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CompUSA Becomes PC Link In Mexican Internet Empire

CompUSA’s pending purchase by Mexican conglomerate Grupo Carso is being lauded by retail analysts as a win-win for both parties.

According to observers, CompUSA, the nation’s third-largest consumer electronics chain, would benefit from its new owner’s knack for resuscitating troubled companies. “These guys have proven that they can unlock the value of whatever operation they’re involved with,” said David Schick, a senior analyst at Salomon Smith Barney subsidiary Robinson-Humphrey.

Indeed, Carso’s retail arm, Grupo Sanborns, which bought 40 Mexico-based stores from Sears in 1997, managed to turn the floundering Mexican operation around in less than a year by lowering costs and increasing productivity. Sanborns chairman Carlos Slim Domit said he would apply the same “operational philosophy” to CompUSA by reviewing all aspects of the business – including its managers – and possibly closing or refocusing stores.

The chain will continue to be helmed by CEO James Halpin, however, and will remain headquartered in Dallas. Halpin instituted a sweeping restructuring last summer that trimmed 14 stores and 7 percent of the workforce, de-emphasized corporate sales, and shifted the product mix from PCs to hand-held and other digital devices. Although the overhaul was beginning to yield improvements, revenues fell 21 percent for the quarter ended December 25, and comperable store sales were down almost 2 percent.

What Grupo Carso gets for its $330 million investment is its first retail operation north of the border and, more importantly, the hardware leg of a planned telecommunications, e-commerce and ISP empire in Latin America. “This is no different than AOL and Time Warner,” observed Nate Frank, a partner at Deloitte & Touche. “These companies are starting to build portfolios as one-stop answers for the consumer. The buyer has rich telecommunications assets and Internet activities in Mexico, and CompUSA brings the hardware to consumers there.”

Indeed, Carso, which owns U.S. ISP Prodigy, is selling a 49 percent stake in CompUSA to telecommunications company SBC Communications, Mexican telephone company Telmex, and to Microsoft. Telmex, which is controlled by Carso and SBC, is building a joint Internet site for Latin America with Microsoft. Analysts say the partners could use CompUSA to foment e-commerce and Internet use there by bringing low-cost PCs to a region with little home computer penetration.

“The issue is computer availability,” said Rebecca Yarchover, a principal at U.S. Bancorp Piper Jaffray. “PC penetration is only about 4 percent in Mexico. If they can do a low-end PC at an eMachine price point combined with Prodigy service, it’s a huge winner for them.”

But George Whalin, president of Retail Management Consultants, gave the deal a Bronx cheer. “What makes Grupo Sanborns think they can make CompUSA work? Do they have a clue as to what they bought? Retailing in the U.S. – especially on the PC and CE side – is the toughest business of all. You’ve got to be extremely good to beat Best Buy and Gateway at this game, and they have no idea how to operate it.”

For company links see.
Grupo Sanborns

For previous TWICE Online coverage of this topic see.
Mexican Firm In Takeover Bid For CompUSA, 25-Jan-2000
Onetime Costs Hike Deficit At CompUSA, 06-Dec-1999