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Caught in the middle, CompUSA retrenches, especially in California

Dogged by higher-end and lower-end rivals, the electronics chain is leaving L.A. altogether.

March 02, 2007|Adrian G. Uribarri and Abigail Goldman | Times Staff Writers

Ed Daddy wasn't very surprised that his neighborhood CompUSA computer and home electronics store was closing.

"Look at this," the 43-year-old auto parts salesman said, gesturing around the nearly deserted Glendale store on South Brand Boulevard. "Of course they can't survive."

The consumer electronics retail industry, marked by cutthroat competition, suffered more casualties this week. Dallas-based CompUSA said Tuesday it would shutter more than half its 229 stores in 39 states and Puerto Rico by the end of May.

The stores to be closed include every one of the chain's eight Los Angeles County locations plus all its stores in Orange County, Ventura County and the Inland Empire. Statewide, it plans to close 21 of its 29 stores.

"The consumer electronics industry is very competitive right now, and this is an extensive realignment that the company is going through," said CompUSA spokeswoman Jessica Nunez. "These changes will allow the company to better compete in this marketplace."

Glendale is typical of much of Southern California and the rest of the country in terms of the home electronics market. Besides CompUSA, Glendale is home to a Best Buy, a Circuit City, an Apple Computer store and a Costco warehouse, among others. In neighboring Burbank are another Best Buy, another Circuit City, another Costco and a Fry's Electronics as well as another CompUSA.

Even the biggest players were straining during the holidays to keep competitive prices and still maintain profit.

Circuit City Inc., the country's No. 2 electronics chain, said last month that it would close 70 stores and cut 400 jobs. The company in December blamed deep discounts on flat-panel TVs and computer components for a loss in its third quarter ended Nov. 30.

Best Buy Co., the nation's largest consumer electronics chain, reported a profit that was less than analysts expected for its third quarter, ended Oct. 25, saying that tough competition on pricing eroded earnings.

In Glendale, CompUSA shopper Daddy said he was more loyal to low prices than to any one store.

"I go to Circuit City, Best Buy and other stores and check around for the best prices," he said. "I still have options."

Those options are the root of CompUSA's problems.

First the Internet squeezed CompUSA's computer business as consumers turned to direct sellers such as Dell Inc.

Then, in consumer electronics such as flat-screen TVs, one of the holiday's hottest items, CompUSA was outdone by brick-and-mortar competitors.

If you ask some analysts, that's just the beginning. Not only are they pessimistic about CompUSA's long-term survival, but they also question whether any mid-sized chain can compete in the two incredibly price-sensitive businesses.

"What we've got is a market in consumer electronics and PCs where you have to be hyper-efficient, where you have to be an execution monster in order to be profitable," said Van Baker, a media and consumer electronics analyst with Gartner Inc. in San Jose. "I'm hard pressed to see how they're going to be viable by decreasing their size 50%."

CompUSA's trouble is similar to that of many middle-market retailers: getting squeezed on both the high and low ends.

Chains such as Best Buy and Circuit City Stores have wooed shoppers with promises of helpful and knowledgeable salespeople at the stores and -- for additional fees -- trustworthy in-home help.

Discount giants including Wal-Mart Stores Inc. and Costco Wholesale Corp., meanwhile, have eaten away at lower-end sales with plentiful deals on flat-screen TVs and other entertainment equipment.

"The middle ground will always be under pressure," said Steve Smith, editor in chief of trade magazine TWICE. "Today people want a fancy brand name or they're buying the lowest price."

CompUSA's recent troubles began in 2003, when Mexico City-based parent company U.S. Commercial Corp., controlled by billionaire Carlos Slim, bought California's Good Guys Inc. electronics chain for $55.3 million.

At the time, CompUSA said Good Guys, which targeted high-end home entertainment buyers, would add a way to offset the slowing PC business in which CompUSA made its name.

Instead, CompUSA ended up trying to augment one fiercely competitive low-margin business with another.

Two years later, when gangbuster sales failed to materialize, CompUSA shuttered the 46-store Good Guys chain and folded the home entertainment inventory into news of the CompUSA closures.

The slimmed-down CompUSA, augmented by $440 million in additional capital, will operate 103 of what it called top-performing outlets.

A spokeswoman said the number of job cuts associated with the closures was not yet clear. The company employs 13,000 employees nationwide.

Susan Banks, a 58-year-old insurance administrator and computer gamer, was saddened by news of the CompUSA closures.

"This was a place where I could hold and touch something, look at it, before I buy it," Banks said.

"Take headphones, for example. Sometimes they pinch. You can't try them on over the Internet."

adrian.uribarri@latimes.com

abigail.goldman@latimes

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