about what happened. But the tech, he knew right away….. so then he explained that the same thing had happened to him.

    And by golly, they agreed to fix it. I was er, uh, flabbergasted, and elated etc. I also vowed that I would henceforth buy their warrantees (well, maybe not for computers). and CompuUSA had certainly earned my long-term loyalty.

    And now sadly they are gone. They were big enough that they had such a great variety. For instance, they were one of the few places that carried directly printable label cd’s and the printers. and plenty of choices. You can get cd’s at office depot, but seldom do you have any choices.

    It was their venture into televisions and other low margin consumer items that hurt them. I’d rather buy a tv at a tv store. As long as they were focused on high tek, and the digital cameras counted as high tek. then they were doing better.

    But I think they also got caught in a demographics shift. they put a huge amount of time and money into their training resources. but as you pointed out, there is much less demand for that these days. I agree with the premise of this article, CompUSA was a good store that forgot what it’s focus was and forgot or changed who it’s customers were. Guess I’m not surprised to see them go out of business, the store was often empty. I suspect that all the techno stuff was too intimidating for the casual buyer and all the casual stuff was too distracting for the techno buyer; and there was less of the techno stuff all the time, I would not even think of going there to buy a motherboard, they barely know what one was and only had a couple of them sitting on a seldom looked at shelf.

    ————

    As to Fry’s. Well, it does sell dish washers and cloths dryers and tvs. But the difference is that the store is colossal. Their computer department alone is almost as big as CompUSA’s entire store. And their selection of high-end “prosumer” video cameras would put most specialty camera stores to shame. (I am however, less impressed with their selection of still cameras.)

    And Fry’s computer store is tightly focused on catering to the high end, build-it-yourself techno-geek, I have found stuff there, that I can find in no other place, shelves and shelves of it. And it is aimed at serious professional quality construction supplies; need to wire a building with internet and video surveillance? Want to build a computer from chips and boards? They have everything that you need including a huge selection of computer cases, from the basic to the total hot-rod. Their prices are good, but they aren’t trying to compete with the low end high volume department stores.

    So, yes, I am very impressed with Fry’s. The only problem for me, is that they only have one store in the area, and it is about a 35 mile drive from where I live. I can’t just run in there for a quick part or box of cd’s like I could with CompUSA.

  8. Padraic Ley Says:

    I agreed that no return on open box policy turn me off from shopping in CompUSA. How often a computer part doesn’t work right or just not expected. I give all my business to Fry’s when that happen. They have better selection and take return.

  9. Mark Mayfield Says:

    I used to work at Compusa, I worked there for 3 years, and dont get me wrong, this place had wonderful people, however they were lacking of experience people.
    The customer service was horrible!!

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