Is CompUSA Chasing its Tail?

When CompUSA announced that it is revamping its e-commerce Web site to better capitalize on its national brand identity, the company began writing the latest chapter in what has so far been a failed online game plan.

The top U.S. brick-and-mortar computer chain also confirmed that it has slammed shut the virtual doors of its e-commerce site, Cozone.com, which it launched five short months ago.

At the time, CompUSA touted the site as part of a strategy to turn around its losses, saying that it hoped to double the number of visitors it attracted to the Internet.

Too Little, Too Late

Cozone.com was directed toward the family and small business market in an effort to compete with giant online computer seller Dell Computer Corp.

However, while some industry observers thought CompUSA’s foray into cyberspace made sense, others thought it was too little, too late.

The bottom line is that the Dallas, Texas-based retailer — which has more than 200 stores in 40 U.S. states — has a hemorrhaging balance sheet. In its fiscal year ended June 26, 1999, CompUSA lost $45.7 million (US$) on revenues of $6.3 billion.

The company attributed the losses to its unprofitable direct sales operation and began pruning its most unprofitable accounts.

Since the reorganization, CompUSA appears to have turned the corner. In the quarter ended December 31, 1999, the company lost $2 million on revenue of about $1.4 billion. If CompUSA stays focused, future quarters will see a return to profitability.

Bricks-and-Clicks Strategy

In addition to revamping its direct sales operations, CompUSA apparently decided to scrap Cozone.com after it generated only $7.5 million in sales for the last quarter. Instead, the company will adopt a “bricks-and-clicks” strategy to maximize its online and offline efforts.

The new plan focuses on giving customers more purchasing options. Consumers can use the Web to buy products for direct shipment or local pick-up and can also research prices and inventories at local stores.

“We will utilize our Web site to give customers the information they need to maximize one of their most precious resources, which is time, while providing online shoppers with the comfort of ordering from a name that they know and trust,” said CompUSA CEO James F. Halpin.

Fundamental Problems Still Exist

While CompUSA’s latest plan to conquer cyberspace sounds great when read from a press release, there are certain problems that the computer seller must resolve if it is truly serious about long-term success.

First, CompUSA must hold its course this time and dedicate the personnel, infrastructure and marketing resources necessary to become an online player. In other words, the “five month plan” just will not cut it.

A more radical, but perhaps more useful, suggestion for the long run is to quickly pare down personnel and inventory in its brick-and-mortar operation and make a bold move to reinvent CompUSA. Instead of just selling hardware to consumers, how about focusing more on Web hosting and educational services — both online and off?

The company needs to consider measures such as these to diversify its offerings. It should also commit more assets to nurturing the corporate, government, and education customers that currently account for 30 percent of its sales.

If CompUSA’s overall plan does not include a significant departure from old practices, the new online strategy will be doomed to failure. It cannot maintain its present course and survive the battering it will receive in the PC price wars from such direct computer sellers as Dell and Gateway.

So, while I would like to see CompUSA’s new e-commerce strategy fly high, I am not going to hold my breath. Before the company will be able to turn its operational strategy around, it must figure out exactly what it is and where it is going.