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CompUSA Closeout Marks End Of An Era

DALLAS — CompUSA’s liquidation by Gordon Brothers, which acquired it in a fire sale by parent Grupo Carso SA, marks an ignoble end to a retailer that helped make computers commonplace in society.

“It was the company that kick-started computers into the public consciousness,” said Stephen Baker, industry analysis VP for The NPD Group. “It was the cutting-edge place to go for early adopters, and had the best and deepest selection at a time when these products weren’t available anywhere else.”

That began to change with the mass adoption of the PC in 1999, Baker said, and Comp-
USA lost its lead in emerging technologies. “They were slow to recognize convergence and the digital home. They didn’t make the switch to video gaming, and they lost the opportunity to, Tiger Electronics and Newegg to be a real online destination for technology.”

The company also lost ground to the office supply chains in the small business category and conceded share in the consumer segment to the specialty CE channel. “They went from No. 1 to also-ran in many areas,” Baker said, “and without TVs and content, they couldn’t offset the margin declines in PCs.”

Henry Chiarelli, president of DBL Distributing and a former division manager at CompUSA, agreed that “Specialization had a lot of value 10 or 15 years ago.” But in the current era of CE superstores like Best Buy and Fry’s, “I’m not sure it has that value any more.” During his tenure there, Chiarelli helped usher TVs and audio systems into the computer chain and opened its first A/V departments.

CompUSA was founded in 1984 by as Soft Warehouse, a direct-to-business reseller, and opened its first retail store in 1985. The company changed its name to CompUSA in 1991 under CEO Nathan Morton, and later gained critical mass through its acquisition of Computer City from RadioShack in 1998 under CEO James Halpin. Two years later the chain was taken private by Mexican billionaire Carlos Slim Helu and his Mexico City-based Grupo Carso in an $800 million buyout. This set the stage for a quick succession of CEOs, including Hal Compton, Larry Mondry and Tony Weiss, and merchandising strategies including the 2003 acquisition of Good Guys, as the company struggled to integrate A/V into its PC mix.

Earlier this year CompUSA closed more than half its stores, laid off personnel, and refocused its merchandising strategy on small- to medium-sized businesses and higher-income consumers under its last CEO Roman Ross.

In a research note, Goldman, Sachs retail analyst Matthew Fassler estimated that CompUSA’s closure could free up as much as $1.8 billion in annual revenues from its remaining 103 stores, which would be a “clear positive” for the CE retail sector. If Best Buy, for example, were to capture one third of CompUSA’s volume, it would benefit the chain’s sales growth by 1.7 percent, Fassler said. If Circuit City were to capture 15 percent of CompUSA’s freed-up sales, it would boost its revenue by 2.2 percent.

DBL’s Chiarelli agreed that big box CE specialists like Best Buy, Circuit City and Fry’s would be the biggest beneficiaries of the shutdown, along with mass discounters like Wal-Mart and Target, and “anyone who sells Apple products.” He expects the liquidation to disrupt the marketplace “for some time,” with the hangover extending into January.

CompUSA formally announced late on Friday, Dec. 7, that it had been bought by an affiliate of liquidator Gordon Brothers Group, LLC, which intends to sell or close the chain’s store operations and other assets. Terms of the transaction were not disclosed.

The announcement came a day after the Wall Street Journal reported that Grupo Carso had attempted unsuccessfully to sell CompUSA’s real estate and e-commerce operation to retailers including Circuit City, Micro Center and TigerDirect. Rumors of for-sale signs also surfaced in September 2006, when Helu reportedly hired Credit Suisse Group to shop the chain to private investors.— Additional reporting by Steve Smith

Gordon Brothers is a restructuring and investment firm specializing in retail, consumer products, real estate and industrial sectors. The firm assisted CompUSA with the prior sale of under-performing stores. In a prepared statement Gordon Brothers Group said it will initiate an orderly wind-down of CompUSA’s retail store operations and is engaged in discussions with various parties regarding the sale of certain assets. CompUSA’s retail stores will remain open and staffed during the holiday season, “and will offer consumers attractive bargains on computer and electronic products as part of store closing sales.”

“Active discussions are under way to sell select stores in key markets,” the statement went on to say, as well the sale of the company’s technical services business, CompUSA TechPro, and its productive Internet sales operation, CompUSA TechPro and will be operated by the company as going concerns until any sale transactions are closed.

CompUSA will be run by Bill Weinstein, a principal at Gordon Brothers Group, acting as interim president, and by Stephen Gray, managing partner at restructuring firm CRG Partners, who will serve as chief restructuring officer. Current CEO Roman Ross will continue to serve the company in an executive advisory capacity during the transition period.

“An orderly and expedited wind-down and asset sale process is the best option for CompUSA and its creditors at this juncture,” said Weinstein. “We are focused on assuring that CompUSA’s creditors, landlords and other key constituents are treated properly during this process. We are working hard to achieve the maximum recovery possible for the company’s constituents while also minimizing unnecessary expenses. We will actively communicate with the various parties and their advisors starting today, and in the days and weeks ahead.”

DJM Realty, a Gordon Brothers Group company that specializes in real estate disposition and valuations, will assist in assessing the leases for CompUSA’s store locations. Gordon Brothers Group, through its affiliate Specialty Equity, LLC, is working with Lawrence Gottlieb of Cooley Godward Kronish LLP for unsecured creditors and Jim Carr of Kelley Drye & Warren LLP for landlords.