Street Talk Down But Not Out

CompUSA has taken some hard hits, including a few from us, but CEO Jim Halpin says the worm is about to turn.

JIM HALPIN IS THE FIRST TO ADMIT “We’ve had a tough year.”That may be a bit of an understatement. Fortune used a different phrase in December when it ended an article on the company with a three-word paragraph: “The deathwatch continues,” Halpin’s lough year is well documented:

■ In November the company announced that it reached an agreement with the SEC to restate earnings downward dating back to 1996.

Same-store sales are down.

Last year’s acquisition of Computer City resulted in the closing of 65 of its 98 stores.

In July BusinessWeek reported talk that the company is the probable target of a hostile takeove.

■ The company laid off seven percent of its workers in 1999-about 1,500 people-in a corporate restructuring.

■ A dispute with the Better Business Bureau over about 150 unresolved complainte brought headlines in the local media as well as the Texas regional edition of The Wall Street Journal.

About the only good news came in that December Fortune piece: a largely positive review of>. CompUSA’s new online effort, But even it contained a backhanded compliment, saying one of the smallest things about the site was thai it doesn’t use CompUSA’s name.

Halpin likens the Dealing he has taken to the fate of a quarterback who follows a successful season with a mediocre one: There’s too much credit for the wins and loo much blame for the losses. “You always gel beat up. So be it. It’s part of the job.” he says. “I’ll lake the blame for any bad news because I want my people to continue to work hard and feel good about themselves. And we do feel good about ourselves. You have to remember, we’re the last ones standing.”

In his rapid-lire delivery, Halpin ticks off his company’s strong points:

■ The balance sheet is strong, and while the company has a $500 million line of credit at its disposal, it continues to be built from

cash flow.

■ Traffic is at an all-time high. Those lower same-Store sales reflect the falling prices of computers, not units sold. Of the acquired Computer City stores, 33 remain open, the surplus real estate has been unloaded, and another competitor has been eliminated.

■ By centralizing corporate sales and call- center operations in Dallas, CompUSA has created 700 new jobs here in its headquarters city. A new prototype store is in development. 11 The dispute with the Better Business Bureau was no dispute at all. rather a problem in trying to coordinate with hundreds of local reporting agencies around the country.

In September Mexican investor Carlos Slim, who controls Telephonos de Mexico S.A. and has recently put millions into Internet ventures, bought ;i 14.1 percent slake in the company, effectively warding off any unwanted suitor

The web site has tremendous potential as Internet sales continue to accelerate. The wholly owned subsidiary eventually could go public with ils own tracking slock, from which CompUSA shareholders would benefit. The company’s corporate web site. , continues to add new features, including one, initialed just before Christmas, that now allows users to find nearby stores and check pricing and product availability. CompUSA is also adding product lines, capturing 25 to 30 percent of the nation’s digital camera retail market, with similar num-bers showing for Palm Pilots and other handheld device

“What people don’t realize.” Halpin says, “is that we operate about 30 different businesses Itère, from delivery and installation to Interne! to mail order to government, corporate, retail. And in those are sub-businesses, such as call centers and stuff like thai. So it’s not just a retail store.”

So. why all the doom and gloom among analysts and the financial press?

Halpin doesn’t mince words: “When you think about who writes that stuff, it’s 28-year-old kids that are wrong on half the stocks they buy. This is the same management team that took this company from virtually Chapter 11 wilh45 stores [in 1993], pulled it up to a $6.5 billion company with 220 stores, and put everyone else oui of business. They didn’t get stupid overnight, and they haven’t aged out,”

The market isn’t so sure. The stock was trading around $6 just before Christmas, down from $ 14at the beginning of the year. Compare thai to the $7-a-share level six ye;irs ago when Halpin took over a company on the verge of bankruptcy. It’s something he just doesn’t understand. “Nobody wanted us at $7; they couldn’t get enough of us ai S40.” Halpin says. “In a three-year period. if you adjust for splits, we ran the stock from $7 to about $ 135. There were times when even I couldn’t understand why it was so high. But now 1 can’t understand why it’s so low. But I deal with it.” He may deal with it, but one gets the impression he’d like to whack it 28-year-old or two in the nose.

CompUSA’s recent earnings-per-share history might explain it. They climbed steadily from 1995 through 1997, peaking at 99 cents in 1997 before starting a downward spiral that showed a 50-cent per share loss for the fiscal year ending in June ’99. Three straight quarters in 1999 produced per-share losses of 5 cents. 70 cents, and 14 cents.

Also, the bloom’s off the rose of the category-killer superstore concept, Toys R Us, for example, has taken a high-profile beating, primarily from Wal-Mart. On the other hand, superstores in other fields, such as Home Depot and Lowe’s, are thriving. David SzjTnanski.associatedirectorofTexasA&M’s Center for Retailing Studies, thinks the superstore concept still works when it’s done right. In CompL’SA”s industry, though, change is the name of the game. “The margins just aren’t there any more,” says Szymanski. “People are giving away computers, so it may not be as much a function of the type of stores as it is a function of the nature of the industry right now. There are so many competitors thai are doing things online, like Dell.”

Halpin acknowledges the emerging role of the Internal in selling technology products. But he points out that total Internet retail sales for 1998 were estimated at $6 billion, still less than CompUSA’s $6.5 billion total revenues. The Interne! is only a liny part of the retail industry, but one in which CompUSA is determined to be a player,

Willi pen and pad in hand ;it a conference table in CompUSA’s headquarters at Beltline Road and the Toll way, he goes through a simplified exercise to illustrate his point. When computers sold for $1,500. the company spent $50 on freight and S20on payroll. When computer prices dropped to $600, the freight and payroll numbers didn’t change, “So you have to figure out a way to take out costs and also improve customer service. We had to re-engineer the entire company. We saie ’ Here’s what we know: We’ll be selling in for mation processing devices. OK. and anything that processes information or uses a computer somehow as a backbone, we’re going to be into it, Categories keep on expanding. The Internet has changed the way the world live today, and there’s lots of stuff for us to sell,

No kidding. The first thing I saw when entered the Beltline store just down the road from corporate headquarters is a video game display that seems to include every fille for all the big three game platforms: Sony, Genesis and Sega. Digital cameras were prominently displayed, and after them came rows and rows of software and DVD movie tilles. Only when I got to the back of the store did I see actual computers. And near them were about every peripheral device that can be imagined.

In fact, the store has so much that the experience is a little overwhelming. The customer service, on the other hand, was underwhelming. I was able to wander the aisles for 40 minutes without ever making eye contact with or being approached by any of the red-shirted “team members.” I walked right by a guy in the computer section who seemed more focused on a snow-skiing game than on asking if he could help me buy something.

The experience was off-putting, even though il was less painful than the experience of D Magazine testers who went into a GimpUSA store with a busied computer, were charged a “diagnostic fee,” and told it would cost hundreds 10 fix it. The computer was easily repaired at home-for free-which earned CompUSA a 1999 “Worn” in its friendly hometown magazine. Which brings all those BBB complaints back to mind.

H alpin, meanwhile, is keeping a stiff upper lip. He points out thai in 1997 BusinessWeek anointed him one of America’s 25 best managers. “I haven’t changed. We had a slight bump in earnings, and we restructured the company over the last year to take out costs and improve service. We’ll be back,” he predict. He’s so positive he’ll be back that he invested millions of his own money last year to buy CompUSA shares.

That’s a sign of faith, to be sure, and I Halpin underscores it: “All of us have a lot of incentive here to make this work. We all own a lot of stock in the company, and we bought more using our own money.”

Hatpin, investor Carlos Slim, and CompUSA managers may have made a good bet. After all, there’s no place to go but up.


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